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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarter Ended
March 3, 2000
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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At March 3, 2000, 52,349,872 shares of the registrant's $.01 par value common
stock were outstanding.
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.
[X] Yes [_] No
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MORRISON KNUDSEN CORPORATION
Quarterly Report Form 10-Q for the
Quarter Ended March 3, 2000
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
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PART I
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Item 1. Condensed Consolidated Financial Statements and Notes Thereto
Statements of Income for the Quarters Ended
March 3, 2000 and February 26, 1999 I-1
Balance Sheets at March 3, 2000 and December 3, 1999 I-2
Statements of Cash Flows for the Quarters Ended I-4
March 3, 2000 and February 26, 1999
Statements of Comprehensive Income for the Quarters Ended
March 3, 2000 and February 26, 1999 I-5
Notes to Financial Statements I-6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations I-13
Item 3. Quantitative and Qualitative Disclosures about Market Risk I-19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings II-1
Item 6. Exhibits and Reports on Form 8-K II-1
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SIGNATURES
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MORRISON KNUDSEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
QUARTERS ENDED MARCH 3, 2000 AND FEBRUARY 26, 1999
(In thousands except per share data)
(UNAUDITED)
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2000 1999
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Revenue $572,845 $421,310
Cost of revenue (548,100) (400,525)
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Gross profit 24,745 20,785
General and administrative expenses (5,365) (7,974)
Goodwill amortization (4,176) (766)
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Operating income 15,204 12,045
Investment income 749 1,092
Interest expense (2,330) (167)
Other income, net 43 2,227
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Income before income taxes and minority interests in loss of
consolidated subsidiaries 13,666 15,197
Income tax expense (5,319) (6,306)
Minority interests in loss of consolidated subsidiaries 699 --
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Net income $ 9,046 $ 8,891
==============================================================================================
Income per share
Basic $.17 $.17
Diluted .17 .17
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Common shares used to compute income per share
Basic 52,350 53,240
Diluted 52,410 53,377
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The accompanying notes are an integral part of the financial statements.
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MORRISON KNUDSEN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
AT MARCH 3, 2000 (UNAUDITED) AND DECEMBER 3, 1999
(In thousands except per share data)
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ASSETS 2000 1999
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Current assets
Cash and cash equivalents $ 25,061 $ 29,640
Accounts receivable, including retentions of $17,815 and $19,704 209,872 215,523
Unbilled receivables 116,436 124,793
Inventories, net of progress payments of $21,734 and $21,926 24,996 20,096
Refundable income taxes 2,859 3,055
Investments in and advances to construction joint ventures 64,215 82,551
Deferred income taxes 39,421 41,043
Other 16,820 15,262
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Total current assets 499,680 531,963
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Investments and other assets
Securities available for sale, at fair value 42,589 41,640
Investments in mining ventures 67,412 69,063
Cost in excess of net assets acquired, net of accumulated
amortization of $26,174 and $21,906 347,692 351,869
Deferred income taxes 46,685 48,606
Other 20,962 21,114
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Total investments and other assets 525,340 532,292
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Property and equipment, at cost
Construction equipment 188,098 183,806
Land and improvements 7,947 7,970
Buildings and improvements 17,435 17,154
Equipment and fixtures 83,241 81,694
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Total property and equipment 296,721 290,624
Less accumulated depreciation (163,906) (158,856)
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Property and equipment, net 132,815 131,768
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Total assets $1,157,835 $1,196,023
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The accompanying notes are an integral part of the financial statements.
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LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
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Current liabilities
Accounts payable $ 105,657 $ 105,007
Subcontracts payable, including retentions of $16,710 and $18,469 39,129 42,624
Billings in excess of cost and estimated earnings on uncompleted contracts 56,089 53,739
Estimated costs to complete long-term contracts 68,593 72,815
Accrued salaries, wages and benefits, including compensated absences
of $20,705 and $24,721 50,764 65,759
Income taxes payable 1,285 1,079
Other accrued liabilities 32,925 44,072
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Total current liabilities 354,442 385,095
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Non-current liabilities
Long-term debt 85,000 100,000
Postretirement benefit obligation 80,524 80,685
Accrued workers' compensation 37,131 36,181
Pension and deferred compensation liabilities 102,940 100,116
Environmental remediation obligations 6,047 6,016
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Total non-current liabilities 311,642 322,998
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Contingencies and commitments (Note 6)
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Minority interests 83,397 84,840
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Stockholders' equity
Preferred stock, par value $.01, 10,000 shares authorized -- --
Common stock, par value $.01, authorized 100,000 shares; issued 54,359 544 544
Capital in excess of par value 248,797 248,720
Stock purchase warrants 6,552 6,554
Retained earnings 188,742 179,696
Treasury stock, 2,009 shares, at cost (23,124) (23,124)
Accumulated other comprehensive loss (13,157) (9,300)
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Total stockholders' equity 408,354 403,090
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Total liabilities and stockholders' equity $1,157,835 $1,196,023
===========================================================================================================
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MORRISON KNUDSEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
QUARTERS ENDED MARCH 3, 2000 AND FEBRUARY 26, 1999
(In thousands)
(UNAUDITED)
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2000 1999
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Operating activities
Net income $ 9,046 $ 8,891
Adjustments to reconcile net income to cash provided (used)
by operating activities:
Depreciation of property and equipment 7,729 4,957
Amortization of goodwill 4,176 766
Deferred income taxes 3,543 433
Minority interest in net loss of consolidated subsidiaries (1,144) --
Equity in income of mining ventures less dividends received (1,543) (1,124)
Other investments and assets, net 2,357 773
Increase in net operating assets (3,329) (46,132)
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Net cash provided (used) by operating activities 20,835 (31,436)
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Investing activities
Property and equipment acquisitions (9,081) (4,920)
Property and equipment disposals 952 1,321
Purchases of securities available for sale (6,364) (3,712)
Sale and maturities of securities available for sale 4,722 3,041
Other investing activities (308) (505)
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Net cash used in investing activities (10,079) (4,775)
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Financing activities
Net repayments on long-term revolving line of credit (15,000) --
Distributions to minority interests (335) --
Purchase of treasury stock -- (2,220)
Other -- 200
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Net cash used by financing activities (15,335) (2,020)
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Decrease in cash and cash equivalents (4,579) (38,231)
Cash and cash equivalents at beginning of period 29,640 67,054
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Cash and cash equivalents at end of period $25,061 $28,823
==============================================================================================
Supplemental disclosure of cash flow information:
Interest paid $2,014 $ 257
Income tax paid, net 694 1,189
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The accompanying notes are an integral part of the financial statements.
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MORRISON KNUDSEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
QUARTERS ENDED MARCH 3, 2000 AND FEBRUARY 26, 1999
(In thousands)
(UNAUDITED)
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2000 1999
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Net income $9,046 $8,891
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Other comprehensive income, net of tax:
Foreign currency translation adjustments (3,587) (2,465)
Unrealized gains (losses) on marketable securities:
Unrealized net holding losses arising during period (270) (278)
Less: Reclassification adjustment for net gains realized in net income -- (1)
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Other comprehensive loss, net of tax (3,857) (2,744)
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Comprehensive income $5,189 $6,147
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The accompanying notes are an integral part of the financial statements.
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MORRISON KNUDSEN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars except per share data)
1. UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements and related
notes of Morrison Knudsen Corporation and subsidiaries (the "Corporation")
should be read in conjunction with the audited consolidated financial statements
and related notes included in the Corporation's Annual Report on Form 10-K for
the year ended December 3, 1999. The comparative consolidated balance sheet and
related disclosures at December 3, 1999 have been derived from the audited
balance sheet and financial statement footnotes. The accompanying condensed
consolidated financial statements reflect all adjustments, consisting of normal
recurring adjustments, that in the opinion of management are necessary for a
fair presentation of the financial position, results of operations and cash
flows for the interim periods presented. The results of operations for the
quarter ended March 3, 2000 are not necessarily indicative of the operating
results to be expected for the full year.
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 dates and the reported amounts of revenue and cost during the
reporting periods. Actual results could differ from those estimates. On an
ongoing basis, management reviews its estimates based on information that is
currently available. Changes in facts and circumstances may result in revised
estimates.
2. ADOPTION OF ACCOUNTING PRINCIPLES
On December 4, 1999, the Corporation adopted Statement of Position ("SOP")
98-5 Reporting on the Costs of Start-Up Activities. The SOP provides guidance on
the financial reporting of start-up costs and organization costs to be expensed
as incurred. The SOP also amends SOP 81-1 Accounting for Performance of
Construction/Production Contracts by requiring pre-contract costs to be expensed
as incurred. The adoption of SOP 98-5 had no material effect on the
Corporation's financial position or results of operations.
3. VENTURES
The Corporation's share of results of operations from construction joint
ventures and mining ventures presented below excludes any allocation of division
or group level indirect overhead cost. Such costs are included in cost of
revenue in the Corporation's consolidated statements of income.
Construction joint ventures:
The Corporation participates in construction 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.
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(Unaudited)
Combined financial position of construction joint ventures March 3, 2000 December 3, 1999
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Current assets $323,674 $372,772
Property and equipment, net 36,613 39,524
Current liabilities (227,044) (232,416)
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Net assets $133,243 $179,880
==================================================================================================
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Combined results of operations of construction joint ventures (Unaudited) (Unaudited)
Quarters ended March 3, 2000 February 26, 1999
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Revenue $257,692 $251,156
Cost of revenue (244,460) (230,104)
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Gross profit (excludes indirect overhead cost) $ 13,232 $ 21,052
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Corporation's share of results of operations of construction
joint ventures (Unaudited) (Unaudited)
Quarters ended March 3, 2000 February 26, 1999
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Revenue $118,734 $ 98,527
Cost of revenue (114,421) (91,062)
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Gross profit (excludes indirect overhead cost) $ 4,313 $ 7,465
==========================================================================================================
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Mining ventures:
At March 3, 2000, the Corporation had ownership interests in two mining
ventures, MIBRAG mbH (33%) and Westmoreland Resources, Inc. (20%). The
Corporation provides contract mining services to these ventures.
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(Unaudited)
Combined financial position of mining ventures March 3, 2000 December 3, 1999
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Current assets $187,126 $215,424
Non-current assets 97,359 100,808
Property and equipment, net 593,054 612,714
Current liabilities (55,216) (68,198)
Long-term debt (302,286) (320,113)
Other non-current liabilities (303,786) (320,104)
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Net assets $216,251 $220,531
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Combined results of operations of mining ventures (Unaudited) (Unaudited)
Quarters ended March 3, 2000 February 26, 1999
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Revenue $78,939 $104,066
Cost of revenue (73,904) (97,333)
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Gross profit (excludes indirect overhead cost) $ 5,035 $ 6,733
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Corporation's share of results of operations of mining ventures (Unaudited) (Unaudited)
Quarters ended March 3, 2000 February 26, 1999
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Revenue $25,095 $30,871
Cost of revenue (23,552) (28,975)
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Gross profit (excludes indirect overhead cost) $ 1,543 $ 1,896
==========================================================================================================
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The Corporation received no dividend distributions from the mining ventures
during the quarter ended March 3, 2000 and $772 during the quarter ended
February 26, 1999.
4. ACQUISITION OF GESCO BUSINESSES
On March 22, 1999, the Corporation and BNFL Nuclear Services, Inc. ("BNFL")
acquired operations of the Government and Environmental Services Company ("GESCO
businesses") from CBS Corporation. The acquisition of the GESCO businesses is
being accounted for as a purchase business combination. The allocation of the
purchase price to the net assets acquired includes preliminary estimates of
certain employee benefit obligations based primarily on incomplete information
provided by CBS Corporation and the management of the
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GESCO businesses. The information necessary to complete the allocation includes
detailed participant data, and agreement and settlement of assets to be
transferred by CBS Corporation to the benefit plans, both of which could have a
material effect on the purchase price allocation. Final allocation of the
purchase price relating to benefit plan assets and liabilities assumed in the
GESCO acquisition is expected to be completed by the Corporation's second
quarter ending June 2, 2000.
The following unaudited pro forma information presents the consolidated
results of operations of the Corporation as if the GESCO acquisition had taken
place on December 1, 1998, after giving effect to certain adjustments, including
amortization of goodwill on a straight-line basis over twenty years,
depreciation expense, interest expense, amortization of new credit facility fees
and related tax effects. These pro forma results of operations have been
prepared for illustrative purposes only and do not purport to be indicative of
operating results that would have resulted had the GESCO acquisition occurred on
the dates indicated, or of future operating results.
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Quarter ended February 26, 1999
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Revenue $500,966
Net income 5,553
Basic income per share .10
Diluted income per share .10
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5. CREDIT FACILITIES
The Corporation has uncollateralized revolving credit facilities providing
an aggregate borrowing capacity of $325,000. These facilities consist of a
$195,000 five-year facility, which provides for both revolving borrowings and
the issuance of letters of credit, and a $130,000 one-year facility, which
provides for revolving borrowings. The one-year facility may be extended in
one-year increments by mutual agreement of the banks and the Corporation or
converted, at the Corporation's option, to a term loan having a maturity of one
year after the then current expiration of such facility. On March 18, 2000, the
one-year facility was extended for an additional year. The facilities' covenants
require the maintenance of financial ratios, and place limitations on
guarantees, liens, investments, dividends and other matters. At March 3, 2000,
$40,000 and $45,000 were outstanding on the one-year and five-year facilities,
respectively.
6. CONTINGENCIES AND COMMITMENTS
Summitville environmental matters:
From July 1985 to June 1989, Industrial Constructors Corp. ("ICC"), a
subsidiary of the Corporation, performed certain contract mining and
construction services at the Summitville mine near Del Norte, Colorado. In 1996,
the Environmental Protection Agency (the "EPA") and the State of Colorado (the
"State") commenced an action under CERCLA in the United States District Court
for the District of Colorado against Mr. Robert Friedland, a potentially
responsible party, to recover the response costs incurred and to be incurred at
the Summitville Mine Superfund Site (the "Site"). No other parties were named as
defendants in the original complaints in this action. On April 30, 1999, Mr.
Friedland filed a third-party complaint naming ICC and nine other defendants,
alleging that such defendants are jointly and severally liable for such costs
and requesting that the same be equitably allocated. On October 1, 1999, the EPA
and the State filed amended complaints, naming ICC and six other parties as
defendants in addition to Mr. Friedland. On August 10, 1999, ICC filed an answer
to Mr. Friedland's third-party complaint and, on December 23, 1999, ICC filed
answers to the EPA's and the State's amended complaints, in each case denying
the allegations set forth in the complaints.
The EPA and the State have estimated that the total response costs incurred
and to be incurred at the Site will approximate $150,000. ICC is not a party to
any agreement regarding the allocation of responsibility, and neither the EPA
nor the State have made an allocation of responsibility among the defendants.
ICC's share, if any, of the aggregate environmental liability associated with
the Site is not presently determinable and depends upon, among
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other things, the manner in which liability may be allocated to or among ICC or
other defendants, the efficacy of any defenses that ICC or such other defendants
may have to any assertion of liability, the willingness and ability of such
other defendants to discharge such liability as may be allocated to them and the
outcome of any negotiations or settlement discussions between ICC and the EPA,
the State and/or such other defendants. Accordingly, no response costs have been
accrued at March 3, 2000.
Management believes that ICC has sound factual and legal defenses to
liability in this matter. However, the ultimate resolution of this matter could
have a material adverse effect on ICC's financial position and could materially
and adversely affect its results of operations and cash flows in one or more
periods. Because ICC's financial position and results of operations are
consolidated with that of the Corporation, the ultimate resolution of this
matter could have a material adverse effect on the Corporation's financial
position and could materially and adversely affect its results of operations and
cash flows in one or more periods.
Contract related matters:
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 provision for loss due to uncertainties on
the project, including unpaid client-directed change orders and potential
project claims. Mediation of these change orders and claims has resulted in a
settlement with the client, and accordingly, the $3,900 provision was reversed
during the first quarter of 2000.
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 March 3,
2000 and December 3, 1999, $47,495 and $47,586, 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 with respect
to $3,000 in face amount of certain letters of credit that were outstanding at
March 3, 2000.
In connection with a 1989 sale of Old MK's ownership interest in 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 $5,389 for the
bonds. Management believes a loss on the guarantee is not probable and,
accordingly, no accrual has been made.
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. 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. MK Gold is seeking recovery of alleged damages of
approximately $10,000. On January 5, 1999, the two cases were consolidated for
trial. The cases are scheduled for trial beginning April 2, 2001.
Certain current and former officers, employees and directors of the
Corporation were named defendants in an action filed by two former participants
in the Old MK 401(k) plan and Employee Stock Ownership Plan in the United States
District Court for the District of Idaho. They seek to represent a purported
class of participants in those plans. The complaint alleges, among other things,
that the defendants breached certain fiduciary duties. On November 16, 1999, the
Court granted summary judgment as to all claims against all individual persons
named in the original complaint. An amended complaint added the Corporation and
additional officers and employees of the Corporation as defendants. Motions for
summary judgment are pending seeking dismissal of all remaining
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claims against all remaining defendants, which are those defendants added in the
amended complaint along with two companies involved in administration of the
plans.
Although the ultimate outcome of these matters discussed in the two
preceding paragraphs 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.
7. SEGMENT INFORMATION
The Corporation operates through three operating units, each of which
comprise a separate reportable business segment: Engineers & Constructors Group,
Government Services Group and Contractors Group. The reportable segments are
separately managed, serve different markets and customers, and differ in their
expertise, technology and resources to perform their services.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies in the Corporation's Annual
Report on Form 10-K. The Corporation evaluates performance and allocates
resources based on segment operating income. Segment operating income is total
segment revenue reduced by segment cost of revenue and goodwill amortization
identifiable to the segment. Goodwill amortization related to the acquisition of
Old MK is not allocated to the segments. Corporate and other operating loss
consists principally of general and administrative expense.
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Revenue (Unaudited) (Unaudited)
Quarters ended March 3, 2000 February 26, 1999
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Engineers & Constructors
External $175,398 $172,798
Intersegment 13 315
Government Services
External 184,138 67,867
Intersegment -- --
Contractors
External 213,309 180,645
Intersegment -- 140
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Total segments 572,858 421,765
Elimination of intersegments (13) (455)
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Total consolidated revenues $572,845 $421,310
================================================================================
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Operating income (Unaudited) (Unaudited)
Quarters ended March 3, 2000 February 26, 1999
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Gross profit
Engineers & Constructors $ 7,432 $ 3,983
Government Services 7,146 4,982
Contractors 10,779 10,409
Corporate and other (612) 1,411
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Total gross profit 24,745 20,785
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Corporate general and administrative expense (5,365) (7,974)
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Goodwill amortization
Government Services (3,657) --
Contractors (98) (12)
Corporate and other (421) (754)
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Total goodwill amortization (4,176) (766)
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Operating income
Engineers & Constructors 7,432 3,983
Government Services 3,489 4,982
Contractors 10,681 10,397
Corporate and other (6,398) (7,317)
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Total operating income $15,204 $12,045
================================================================================
8. RECENTLY ISSUED ACCOUNTING STANDARDS
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 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 2001.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101") which summarizes the SEC staff's
position on selected revenue recognition issues. The Corporation is currently
evaluating what effect, if any, SAB 101 may have on its existing revenue
recognition policies, principally with respect to performance-based incentives.
Implementation of SAB 101 is required commencing with the first quarter of 2001.
9. SUBSEQUENT EVENTS
Acquisition of Raytheon Engineers & Constructors:
On April 14, 2000, Raytheon Company and Raytheon Engineers & Constructors
International, Inc., a wholly-owned subsidiary of Raytheon Company ("RECI"), and
the Corporation entered into a Stock Purchase Agreement ("the Agreement")
pursuant to which the Corporation has agreed to purchase the capital stock of
the subsidiaries of RECI and certain other assets of RECI, and to assume certain
liabilities of RECI. RECI provides engineering, design, procurement,
construction, operation, maintenance and other services on a worldwide basis.
The purchase price will be calculated using selected balance sheet items of the
acquired business as of April 30, 2000 as specified in the Agreement. Subject to
post-closing adjustments as provided in the Agreement, the Corporation expects
to pay approximately $10,000 and assume net liabilities of approximately
$500,000. Closing is expected on or about May 31, 2000, subject to regulatory
approvals and other customary conditions.
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Acquisition financing:
The Corporation has accepted a $1,275,000 financing commitment from Credit
Suisse First Boston and Bank of Montreal. Such financing is subject to customary
conditions. Proceeds from the financing are expected to be used to finance the
acquisition, to refinance the Corporation's existing credit facility, to fund
working capital requirements and for general corporate purposes.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q 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.
RECENT DEVELOPMENTS
On April 14, 2000, Raytheon Company and Raytheon Engineers & Constructors
International, Inc., a wholly-owned subsidiary of Raytheon Company ("RECI" and,
together with Raytheon Company, the "Sellers"), and the Corporation entered into
a Stock Purchase Agreement ("the Agreement") pursuant to which the Corporation
has agreed to purchase the capital stock of the subsidiaries of RECI and certain
other assets of RECI, and to assume certain liabilities of RECI. The Sellers
will retain certain assets of RECI and its subsidiaries and will indemnify the
Corporation for certain liabilities of RECI and its subsidiaries. RECI provides
engineering, design, procurement, construction, operation, maintenance and other
services on a worldwide basis. RECI and its subsidiaries had revenues of $2.7
billion in 1999, including revenues attributable to four projects for which the
Sellers have agreed to retain financial responsibility. The Corporation will act
as a subcontractor to the Sellers to complete the four projects, will be
reimbursed its costs to complete the projects and will receive from the Sellers
an amount equal to one-half of any cost savings achieved by the Corporation
relative to the Sellers' estimates of the cost to complete the projects. The
Agreement is filed as an exhibit to this report and is incorporated herein by
this reference.
The purchase price will be calculated using selected balance sheet items of
the acquired business as of April 30, 2000 as specified in the Agreement.
Subject to post-closing adjustments as provided in the Agreement, the
Corporation expects to pay approximately $10 million and assume net liabilities
of approximately $500 million. In general, if the net amount of cash advanced or
paid by the Sellers for the use or benefit of the acquired business between
April 30, 2000 and the closing of the acquisition is greater or less than the
amount of cash transferred by the acquired business for the use or benefit of
the Sellers during such period, the Corporation will pay the Sellers an amount
equal to such excess or the Sellers will pay the Corporation an amount equal to
such deficiency, as applicable. Closing is expected to occur on or about May 31,
2000, subject to regulatory approvals and other customary conditions. The
Corporation anticipates incurring one-time restructuring charges of
approximately $25 million in connection with the acquisition.
The Corporation has accepted a $1.275 billion financing commitment from
Credit Suisse First Boston and Bank of Montreal. Such financing is subject to
customary conditions. Proceeds from the financing are expected to be used to
finance the acquisition, to refinance the Corporation's existing credit
facility, to fund working capital requirements and for general corporate
purposes.
I-13
<PAGE>
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 3, 2000 COMPARED TO
THE QUARTER ENDED FEBRUARY 26, 1999
- --------------------------------------------------------------------------------
(In millions) 2000 1999
- --------------------------------------------------------------------------------
Revenue $572.8 $421.3
Gross profit 24.7 20.8
General and administrative expenses (5.4) (8.0)
Goodwill amortization (4.2) (.8)
Investment income .7 1.1
Interest expense (2.3) (.2)
Other income, net -- 2.2
Income tax expense (5.3) (6.3)
Minority interests .7 --
Net income 9.0 8.9
- --------------------------------------------------------------------------------
Revenue and gross profit:
Revenue and gross profit for the quarter ended March 3, 2000 were $572.8
million and $24.7 million, respectively, an increase of 36% and 19%,
respectively, compared to the quarter ended February 26, 1999. The increase in
revenue was principally due to the acquisition of the GESCO businesses from CBS
Corporation and the concurrent formation of Westinghouse Government Services
Group ("WGSG") in March 1999. The results of operations for WGSG are included in
the results of operations for the Corporation in 2000, but were absent in the
comparable period of 1999. Gross profit increased due to the favorable
performance of a number of Industrial/Process contracts in the Engineers &
Constructors Group. The Corporation's gross profit as a percent of revenue
declined to 4.3% for the quarter ended March 3, 2000 from 4.9% from the
comparable period in 1999. The decline in the gross profit percentage was a
result of additional revenue of the Government Services Group which includes
WGSG for the first quarter of 2000, but not for the first quarter of 1999, and
the fact that award and incentive fees of WGSG are typically earned later in the
fiscal year. Earnings of the Government Services Group were also impacted by a
strike at the Electro-Mechanical Division plant which ended near the end of the
first quarter of 2000.
The diversification of the Corporation's business may cause gross margins
to vary between periods due to inherent risks and rewards on fixed-price
contracts causing unexpected gains and losses on contracts. Gross 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
are subject to uncertainties inherent in the estimation process.
At March 3, 2000, backlog of $3,244 million was comprised of $1,402 million
(43%) from fee-type contracts and $1,842 million (57%) from fixed-price
contracts and the Corporation's share from mining ventures.
General and administrative expense:
General and administrative expense of $5.4 million for the quarter ended
March 3, 2000 declined $2.6 million from the comparable period of 1999 primarily
due to $1.7 million of additional compensation expense incurred in 1999 related
to a key executive retirement and a key executive recruitment, and a reduction
in benefit expenses in 2000.
Goodwill amortization:
Amortization of cost in excess of net assets acquired ("goodwill") for the
quarter ended March 3, 2000 increased $3.4 million from the comparable period of
1999 due to the amortization of goodwill arising from the GESCO acquisition.
Annual amortization of the GESCO goodwill is currently estimated at
approximately $15
I-14
<PAGE>
million, subject to possible adjustments to the recorded amount of GESCO
goodwill related to the final allocation of the purchase price to the fair value
of the net assets acquired.
Investment income:
Investment income for the first quarter of 2000 declined $.3 million from
the first quarter of 1999 as a result of there being less cash available for
investment in a corporate short-term asset management account due primarily to
working capital requirements and repayment of the Corporation's revolving credit
facilities.
Interest expense:
Interest expense for the quarter ended March 3, 2000 increased $2.1 million
over the comparable period of 1999 as a result of amortization of prepaid bank
fees associated with the establishment of additional revolving credit facilities
and interest expense attributable to additional borrowings which were primarily
used to fund the GESCO acquisition in March 1999.
Other income, net:
The Corporation recognized other income of $2.2 million during the quarter
ended February 26, 1999 relating to the favorable resolution of contingencies
arising from the sale of a former subsidiary of Old MK.
Income tax expense:
The effective tax rate for the first quarter of 2000 was 38.9% compared to
41.5% in the first quarter of 1999. The reduction in the effective tax rates
resulted from the GESCO acquisition and the resulting (1) reduction of
non-deductible goodwill amortization of Old MK, (2) additional pretax income
resulting in a lower proportion of non-deductible expenses compared to pretax
income and (3) lower state tax expense caused by more favorable apportionment of
pretax income. In addition, the Corporation's non-taxable income increased in
2000 compared to 1999.
Minority interests:
Minority interests in the loss of consolidated subsidiaries of $.7 million
for the quarter ended March 3, 2000 consist of BNFL's 40% minority interest in
the loss of WGSG and a 35% minority interest in the income of Safe Sites of
Colorado, LLC, a subsidiary of WGSG. The GESCO businesses comprising WGSG were
acquired March 22, 1999.
OPERATING SEGMENT RESULTS
(In millions)
- --------------------------------------------------------------------------------
Revenue
Quarter ended March 3, 2000 February 26, 1999
- --------------------------------------------------------------------------------
Engineers & Constructors Group $175.4 $173.1
Government Services Group 184.1 67.9
Contractors Group 213.3 180.8
Intersegment and other -- (.5)
- --------------------------------------------------------------------------------
Total revenue $572.8 $421.3
================================================================================
I-15
<PAGE>
- --------------------------------------------------------------------------------
Operating income
Quarter ended March 3, 2000 February 26, 1999
- --------------------------------------------------------------------------------
Engineers & Constructors Group $ 7.4 $ 4.0
Government Services Group 3.5 5.0
Contractors Group 10.7 10.4
Intersegment and other (1.0) .6
- --------------------------------------------------------------------------------
Total segment operating income 20.6 20.0
- --------------------------------------------------------------------------------
General and administrative expense (5.4) (8.0)
- --------------------------------------------------------------------------------
Total operating income $15.2 $12.0
================================================================================
Engineers & Constructors Group:
Revenue increased slightly to $175.4 million for the quarter ended March 3,
2000 compared to $173.1 in the first quarter of 1999 due to an increase in work
performed on Energy related contracts. The group's operating income increased to
$7.4 million from $4.0 million in the first quarter of 1999 due to the favorable
performance of a number of Industrial/Process related contracts. Group overhead
costs increased approximately $2 million in the first quarter of 2000 over the
comparable period of 1999 principally from increased bidding and business
development costs.
Government Services Group:
The Government Services Group recognized revenue of $184.1 million for the
first quarter of 2000, an increase of $116.2 million from the first quarter of
1999. The increase was primarily due to revenue recognized by WGSG, the
government and environmental businesses which were acquired from CBS Corporation
in March 1999. Operating income declined to $3.5 million in the first quarter of
2000 from $5.0 million in the first quarter of 1999 due to $3.7 million of
goodwill amortization related to the GESCO acquisition in the first quarter of
2000 and the fact that award and incentive fees earned by WGSG are usually
earned later in the fiscal year. The earnings of the group were also affected by
a strike at the Electro-Mechanical Division plant which ended near the end of
the first quarter of 2000. Revenue and operating loss of WGSG for the first
quarter of 2000 was $114.0 million and $3.2 million, respectively.
Contractors Group:
Revenue and operating income increased 18% and 3%, respectively, to $213.3
million and $10.7 million for the first quarter of 2000 compared to the first
quarter of 1999. Contractors Group revenue increased from an increase in volume
of Heavy Civil work performed principally on new marine, transportation and
water resource contracts. Operating income increased due to the increase in
volume and positive performance on a number of Heavy Civil projects, including a
settlement related to a fixed-price contract resulting in the reversal of a $3.9
million pretax provision for loss. This increase in operating income was
partially offset by lower operating income from Mining operations which declined
in the first quarter of 2000 compared to the first quarter of 1999, principally
due to the favorable resolution of royalty issues on certain mining properties
and issues of a mining venture in 1999.
Intersegment and other:
Intersegment and other operating loss of $1.0 million during the quarter
ended March 3, 2000 consisted primarily of a small loss from the Corporation's
captive self-insurance subsidiary and goodwill amortization associated with the
acquisition of Old MK. Operating income of $.6 million for the quarter ended
February 26, 1999 primarily consisted of income from the captive self-insurance
subsidiary, income from miscellaneous non-core businesses and goodwill
amortization related to the acquisition of Old MK.
I-16
<PAGE>
SEGMENT NEW WORK
New work, which represents additions to backlog for the period, is
presented below:
- --------------------------------------------------------------------------------
(In millions)
Quarter ended March 3, 2000 February 26, 1999
- --------------------------------------------------------------------------------
Engineers & Constructors Group $252 $234
Government Services Group 115 6
Contractors Group 122 186
- --------------------------------------------------------------------------------
Total new work $489 $426
================================================================================
FINANCIAL CONDITION AND LIQUIDITY
The Corporation has three principal sources of liquidity: (1) existing cash
and cash equivalents; (2) cash generated by its operations; and (3) revolving
loan borrowings under its credit facilities. 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 (in thousands) March 3, 2000 February 26, 1999
- --------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents
Beginning of period $29,640 $67,054
End of period 25,061 28,823
<CAPTION>
- --------------------------------------------------------------------------------------
Quarters ended
March 3, 2000 February 26, 1999
- --------------------------------------------------------------------------------------
<S> <C> <C>
Net cash provided (used) by:
Operating activities $20,835 $(31,436)
Investing activities (10,079) (4,775)
Financing activities (15,335) (2,020)
- --------------------------------------------------------------------------------------
</TABLE>
Cash and cash equivalents declined $4.5 million to $25.1 million at March
3, 2000 from $29.6 million at December 3, 1999. The decline reflects net cash
provided by operating activities of $20.8 million, offset by cash used in
investing and financing activities of $10.1 million and $15.3 million,
respectively. The Corporation's net cash from operating activities during the
first quarter of 2000 was $20.8 million, compared to a net use of cash by
operating activities of $31.4 million used in the first quarter of 1999
primarily as a result of significant additional construction joint-venture cash
requirements and other working capital requirements for construction and
engineering contracts. Cash provided or used by operating activities is affected
to a large degree by the mix, timing, state of completion and commercial terms
of the Corporation's contracts, which are reflected in changes in net operating
assets and liabilities.
Net cash used in investing activities for the quarter ended March 3, 2000
included $8.1 million of net purchases of property and equipment and $1.6
million of net purchases of marketable securities. Cash used in financing
activities included $15.0 million of net repayments on revolving lines of credit
and $.3 million of distributions to minority interests from the operations of
WGSG.
The Corporation anticipates capital expenditures during the remainder of
2000 of approximately $34 million principally for normal replacement of major
construction equipment and to meet near-term equipment requirements for new
work.
In July 1999, the Corporation received authorization to repurchase, in open
market transactions, block trades or otherwise up to 2 million shares of the
Corporation's outstanding common stock. The Corporation also has authorization
to repurchase up to 2.765 million of its warrants to purchase common stock. As
of March 3, 2000, the Corporation had not repurchased any shares under the
authorizations. Subject to market conditions and other
I-17
<PAGE>
factors, purchases of shares may be commenced, discontinued and resumed from
time to time without prior notice.
The Corporation has uncollateralized revolving credit facilities providing
an aggregate borrowing capacity of $325 million. These facilities consist of a
$195 million five-year facility, which provides for both revolving borrowings
and the issuance of letters of credit, and a $130 million one-year facility,
which provides for revolving borrowings. The one-year facility may be extended
in one-year increments by mutual agreement of the banks and the Corporation or
converted, at the Corporation's option, into a term loan maturing one year after
the then current expiration date of such facility. On March 18, 2000, the
one-year facility was extended for an additional year. At March 3, 2000, $40,000
and $45,000 were outstanding on the one-year facility and five-year facilities,
respectively. Depending on conditions in capital markets and other factors, the
Corporation may, from time to time, consider the possible issuance of other
long-term debt or securities.
The Corporation is subject to foreign currency translation and exchange
issues, primarily with regard to its mining venture, MIBRAG mbH, in Germany. At
March 3, 2000, the cumulative adjustments for translation losses net of related
income tax benefits was $13.1 million. The Corporation realized a pretax gain on
foreign currency exchange transactions of $21 thousand for the three months
ended March 3, 2000. The Corporation endeavors to enter into contracts with
foreign customers with repayment terms in U.S. currency in order to mitigate
foreign exchange risk.
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.
BACKLOG
Backlog of all uncompleted contracts at March 3, 2000 was $3,244 million,
compared with $3,328 million at December 3, 1999. New work awarded in the
quarter ended March 3, 2000 totaled $489 million compared with $781 million for
the quarter ended December 3, 1999.
ENVIRONMENTAL CONTINGENCY
The United States Environmental Protection Agency and the State of Colorado
have filed complaints against a subsidiary of the Corporation and six other
parties to recover response costs incurred and to be incurred at the Summitville
Mine Superfund Site. See Note 6. "Contingencies and Commitments - Summitville
environmental matters" of Notes to Condensed Consolidated Financial Statements.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement No. 133
Accounting for Derivative Instruments and Hedging Activities. The SEC issued
Staff Accounting Bulletin No. 101 on revenue recognition. See Note 8. "Recently
Issued Accounting Standards" of Notes to Condensed Consolidated Financial
Statements for a discussion of the impact, if any, that these standards are
expected to have on the Corporation's financial statements.
I-18
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
(In thousands of dollars)
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 of less than 10 years and an average maturity
of 3.5 years. These long-term instruments are held to fund potential workers
compensation, general liability and auto liability obligations of the
Corporation. The Corporation seeks to match the maturities of these instruments
as closely as possible with the related obligations and to hold these
instruments to maturity in order to minimize market risk exposure, but may, from
time to time, sell them in response to market rates, needs for liquidity or
changes in availability of and the yield on alternative investments. As of March
3, 2000, the Corporation had $3,250 of short-term investments classified as cash
equivalents and $42,589 in its long-term investment portfolio.
The Corporation may, from time to time, effect borrowings under bank credit
facilities or otherwise for general corporate purposes, including working
capital requirements, capital expenditures and acquisitions. Borrowings under
the Corporation's bank credit facilities of $85,000 at March 3, 2000 bear
interest at the applicable LIBOR or base rate plus an additional margin and,
therefore, the Corporation is subject to fluctuations in interest rates.
I-19
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information regarding legal proceedings set forth under the caption "Other"
in Note 6. "Contingencies and Commitments" of Notes to Condensed Consolidated
Financial Statements is incorporated by reference in response to this Item 1.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Filed in Part I
None
Filed in Part II
The Exhibits to this Quarterly Report on Form 10-Q are listed in the
Exhibit Index contained elsewhere in this Quarterly Report.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized
MORRISON KNUDSEN CORPORATION
/s/ Anthony S. Cleberg
---------------------------------------
Anthony S. Cleberg
Executive Vice President and Chief
Financial Officer, in his respective
capacities as such
Date: April 17, 2000
II-1
<PAGE>
MORRISON KNUDSEN CORPORATION
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.
Exhibit
Number Exhibits
2.* Stock Purchase Agreement, dated as of April 14, 2000, among Raytheon
Company, Raytheon Engineers & Constructors International, Inc. and the
Corporation.
27.* Financial Data Schedule.
E-1
<PAGE>
EXHIBIT 2
STOCK PURCHASE AGREEMENT
By and Between
RAYTHEON COMPANY,
RAYTHEON ENGINEERS & CONSTRUCTORS
INTERNATIONAL, INC.,
and
MORRISON KNUDSEN CORPORATION
Dated as of April 14, 2000
<PAGE>
TABLE OF CONTENTS
ARTICLE PAGE
------- ----
1. PURCHASE AND SALE................................................... 1
1.1. Purchased Shares............................................ 1
1.2. Qualifying Shares........................................... 1
1.3. Acquired RECI Assets........................................ 2
1.4. Excluded RECI Assets........................................ 2
1.5. Mixed Assets................................................ 4
2. ASSUMPTION OF CERTAIN RECI OBLIGATIONS.............................. 4
3. PURCHASE PRICE...................................................... 5
3.1. Aggregate Purchase Price.................................... 5
3.2. Additional Consideration.................................... 5
3.3. Purchase Price Adjustments.................................. 5
3.4. Estimate of Purchase Price Adjustment....................... 8
4. CLOSING; CASH ADJUSTMENT............................................ 8
4.1. Time and Place.............................................. 8
4.2. Transactions at Closing..................................... 9
4.3. Cash Adjustment............................................. 10
5. REPRESENTATIONS AND WARRANTIES OF THE SELLERS....................... 11
5.1. Organization; Authority..................................... 11
5.2. Binding Effect.............................................. 12
5.3. Non-Contravention........................................... 12
5.4. Financial Statements........................................ 13
5.5. Absence of Certain Changes.................................. 15
5.6. No Undisclosed Liabilities.................................. 16
5.7. Equipment; Sufficiency of Assets............................ 16
5.8. Contracts................................................... 17
5.9. Backlog..................................................... 21
5.10. Outstanding Bids............................................ 21
5.11. Major Suppliers and Customers............................... 22
5.12. Trademarks, Patents, Etc.................................... 22
5.13. Governmental Consents; Transferability of Licenses, Etc..... 24
5.14. Claims, Change Orders and Disputes.......................... 24
5.15. Insurance; Advances......................................... 25
<PAGE>
-ii-
5.16. Bank Accounts............................................... 25
5.17. Capitalization of RECI Subsidiaries; Title to Assets........ 26
5.18. Conformity to Law........................................... 28
5.19. Litigation, Etc............................................. 28
5.20. Employee Benefit Plans...................................... 28
5.21. Compensation of and Contracts with Employees................ 31
5.22. Labor Relations............................................. 31
5.23. Real Property............................................... 32
5.24. Tax Matters................................................. 33
5.25. Safety, Zoning and Environmental Matters.................... 34
5.26. Year 2000 Compliance........................................ 36
5.27. Brokers..................................................... 36
5.28. Books and Records of RECI Companies......................... 36
5.29. Sellers' Representative..................................... 37
6. REPRESENTATIONS AND WARRANTIES OF THE BUYER......................... 37
6.1. Organization and Standing of Buyer.......................... 37
6.2. Corporate Approval; Binding Effect.......................... 37
6.3. Non-Contravention; Approvals................................ 37
6.4. Litigation, Etc............................................. 38
6.5. Financing................................................... 38
6.6. Brokers..................................................... 38
7. CONDUCT OF BUSINESS PENDING CLOSING................................. 39
7.1. Full Access................................................. 30
7.2. Carry on in Regular Course.................................. 40
7.3. No General Increases........................................ 40
7.4. Contracts and Commitments................................... 40
7.5. Sale of Capital Assets...................................... 42
7.6. Insurance................................................... 42
7.7. Preservation of Organization................................ 43
7.8. Compliance with Laws........................................ 43
7.9. Notice of Proceedings....................................... 43
7.10. Permits; Intellectual Property.............................. 44
7.11. Purchased Shares............................................ 44
7.12. Intercompany Obligations.................................... 44
7.13. Advice of Change............................................ 44
7.14. Satisfaction of Conditions Precedent........................ 45
8. TRANSITIONAL MATTERS AND ADDITIONAL COVENANTS....................... 45
8.1. HSR Act and Other Filings................................... 45
8.2. Access to Books and Records................................. 46
<PAGE>
-iii-
8.3. Nonassignable Contracts..................................... 48
8.4. Retained Risk E&C Contracts................................. 49
8.5. General Assistance.......................................... 49
8.6. Collection Assistance; RR Assets............................ 51
8.7. Indemnified Projects........................................ 52
8.8. Guaranties and Indemnities on Open Jobs..................... 54
8.9. Sales and Transfer Taxes.................................... 55
8.10. Use of Raytheon Name........................................ 55
8.11. Bank Accounts............................................... 57
8.12. Non-Solicitation............................................ 57
8.13. PP9 Agreements.............................................. 58
8.14. Internet Protocol and Related Matters....................... 58
8.15. Non-Competition............................................. 59
8.16. Information Technology Transition........................... 62
8.17. General Transitional Assistance............................. 62
8.18. Foreign RECI Subsidiaries................................... 62
8.19. Assumed Non-Competition Obligation.......................... 63
8.20. Required Financing.......................................... 63
8.21. Hague Restructuring......................................... 65
8.22. Foreign Exchange............................................ 65
8.23. Hawker Aircraft............................................. 65
8.24. East Side Reservoir......................................... 65
8.25. REOL........................................................ 66
8.26. Arayco Documents............................................ 66
8.27. Basic Ordering.............................................. 66
9. EMPLOYEES AND EMPLOYEE BENEFIT MATTERS.............................. 67
9.1. Hiring Employees............................................ 67
9.2. Benefit Plan Commitments.................................... 68
9.3. Retention Agreements........................................ 70
10. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS......................... 71
10.1. Representations and Warranties True at Closing.............. 71
10.2. Compliance with Agreement................................... 71
10.3. No Material Adverse Change.................................. 71
10.4. No Financial Market Adverse Change.......................... 72
10.5. No Litigation............................................... 72
10.6. Delivery of Documents....................................... 72
10.7. HSR Act..................................................... 72
10.8. Leasing Programs............................................ 72
10.9. Officer's Certificate....................................... 72
10.10. Financial Statements........................................ 73
<PAGE>
-iv-
11. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
THE SELLERS .................................................... 73
11.1. Representations and Warranties True at Closing.............. 73
11.2. Compliance with Agreement................................... 73
11.3. No Litigation............................................... 73
11.4. Delivery of Documents....................................... 73
11.5. HSR Act..................................................... 74
11.6. Officer's Certificate....................................... 74
12. CONFIDENTIALITY..................................................... 74
12.1. Buyer Confidentiality....................................... 74
12.2. Sellers Confidentiality..................................... 76
13. INDEMNIFICATION..................................................... 77
13.1. Indemnity by the Sellers.................................... 77
13.2. Indemnity by the Buyer...................................... 78
13.3. Time Limitations............................................ 79
13.4. Dollar Thresholds........................................... 79
13.5. Claims...................................................... 80
13.6. Losses of Tax Costs and Benefits............................ 81
13.7. Insurance Proceeds.......................................... 81
13.8. Scope of Indemnity.......................................... 82
13.9. Waiver of Statutory Claims.................................. 82
14. CERTAIN DEFINITIONS................................................. 82
15. TERMINATION ....................................................... 88
15.1. Termination of Agreement.................................... 88
15.2. Effect of Termination....................................... 90
16. GENERAL ............................................................ 90
16.1. Expenses.................................................... 90
16.2. Notices..................................................... 90
16.3. Entire Agreement............................................ 91
16.4. Governing Law............................................... 91
16.5. Sections and Section Headings............................... 91
16.6. Assigns..................................................... 92
16.7. Survival and Materiality of Representations and Warranties.. 92
16.8. Further Assurances.......................................... 92
16.9. No Implied Rights or Remedies............................... 92
16.10. Counterparts................................................ 92
<PAGE>
-v-
16.11. Public Statements or Releases............................... 93
16.12. Nature of Obligations....................................... 93
16.13. Arbitration................................................. 93
16.14. Construction................................................ 94
16.15. Waiver of Jury Trial........................................ 94
16.16. Waiver of Certain Damages................................... 94
16.17. Disclosure in Schedules..................................... 95
<PAGE>
Schedules
---------
Schedule A RECI Subsidiaries
Schedule 1.2 Qualifying Shares
Schedule 1.3 Hawker 800 Aircraft
Schedule 1.4(b) Retained REIC Contracts
Schedule 1.4(l) Distributed Assets
Schedule 3.3(a) Stipulated Accounting Rules
Schedule 3.3(b) Projected March 31 Balance Sheet and Model Statement
Schedule 4.3(a) Intercompany Allocations
Schedule 5.1 Organizational Documents
Schedule 5.3 Non-Contravention
Schedule 5.4(a) Financials Statements and Exceptions to GAAP
Schedule 5.4(b) Reserves
Schedule 5.4(c) Reconciliations
Schedule 5.4(d) Financial Information in Financial Statements with
Adjustments
Schedule 5.4(e) Reconciliations of ESRs and December Balance Sheet
Schedule 5.4(f) Accounts Receivable
Schedule 5.4(g) Claims of Set-Off
Schedule 5.5 Changes
Schedule 5.6 Undisclosed Liabilities
Schedule 5.7(a) Equipment
Schedule 5.7(b) Sufficiency of Assets
Schedule 5.8(a) Real Property Leases
Schedule 5.8(b) Personal Property Leases
Schedule 5.8(c) RECI Contracts for E&C Services
Schedule 5.8(d) JV Agreements
Schedule 5.8(e) Confidentiality Agreements
Schedule 5.8(f) Listed Contracts
Schedule 5.8(h) Listed Contracts Compliance
Schedule 5.8(i) Default Notices
<PAGE>
-ii-
Schedule 5.8(j) Government Contracts
Schedule 5.9 Backlog
Schedule 5.10 Outstanding Bids
Schedule 5.11(a) Top Twenty Customers
Schedule 5.11(b) Top Twenty Suppliers
Schedule 5.12(a) Trademarks, Patents, Etc.
Schedule 5.12(b) Intellectual Property Agreements
Schedule 5.12(c) Infringement Claims
Schedule 5.12(d)(1) Intellectual Property Matters Subject of Opinion
from Outside Patent Counsel
Schedule 5.12(d)(2) Intellectual Property Matters Requiring Continued
Evaluation
Schedule 5.12(e) Breaches of Intellectual Property Agreements
Schedule 5.13(a) Governmental Consents; Transferability of Licenses, Etc.
Schedule 5.13(b) Permits
Schedule 5.14 Claims, Change Orders and Disputes
Schedule 5.15(a) Listed Insurance Policies
Schedule 5.15(b) Advances
Schedule 5.16 Bank Accounts
Schedule 5.17(a) Capitalization of RECI Subsidiaries
Schedule 5.17(b) Title to Assets
Schedule 5.17(c) Encumbrances
Schedule 5.17(d) Investment Entities
Schedule 5.18 Conformity to Law
Schedule 5.19 Litigation, Etc.
Schedule 5.20(a) ERISA and Non-ERISA Plans
Schedule 5.20(b) Plans Primarily for Personnel Outside U.S.
Schedule 5.20(d) Post-Employment Benefit Coverages
Schedule 5.20(e) Bonuses to be Paid After Closing
Schedule 5.20(f) Compliance with ERISA
Schedule 5.21(a) Compensation of and Contracts with Employees
Schedule 5.21(b) Employees Who Have Ceased to Perform Services
<PAGE>
-iii-
Schedule 5.22 Labor Relations
Schedule 5.23(a) Real Property
Schedule 5.23(b) Real Property
Schedule 5.23(c) Real Property
Schedule 5.23(d) Real Property
Schedule 5.23(e) Real Property
Schedule 5.23(f) Real Property
Schedule 5.24 Tax Matters
Schedule 5.25(a) Safety and Zoning Matters
Schedule 5.25(b) Environmental Matters
Schedule 5.26 Year 2000 Compliance
Schedule 5.28 Books and Records of REC Companies
Schedule 6.3 Non-Contravention
Schedule 7.4 Contracts and Commitments
Schedule 7.5 Sale of Capital Assets
Schedule 7.12 Intercompany Obligations
Schedule 8.6 Retained Claims
Schedule 8.8 Support Agreements
Schedule 8.13(a) Key RECI Employees
Schedule 8.12(b) MK Officers
Schedule 8.12(c) Raytheon Employees
Schedule 8.16(a) Software and Information Technology
Schedule 8.16(b) Software That Needs to be Transferred or Replaced
Schedule 8.17(a) Areas of General Transitional Assistance
Schedule 8.19 Assumed Non-Competition Obligations
Schedule 8.21 Hague Restructuring
Schedule 8.22 Foreign Exchange Contracts
Schedule 9.1 Seller Employees
Schedule 9.2 Assumed Employee Benefit Plans
Schedule 9.3(a) Key Employees
Schedule 14.1 East Side Reservoir Project
<PAGE>
-iv-
Schedule 14.2 PP9 Agreements
Schedule 14.3 Warranty Obligations
Schedule 14.4 Retained Litigation
<PAGE>
-v-
EXHIBITS
--------
Exhibit A Bill of Sale
Exhibit B Assumption Agreement
Exhibit C Receivables Termination Agreement
Exhibit D Tax Sharing Agreement
Exhibit E-1 -- E-4 Term Sheet for Indemnified Project Subcontracts
Exhibit F Mutual Release
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT is dated as of April 14, 2000, by and
among Raytheon Company, a Delaware corporation ("Raytheon"), and Raytheon
--------
Engineers & Constructors International, Inc., a Delaware corporation ("RECI"
----
and, together with Raytheon, the "Sellers"), and Morrison Knudsen Corporation, a
-------
Delaware corporation (the "Buyer").
-----
RECI, a wholly-owned Subsidiary of Raytheon, through its U.S. and
foreign Subsidiaries listed on Schedule A hereto (the "RECI Subsidiaries" and,
-------- - ---- ------------
together with RECI, the "RECI Companies"), provides engineering, design,
---- ---------
procurement, construction, operation, maintenance and other services on a
world-wide basis. The engineering, design, procurement, construction, operation,
maintenance and other businesses operated by the RECI Companies are referred to
in this Agreement as the "Purchased Business".
--------- --------
This Agreement contemplates a transaction in which (i) RECI sells and
the Buyer purchases all of the issued and outstanding capital stock of the RECI
Subsidiaries identified on Schedule A hereto and marked with an asterisk
-------- -
(collectively, the "Direct Transfer RECI Subsidiaries"), (ii) RECI sells and the
------ -------- ---- ------------
Buyer purchases certain assets, and the Buyer assumes certain obligations, of
RECI relating to the Purchased Business, and (iii) thereafter the Buyer operates
the Purchased Business, all subject to the terms and conditions set forth below.
In connection with the negotiation and preparation of this Agreement,
the Sellers and the Buyer have prepared a set of schedules, dated the date
hereof and delivered separately as one or more volumes (the "Disclosure
----------
Schedule", with any reference herein to a Schedule being a reference to such
- --------
Schedule as it appears in the Disclosure Schedule).
In consideration of the mutual promises and agreements set forth
herein, the Sellers and the Buyer agree as follows:
Article 1
---------
Purchase And Sale
-----------------
1.1. Purchased Shares. Subject to the terms and conditions set forth
--------- ------
in this Agreement, including Section 8.18, at the Closing referred to in Article
4 hereof, RECI shall sell, assign, transfer and deliver to the Buyer, and the
Buyer shall purchase, acquire and take assignment and delivery of, all of the
issued and outstanding capital stock of each of the Direct Transfer RECI
Subsidiaries (the "Purchased Shares").
--------- ------
1.2. Qualifying Shares. RECI agrees that the shares of capital stock
of the RECI Subsidiaries held by the individuals specified on Schedule 1.2
-------- ---
hereto as qualifying
<PAGE>
-2-
shareholders are being purchased by the Buyer hereunder, are included in the
purchase price referred to in Article 3 and are, except as otherwise expressly
provided in this Agreement, included in the Purchased Shares being sold
hereunder for all purposes of this Agreement (including, without limitation, any
representations and warranties made with respect to the Purchased Shares). The
Sellers will arrange to have executed all documents necessary to permit the
transfers of such qualifying shares at the Closing to the individuals designated
by the Buyer as soon as practicable prior to the Closing.
1.3. Acquired RECI Assets. Subject to the terms and conditions set
-------- ---- ------
forth in this Agreement, at the Closing RECI shall sell, assign, transfer and
deliver to the Buyer, and the Buyer shall purchase, acquire and take assignment
and delivery of, all of RECI's right, title and interest in, to and under the
Acquired RECI Assets. For purposes of this Agreement, the term "Acquired RECI
-------- ----
Assets" means all of the rights, properties and assets of every kind, character
- ------
and description, wherever located and whether tangible or intangible, real or
personal or fixed or contingent, owned, held, used, licensed, conceived,
developed or offered for sale or license by RECI in connection with the conduct
of the Purchased Business or otherwise arising out of the conduct of the
Purchased Business, with the exception of the Excluded RECI Assets (as defined
in Section 1.4) and the Purchased Shares, including the Hawker 800 aircraft
described in Schedule 1.3 hereto.
-------- ---
1.4. Excluded RECI Assets. Notwithstanding the foregoing, RECI is not
-------- ---- ------
selling and the Buyer is not purchasing pursuant to this Agreement, and the term
"Acquired RECI Assets" shall not include, any right, title or interest of RECI
-------- ---- ------
in, to or under any of the following rights, properties or assets (collectively,
the "Excluded RECI Assets"):
-------- ---- ------
(a) Retained Cash. All cash and cash equivalents held by RECI
-------- ----
as of the close of business on April 30, 2000 (the "Cut-Off Date")
------- ----
other than the Restricted Cash (the "Retained Cash"). For purposes of
-------- ----
this Agreement, the term "Restricted Cash" means any cash or cash
---------- ----
equivalents of any RECI Company held as escrowed retentions or in
similar restricted accounts or required to be kept on hand or on
deposit with any third person (including any financial institution)
pursuant to any contract or agreement (including without limitation any
joint venture or similar agreement) to which any RECI Company is a
party (other than any Retained RECI Contract or any Retained Risk E&C
Contract).
(b) Retained Contracts. Subject to Section 8.26, all of
-------- ---------
RECI's interest in and rights with respect to the contracts,
agreements, leases and subleases, bids, subcontracts or other
agreements listed on Schedule 1.4(b) and all related purchase orders,
-------- ------
completed and uncompleted job orders, change orders, extra work orders,
amendments, modifications, subcontracts and similar agreements and any
ancillary contracts entered into in connection with such contracts,
subcontracts and agreements such as project-specific hedging or
currency swap agreements and any services agreements (collectively, the
"Retained RECI Contracts");
-------- ---- ---------
<PAGE>
-3-
(c) Assets Relating to Retained RECI Contracts. All
------ -------- -- -------- ---- ---------
other assets relating to Retained RECI Contracts, except for RR Assets
(as defined in Section 8.6);
(d) Retained Rights and Causes of Action. Except for RR
-------- ------ --- ------ -- ------
Assets, all rights (including rights to indemnification and
contribution), claims, actions, causes of action, judgments and
demands, deferred charges, advance payments, prepaid items, security
and other deposits, claims for refunds, rights of offset, and credits
of whatever nature, and whether arising under contract, statute, common
law or otherwise, relating to any of the Excluded RECI Assets referred
to in any other paragraph of this Section 1.4 or to any of the Excluded
RECI Liabilities (as defined in Article 2), including (i) all rights
under or pursuant to warranties, representations and guarantees
pertaining to or affecting such Excluded RECI Assets or Excluded RECI
Liabilities; (ii) all rights to indemnification or contribution,
subrogation or reimbursement in respect of such Excluded RECI Assets or
Excluded RECI Liabilities; and (iii) any and all rights or assets
arising from and related to the defense, release, compromise,
discharge, administration, management or satisfaction by RECI of such
Excluded RECI Assets or Excluded RECI Liabilities;
(e) Tax Refunds. To the extent set forth in the Tax Sharing
--- -------
Agreement (as defined in Section 4.2), refunds of Taxes (as defined in
Article 14) attributable to pre-Closing periods;
(f) Raytheon Trademarks. Except as otherwise expressly
-------- ----------
provided in Sections 8.10 and 8.14, the trademark "Raytheon", and any
variation thereof and whether alone or in combination with other words,
and all goodwill associated with such trademark;
(g) Domain Names. Except as otherwise expressly set forth in
------ -----
Sections 8.10 and 8.14, all domain names employing the name "Raytheon";
(h) Internet Space. Except as provided in Sections 8.14, 8.16
-------- -----
and 8.17, the internet protocol address space allocated to Raytheon and
all internet pages employing the name "Raytheon";
(i) Network Access. Except as provided in Sections 8.16 and
------- ------
8.17, access to the Raytheon phone network, Raytheon internet mail, or
any other Raytheon computer network;
(j) Insurance Policies. Subject to Section 7.6, any insurance
--------- --------
policies maintained by or for the benefit of any of the RECI Companies;
(k) Pension Assets. All rights, entitlements and assets
------- ------
relating to the Raytheon Employee Benefit Plans (as defined in Section
9.2) ("Pension Assets");
------- ------
<PAGE>
-4-
(l) Distributed Assets. The capital stock of RE&C Receivables
----------- ------
Corporation; any cash of the RECI Subsidiaries held as of the close of
business on the Cut-Off Date that is not Restricted Cash; except as
otherwise provided in the Indemnified Project Subcontracts referred to
in Section 4.2(f), all assets and liabilities related to the
Indemnified Projects (as defined in Section 4.2(f)); and the other
assets identified on Schedule 1.4(l); if any of the foregoing is not
-------- ------
owned by RECI as of the date of this Agreement it will be transferred
by the applicable RECI Subsidiary to RECI prior to the Closing
(collectively, the "Distributed Assets");
----------- ------
(m) Purchase Price. The consideration received by the Sellers
-------- -----
pursuant to this Agreement; and
(n) This Agreement. The rights of the Sellers under this
---- ---------
Agreement and the other Acquisition Agreements (as defined in Section
5.1).
1.5. Mixed Assets. In the event the parties determine before or
----- ------
after the Closing that any asset owned or held by Raytheon or another member of
the Raytheon Group (other than RECI) is used primarily in, or relates primarily
to, the Purchased Business, other than an Excluded RECI Asset, Raytheon will
transfer or cause the transfer of such asset to the Buyer as part of the
Acquired RECI Assets. In the event the parties determine before the Closing that
any asset owned or held by a RECI Subsidiary is used primarily by Raytheon or
another Subsidiary of Raytheon (other than RECI or a RECI Subsidiary) and is not
material to the Purchased Business, then Raytheon (before the Closing) or the
Buyer (after the Closing) will cause the applicable RECI Subsidiary to transfer
such asset to RECI as part of the Distributed Assets.
Article 2
---------
Assumption Of Certain RECI Obligations
--------------------------------------
Subject to the terms and conditions set forth in this Agreement, at the
Closing the Buyer will assume and agree to perform all Specified Buyer
Liabilities (as defined in Article 14) that are obligations or liabilities of
RECI but shall not assume or be responsible for any of the Specified Seller
Liabilities (as defined in Article 14) that are obligations or liabilities of
RECI. The obligations and liabilities of RECI assumed by the Buyer pursuant to
this Agreement are sometimes referred to as the "Assumed RECI Liabilities" and
------- ---- -----------
the Specified Seller Liabilities that are obligations or liabilities of RECI
(and, accordingly, are not to be assumed by the Buyer pursuant to this Article
2) are sometimes referred to as the "Excluded RECI Liabilities".
-------- ---- -----------
The Buyer's obligations under this Article 2 in respect of the Assumed
RECI Liabilities shall not extend beyond the extent to which RECI was obligated
in respect thereof and shall be subject to the Buyer's right to contest in good
faith the nature and extent of any liability or obligation to any Person other
than RECI.
<PAGE>
-5-
Article 3
---------
Purchase Price
--------------
3.1. Aggregate Purchase Price. At the Closing, in addition to
--------- -------- -----
assuming the Assumed RECI Liabilities, the Buyer agrees to pay to Raytheon, for
itself and as agent for RECI, as the aggregate purchase price for the Purchased
Shares and Acquired RECI Assets, an amount equal to the Estimated Purchase Price
(as defined in Section 3.4); provided however that if the Estimated Purchase
-------- -------
Price is less than zero then Raytheon shall pay to the Buyer an amount by which
the Estimated Purchase Price is less than zero. The Estimated Purchase Price is
subject to adjustment as provided in Section 3.3 hereof (as adjusted pursuant to
Section 3.3, the "Final Purchase Price").
----- -------- -----
3.2. Additional Consideration. The Buyer acknowledges that, in
---------- -------------
addition to receiving the Final Purchase Price, the Sellers and RE&C Receivables
Corporation pursuant to this Agreement are retaining the Retained Cash and
Distributed Assets and have the right to receive payments with respect to the
Indemnified Projects (as defined in Section 4.2(f)), the Retained Claims (as
defined in Section 8.6) and the ASCC Receivables (as defined in Article 14).
3.3. Purchase Price Adjustments.
-------- ----- -----------
(a) Within sixty (60) days after the Closing Date, the
Sellers shall prepare and deliver to the Buyer (i) an audited consolidated
balance sheet of the RECI Companies as of the close of business on the Cut-Off
Date (with such balance sheet referred to as the "Audited April Balance Sheet")
------- ----- ------- -----
and (ii) an unaudited consolidated balance sheet of the RECI Companies as of the
close of business on the Cut-Off Date (with such balance sheet referred to as
the "Cut-Off Date Balance Sheet"). The Audited April Balance Sheet shall be
------- ---- ------- -----
prepared in accordance with GAAP (as defined in Article 14) as applied on a
basis consistent with the preparation of the Financial Statements (as defined in
Section 5.4) as of and for the year ended December 31, 1999. The Cut-Off Date
Balance Sheet will be identical to the Audited April Balance Sheet except that
it will contain the adjustments and be prepared using the methodologies
specifically described in Schedule 3.3(a) hereto (GAAP as so applied with the
-------- ------
exceptions specified on such Schedule being referred to herein as "Modified
--------
GAAP"). The Buyer agrees to, and agrees to cause the RECI Subsidiaries to, give
- ----
the Sellers and the Sellers' accountants access to the books and records of the
Purchased Business and the use of the RECI Subsidiaries' and Buyer's employees
to the extent reasonably necessary for the preparation of the Audited April
Balance Sheet and the Cut-Off Date Balance Sheet. Except for the Buyer's
obligations pursuant to the preceding sentence, the cost of preparing the
initial Audited April Balance Sheet and the Cut-Off Date Balance Sheet shall be
borne by the Sellers.
(b) When the Sellers deliver the Audited April Balance Sheet
and the Cut-Off Date Balance Sheet, the Sellers shall also deliver a certificate
(i) certifying that the Audited April Balance Sheet and the Cut-Off Date Balance
Sheet were prepared in
<PAGE>
-6-
accordance with paragraph (a) above, and (ii) containing the Sellers'
calculations, based on the Cut-Off Date Balance Sheet (the "Sellers' Proposed
-------- --------
Calculations"), of (i) the Adjusted Non-Current Net Assets (as defined below)
- ------------
and (ii) the Adjusted Net Working Capital (as defined below) as of the close of
business on the Cut-Off Date. Attached hereto as Schedule 3.3(b) is (i) a
-------- ------
projected consolidated balance sheet of the RECI Companies as of March 31, 2000
prepared in accordance with GAAP as applied on a basis consistent with the
preparation of the Financial Statements as of the year ended December 31, 1999,
subject to a lack of footnotes (the "Projected March 31 GAAP Balance Sheet"),
--------- ----- -- ---- ------- -----
(ii) a projected consolidated balance sheet of the RECI Companies as of March
31, 2000 prepared in accordance with Modified GAAP (the "Projected March 31
--------- ----- --
Balance Sheet") and (iii) a calculation, based on the Projected March 31 Balance
- ------- -----
Sheet, of projected Adjusted Non-Current Net Assets and Adjusted Net Working
Capital as of March 31, 2000 (the "Model Statement"). The Cut-Off Date Balance
----- ---------
Sheet and the Sellers' Proposed Calculations shall be substantially identical in
form to the Projected March 31 Balance Sheet and the Model Statement,
respectively.
(c) As used in this Section 3.3:
(i) the term "Adjusted Non-Current Net Assets" means
-------- ----------- --- ------
the difference between (x) the property, plant and equipment, net, long
term receivables, investments and deferred charges and other non-
current assets, held by the RECI Subsidiaries or included in the
Acquired RECI Assets, but excluding goodwill, Distributed Assets,
assets related to the Indemnified Projects, Pension Assets, Retained
Claims, ASCC Receivables and Retained Risk E&C Contracts, and (y) the
total non-current liabilities that are liabilities of the RECI
Subsidiaries or that are included in the Assumed RECI Liabilities, but
excluding liabilities related to the Indemnified Projects, any
Specified Seller Liabilities and any other liabilities for which the
Sellers have agreed to be responsible elsewhere in this Agreement; and
(ii) the term "Adjusted Net Working Capital" means the
-------- --- ------- -------
difference between (x) the total current assets held by the RECI
Subsidiaries or included in the Acquired RECI Assets, excluding any
Retained Cash, the Distributed Assets, assets related to the
Indemnified Projects, Pension Assets, Retained Claims, ASCC Receivables
and Retained Risk E&C Contracts (other than RR Assets, which are to be
included), and (y) the total current liabilities that are liabilities
of the RECI Subsidiaries or that are included in the Assumed RECI
Liabilities, but excluding liabilities related to the Indemnified
Projects, any Specified Seller Liabilities and any other liabilities
for which the Sellers have agreed to be responsible elsewhere in this
Agreement.
(d) Within forty-five (45) days after receipt of the Audited
April Balance Sheet, the Cut-Off Date Balance Sheet and the accompanying
certificate, the Buyer shall notify the Sellers of its agreement or disagreement
with the Audited April Balance Sheet, the Cut-Off Date Balance Sheet and the
accuracy of any of the Sellers' Proposed Calculations; provided, that the Buyer
--------
may only dispute the Audited April
<PAGE>
-7-
Balance Sheet, the Cut-Off Date Balance Sheet and the Sellers' Proposed
Calculations to the extent that they deviate from the requirements of paragraphs
(a), (b) and (c) above or reflect mathematical errors. If the Buyer disputes any
such aspect of the Audited April Balance Sheet, the Cut-Off Date Balance Sheet
or the amount of any of the Sellers' Proposed Calculations, then the Buyer shall
have the right to direct its independent accountants, at the Buyer's expense, to
review and test the Audited April Balance Sheet, the Cut-Off Date Balance Sheet
and the Sellers' Proposed Calculations. The Buyer's accountants shall complete
their review and test within forty-five (45) days after the date the Buyer
disputes the Sellers' Proposed Calculations and within such forty-five (45) day
period the Buyer shall propose alternative calculations of the Adjusted
Non-Current Net Assets and Adjusted Net Working Capital (the "Buyer's Proposed
------- --------
Calculations"). If the Sellers do not accept the Buyer's Proposed Calculations
- ------------
within thirty (30) days after their submission to the Sellers, then the Sellers
and the Buyer shall select a nationally recognized independent accounting firm
(the "Independent Accounting Firm") to resolve the remaining disputed items (the
----------- ---------- ----
"Remaining Disputed Items") by conducting its own review and test of the Audited
--------- -------- -----
April Balance Sheet, the Cut-Off Date Balance Sheet and thereafter selecting
either the Buyer's Proposed Calculations of the Remaining Disputed Items or the
Sellers' Proposed Calculations of the Remaining Disputed Items or an amount in
between the two. If the Remaining Disputed Items are submitted to the
Independent Accounting Firm as provided above, the Independent Accounting Firm
shall be instructed (i) that the scope of its review shall be limited solely to
the Remaining Disputed Items, (ii) that it shall accept the Audited April
Balance Sheet, the Cut-Off Date Balance Sheet and the Sellers' Proposed
Calculations except to the extent that they deviate from the requirements of
paragraphs (a), (b) and (c) above or reflect mathematical errors, and (iii) that
it is to use every reasonable effort to complete such assignment and deliver
copies of such opinion and, if required, a revised Audited April Balance Sheet
and Cut-Off Date Balance Sheet and revised calculations of Adjusted Net Working
Capital and Adjusted Non-Current Net Assets to the Buyer and the Sellers within
thirty (30) days following the date such Remaining Disputed Items are referred
to it. The Buyer and the Sellers agree that they shall be bound by the
determination of the Remaining Disputed Items by the Independent Accounting
Firm. The fees and expenses of the Independent Accounting Firm shall be paid
one-half by the Buyer and one-half by the Sellers.
(e) Upon the determination pursuant to paragraph (d) of this
Section 3.3 of the definitive Audited April Balance Sheet and Cut-Off Date
Balance Sheet and the Adjusted Non-Current Net Assets and Adjusted Net Working
Capital, the Final Purchase Price shall be calculated. The Final Purchase Price
shall be equal to $690,000,000 (the "Unadjusted Purchase Price") (i) increased
---------- -------- -----
by the amount, if any, by which the Adjusted Non-Current Net Assets are greater
than $10,800,000, (ii) reduced by the amount, if any, by which the Adjusted
Non-Current Assets are less than $10,800,000, (iii) increased by the amount, if
any, by which Adjusted Net Working Capital is greater than $200,000,000, and
(iv) reduced by the amount, if any, by which Adjusted Net Working Capital is
less than $200,000,000 (collectively, the "Adjustment"). If the Final Purchase
----------
Price exceeds the Estimated Purchase Price, the Buyer shall pay an amount equal
to such excess to the Sellers, and if the Final Purchase Price is less than the
Estimated Purchase Price, the Sellers shall pay an amount equal to such
deficiency to the
<PAGE>
-8-
Buyer. Any such payment shall be made in cash or same day funds within ten (10)
days after the determination of the Adjustment pursuant to paragraph (d) of this
Section 3.3. Any such payment shall bear interest (calculated on the basis of a
360-day year consisting of 12 30-day months) at a rate per annum equal to the
"Prime Rate" as set forth from time to time in The Wall Street Journal "Money
---- ------ -------
Rates" column plus 200 basis points (the "Applicable Rate") from the Closing
---------- ----
Date to the date preceding payment.
3.4. Estimate of Purchase Price Adjustment.
-------- -- -------- ----- ----------
(a) Not later than the third business day prior to the
Closing Date, the Sellers shall deliver to the Buyer (i) an estimated
consolidated balance sheet (the "Estimated GAAP Balance Sheet") of the RECI
--------- ---- ------- -----
Companies as of the close of business on the Cut-Off Date, prepared in
accordance with GAAP as applied on a basis consistent with the preparation of
the Financial Statements as of and for the year December 31, 1999, subject to a
lack of footnotes, (ii) an estimated consolidated balance sheet (the "Estimated
---------
Balance Sheet") of the RECI Companies as of the close of business on the Cut-Off
- ------- -----
Date, prepared in accordance with Modified GAAP, and (iii) a statement (the
"Estimated Statement") setting forth a calculation, based on the Estimated
--------- ---------
Balance Sheet, of estimated Adjusted Non-Current Net Assets and Adjusted Net
Working Capital as of the close of business on the Cut-Off Date. The Estimated
GAAP Balance Sheet, the Estimated Balance Sheet and the Estimated Statement
shall be substantially identical in form to the Projected March 31 GAAP Balance
Sheet, the Projected March 31 Balance Sheet and the Model Statement,
respectively, and shall be prepared in good faith based upon the Sellers' review
of financial information then available to them and inquiries of personnel
responsible for the development and preparation of financial information
relating to the Purchased Business in the ordinary course of the conduct
thereof.
(b) The estimated purchase price to be delivered at the
Closing (the "Estimated Purchase Price"), which is intended to constitute an
--------- -------- -----
estimate of the Final Purchase Price, will be calculated by adjusting the
Unadjusted Purchase Price upward or downward based on the formula set forth in
the second sentence of Section 3.3(e) and the Estimated Statement.
Article 4
---------
Closing; Cash Adjustment
-------- ---- ----------
4.1. Time and Place. Subject to the satisfaction or waiver of all
---- --- -----
of the conditions specified in Articles 10 and 11, the closing of the
transactions contemplated by this Agreement (the "Closing") shall be held on a
-------
mutually acceptable date that is not more than five (5) business days after the
termination or expiration of the waiting period under the Hart-Scott-Rodino
Antitrust Improvement Act of 1976, as amended (the "H-S-R Act"); provided that,
----- --- -------- ----
unless the Buyer otherwise agrees in writing, the Closing shall not be held
prior to June 30, 2000. The Closing will be held at the offices of Bingham Dana
LLP, 150 Federal Street, Boston, MA 02110. The date on which the
<PAGE>
-9-
Closing is actually held hereunder is sometimes referred to herein as the
"Closing Date." The Closing will be deemed to be effective for purposes of this
------- ----
Agreement as of the close of business on the Closing Date.
4.2. Transactions at Closing. At the Closing:
------------ -- -------
(a) Subject to Section 8.18, RECI shall duly execute and
deliver to the Buyer or its nominee or nominees such bills of sale,
certificates of title, stock certificates with stock powers and other
instruments of assignment or transfer with respect to the Purchased
Shares and Acquired RECI Assets as the Buyer may reasonably request in
advance of the Closing and as may be necessary to vest in the Buyer or
its nominee(s) title to all of RECI's right, title and interest in the
Purchased Shares and Acquired RECI Assets, all of such instruments to
be in form and substance reasonably satisfactory to the Buyer; these
transfer instruments will include one or more Bills of Sale in the form
of Exhibit A hereto (the "Bill of Sale").
------- - ---- -- ----
(b) The Buyer shall duly execute and deliver to the Sellers
such instruments of assumption with respect to the Assumed RECI
Liabilities as the Sellers may reasonably request, including an
Assumption Agreement in the form of Exhibit B hereto (the "Assumption
------- - ----------
Agreement").
---------
(c) The Buyer shall deliver the Estimated Purchase Price by
wire transfer to an account that has been designated for such purpose
by the Sellers.
(d) Subject to Section 8.28, the Buyer and the Sellers shall,
and RECI shall cause certain RECI Subsidiaries to, each duly execute
and deliver the Receivables Termination Agreement in the form of
Exhibit C hereto (the "Receivables Termination Agreement").
------- - ----------- ----------- ---------
(e) The Buyer and Raytheon shall each duly execute and
deliver the Tax Disaffiliation Sharing Agreement in the form of
Exhibit D hereto (the "Tax Sharing Agreement").
------- - --- ------- ---------
(f) Raytheon and the Buyer shall enter into subcontracts
having the terms set forth in Exhibits E-1 to E-4 hereto for the
-------- --- ---
Jindal, Ratchaburi, Saltend and Posven projects described in Exhibits
--------
E-1 to E-4 hereto and the other terms contemplated by Section 8.7 and
--- ---
otherwise in form and substance reasonably satisfactory to the Sellers
and the Buyer (the "Indemnified Projects", with such subcontracts to be
----------- --------
entered into referred to as the "Indemnified Project Subcontracts").
----------- ------- ------------
(g) The Sellers and the RECI Subsidiaries shall enter into a
mutual release in the form of Exhibit F hereto (the "Mutual Release").
------- - ------ -------
(h) Each of the Buyer and the Sellers shall deliver such
other closing certificates and documents as may be reasonably requested
by the other.
<PAGE>
-10-
4.3. Cash Adjustment. The Sellers and the Buyer have agreed to
---- ----------
make a net cash payment following the Closing as follows:
(a) During the period between the close of business on the
Cut-Off Date and the close of business on the Closing Date (the
"Interim Period"), the Sellers shall advance to the Purchased Business
------- ------
its cash requirements in accordance with past practices and shall cause
to be paid in the ordinary course, consistent with past practice, all
checks written on behalf of the Purchased Business. During the Interim
Period, (i) all cash advanced or paid by the Sellers for use in the
Purchased Business, other than cash advanced or paid with respect to
any of the Excluded RECI Assets, the Distributed Assets or Indemnified
Projects or in satisfaction of any amount that, if outstanding at
Closing, would have been a Specified Seller Liability (other than
amounts referred to in Schedule 4.3(a) as provided in paragraph (b)
-------- ------
below, ordinary course payments of expenses under the East Side
Reservoir Project Agreements (as defined in Article 14), ordinary
course payment of benefit obligations and all Taxes paid during the
Interim Period with respect to Taxes attributable to the Interim Period
("Interim Taxes") (collectively, the "Reimbursable SSLs")), shall be
------- ----- ------------ ----
charged to the Buyer and (ii) all cash transferred by the Purchased
Business to or for the benefit of the Sellers, other than cash related
to any of the Excluded RECI Assets (other than RR Assets), the
Distributed Assets, the Indemnified Projects or the Retained Claims and
without duplicating any amounts referred to in the parenthetical in
clause (i) above, all cash distributed in an amount equal to all
Interim Taxes, shall be charged to the Sellers. In addition, (i) all
payments made directly by the Sellers during the Interim Period on
behalf of or for the benefit of the Purchased Business, other than any
payments made with respect to any of the Excluded RECI Assets (other
than RR Assets), the Distributed Assets or Indemnified Projects or in
satisfaction of any amount that, if outstanding at Closing, would have
been a Specified Seller Liability (other than Reimbursable SSLs), shall
be charged to the Buyer, and (ii) all payments made directly by any
RECI Subsidiary during the Interim Period on behalf of or for the
benefit of the Sellers, other than in satisfaction of any amount that,
if outstanding at Closing, would have been a Specified Buyer Liability
(other than Reimbursable SSLs), shall be charged to the Sellers.
(b) The sum of the amounts referred to in clause (i) of each
of the two immediately preceding sentences, together with the
intercompany allocations listed on Schedule 4.3(a) incurred during the
-------- ------
Interim Period, is referred to as the "Advanced Cash" and the sum of
-------- ----
the amounts referred to in clause (ii) of each of the two immediately
preceding sentences is referred to as the "Withdrawn Cash", and the
--------- ----
difference between the Advanced Cash and Withdrawn Cash is referred to
as the "Net Transferred Cash".
--- ----------- ----
(c) Within thirty (30) days after the Closing Date, the
Sellers shall deliver to the Buyer a certificate setting forth a
calculation of the Net Transferred Cash, together with reasonable
supporting documentation. The Sellers agree to
<PAGE>
-11-
give the Buyer and its accountants access to the Sellers' books and
records, but only to the extent necessary in order to verify the amount
of Net Transferred Cash. Within thirty (30) days after receipt of such
certificate, the Buyer shall notify the Sellers of any disagreement
with such calculation. If there is any disagreement, the Sellers and
the Buyer shall meet to resolve any discrepancies. In the event the
Sellers and the Buyer are unable to agree on the amount of Net
Transferred Cash, any such dispute will be arbitrated as provided in
Section 16.13. However, as to any amount not in dispute either the
Sellers or the Buyer will make a payment based on the calculation
referred to in paragraph (d) below.
(d) Upon the determination of the Net Transferred Cash
pursuant to paragraph (c) of this Section 4.3, either the Sellers or
the Buyer shall make a payment to the other based on the Net
Transferred Cash. In the event that Advanced Cash exceeds Withdrawn
Cash, the Buyer shall pay to the Sellers an amount equal to the
absolute value of the Net Transferred Cash. In the event that Withdrawn
Cash exceeds Advanced Cash, the Sellers shall pay to the Buyer an
amount equal to the absolute value of the Net Transferred Cash. Any
such payment shall also include interest on such amount from the
Closing Date to the date preceding the date of payment (calculated on
the basis of a 360-day year consisting of 12 30-day months) at the
Applicable Rate. Any such payment shall be made in same day funds by
wire transfer to account(s) designated by the Sellers or the Buyer, as
applicable.
(e) The Sellers agree that during the Interim Period the cash
management practices of the RECI Companies will be conducted on a basis
consistent with past practice.
Article 5
---------
Representations and Warranties of the Sellers
---------------------------------------------
The Sellers jointly and severally represent and warrant to the Buyer as
follows:
5.1. Organization; Authority. Each of the Sellers is a corporation
------------ ---------
duly organized, validly existing and in good standing under the laws of the
State of Delaware with corporate power and authority to enter into this
Agreement, the Receivables Termination Agreement, the Tax Sharing Agreement and
the Indemnified Project Subcontracts (collectively, the "Acquisition
-----------
Agreements") to which it is a party, and to perform its obligations hereunder
- ----------
and thereunder. Each RECI Subsidiary is a corporation or other entity (as
indicated on Schedule A) duly organized, validly existing and in good standing
-------- -
under the laws of its jurisdiction of organization with corporate, partnership
or similar power and authority to enter into the Acquisition Agreements to which
it is a party and to perform its obligations thereunder. Each of the RECI
Companies has sufficient corporate, partnership or similar power and authority
to own its assets and
<PAGE>
-12-
conduct its operations as now conducted. Each of the RECI Companies is qualified
as a foreign corporation in each jurisdiction in which its assets or business
operations require such qualification, except for those jurisdictions where the
failure to so qualify individually or in the aggregate has not had and would not
reasonably be expected to have a material adverse effect on the business,
assets, liabilities, financial condition or results of operations of the
Purchased Business taken as a whole (with each of the foregoing being referred
to herein as a "Material Adverse Effect"). Except as set forth on Schedule 5.1,
-------- ------- ------ -------- ---
correct and complete copies of the certificates of incorporation, by-laws or
other organizational documents of the RECI Subsidiaries have been provided or
made available to the Buyer prior to the date hereof.
5.2. Binding Effect. The execution and delivery of the Acquisition
------- ------
Agreements and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary corporate,
partnership or similar action on behalf of the Sellers who are parties thereto,
and this Agreement has been duly executed and delivered by each of the Sellers
and, assuming the due authorization, execution and delivery thereof by the
Buyer, constitutes, and the other Acquisition Agreements, assuming the due
authorization, execution and delivery thereof by the Buyer, if a party thereto,
when executed and delivered by the Sellers, as applicable, will constitute, the
legal, valid and binding obligation of such Sellers who are parties thereto,
enforceable against such Sellers in accordance with their terms, subject as to
enforcement to bankruptcy, insolvency or similar laws affecting creditors'
rights generally or by equitable principles relating to the availability of
remedies.
5.3. Non-Contravention. Except as set forth in Schedule 5.3 hereto
----------------- -------- ---
and except for any of the following with respect to any consents to transfer
required with respect to any contracts included in the Acquired RECI Assets,
neither the execution and delivery of the Acquisition Agreements by the Sellers
who are parties thereto, nor the consummation by such Sellers of the
transactions contemplated hereby or thereby, will constitute a breach or
violation of, be in conflict with, or constitute or create a default under, give
rise to a right of termination, modification, acceleration (whether after the
giving of notice or lapse of time or both) or cancellation of any material right
or obligation under, or result in the creation or imposition of any Encumbrance
(as defined in Section 5.17) upon any assets of Raytheon or any RECI Company
pursuant to:
(a) any contract, agreement or commitment to which Raytheon
or any RECI Company is a party or by which Raytheon or any RECI Company
or any of their respective properties (including, without limitation,
any of the Acquired RECI Assets) is bound or to which Raytheon or any
RECI Company or any of their respective properties is subject, except
in the case of this clause (a) for any breaches, violations, conflicts,
defaults, terminations, modifications, accelerations, cancellations or
Encumbrances that individually or in the aggregate would not reasonably
be expected to have a Material Adverse Effect;
(b) the articles or certificate of incorporation or by-laws
or other constitutive documents of Raytheon or any RECI Company; or
<PAGE>
-13-
(c) any statute, regulation, rule, judgment, order, decree or
injunction of any government, governmental agency or court or other
tribunal to which Raytheon or any RECI Company or any of their
respective properties is subject, except in the case of this clause (c)
for (i) any requirement to provide notices or obtain approvals with
respect to a change of control of any RECI Companies under any Permits
(as defined in Section 5.13), (ii) any consents to transfer with
respect to any Government Contract (as defined in Article 14) or
Government Subcontract (as defined in Article 14), and (iii) any
breaches, violations, conflicts, defaults, terminations, modifications,
accelerations, cancellations, terminations, or Encumbrances that
individually or in the aggregate would not subject Raytheon or any RECI
Company or the Buyer to any criminal penalty and would not reasonably
be expected to have a Material Adverse Effect.
5.4. Financial Statements.
--------- ----------
(a) The Sellers have delivered the following financial
statements to the Buyer, and there are attached as Schedule 5.4(a) hereto
-------- ------
correct and complete copies of: audited consolidated balance sheets of the RECI
Companies at December 31, 1999 and December 31, 1998 and audited consolidated
statements of operation and cash flows for the three years ended December 31,
1999 (the "Financial Statements"). Except as noted on Schedule 5.4(a) hereto:
--------- ---------- -------- ------
each of such Financial Statements was prepared in accordance with GAAP applied
on a basis consistent with prior periods; each balance sheet included in the
Financial Statements presents fairly, in all material respects, the consolidated
financial condition of the RECI Companies as of its date; and each of such
statements of operations and cash flows included in the Financial Statements
presents fairly, in all material respects, the consolidated results of
operations and cash flows of the RECI Companies for the periods covered thereby.
(b) Except as set forth on Schedule 5.4(b) or those reflected
-------- ------
in the Financial Statements, as of the date of this Agreement there are no
reserves on the books and records of any member of the Raytheon Group, other
than the RECI Companies, relating to the Purchased Business.
(c) The Sellers have delivered to the Buyer, and there is
attached as Schedule 5.4(c) hereto, (i) reconciliations of the financial
-------- ------
information set forth in the unaudited consolidated balance sheets of the RECI
Companies at December 31, 1999 and December 31, 1998 and unaudited consolidated
statements of operations for the three years ended December 31, 1999 and
statements of cash flows for the two years ended December 31, 1999, copies of
which were previously provided to the Buyer, to the corresponding financial
information set forth in the Financial Statements, (ii) reconciliations of the
respective amounts of sales and operating income set forth in the Financial
Statements for the years ended December 31, 1998 and December 31, 1997 to the
respective amounts of sales and operating income set forth in the notes to the
consolidated financial statements contained in Raytheon's Annual Report on Form
10-K for the year ended December 31, 1998 for each of such periods, and (iii)
reconciliations
<PAGE>
-14-
of the respective amounts of sales and operating income set forth in the
unaudited consolidated statements of operations for the nine month periods ended
September 30, 1999 and September 30, 1998, copies of which were previously
provided to the Buyer, to the respective amounts of sales and operating income
set forth in the notes to the consolidated financial statements contained in
Raytheon's Quarterly Report on Form 10-Q for the quarter ended September 30,
1999. All of such reconciliations are correct and complete in all material
respects.
(d) The Sellers have delivered to the Buyer, and there is
attached as Schedule 5.4(d) a copy of, a schedule showing in summary form the
-------- ------
financial information included in the Financial Statements with adjustments as
follows:
(i) Sales and cost of sales for the Indemnified
Projects have been excluded from the income statements for the years
December 31, 1997, 1998 and 1999 and changes in cash flows for the
Indemnified Projects has been excluded from the statement of cash flows
for the years ended December 31, 1997, 1998 and 1999;
(ii) contracts-in-process, accounts payable and other
balance sheet amounts associated with the Indemnified Projects have
been excluded for the balance sheets as of December 31, 1997, 1998 and
1999;
(iii) balance sheet, income statement and cash flow
amounts for Arayco, Inc. which was sold in 1999, have been excluded for
the years ended December 31, 1998 and 1999;
(iv) construction in process balances relating to the
Retained Claims (other than with respect to Retained Claims with
respect to the Indemnified Projects, which has been excluded pursuant
to adjustments referred to in clause (ii) above) as of December 31,
1998 and 1999, have been excluded as follows: actual cost to date for
each project divided by the then estimated cost at completion for each
project, multiplied by the amount representing the value at which each
Retained Claim is included in each project's then estimate at
completion, and that amount is reduced by the project specific
identified claim reserve, and any other general claim reserves;
(v) balance sheet, income statement and cash flow
impact of the Pension Plan (as defined in Section 5.20(f)) has been
excluded for the years ended December 31, 1997, 1998 and 1999 and at
period end; and
(vi) Federal and consolidated state income taxes have
been excluded from the balance sheets at December 31, 1997, 1998 and
1999.
(e) The revenue and cost information set forth in the
Executive Summary Reports ("ESRs") with a data date as of December 31, 1999,
----
copies of which were previously provided to the Buyer, for the projects
identified on Schedule 5.4(e) is
-------- ------
<PAGE>
-15-
the same revenue and cost information for such projects as is reflected in the
December 31, 1999 unaudited consolidated balance sheet referred in paragraph
(c)(i) above. Attached as part of Schedule 5.4(e) is a list of reserves for the
-------- ------
applicable projects that were reflected on the December Balance Sheet but not
reflected in the ESRs. Such list is correct and complete in all material
aspects.
(f) Schedule 5.4(f) hereto sets forth a correct and complete
-------- ------
list by age of the contracts in process of the RECI Companies ("CIP") as of
---
December 31, 1999, identifying separately contracts in process-billed and
contracts in process-unbilled. Except as set forth on Schedule 5.4(f), as of the
-------- ------
date of this Agreement the Sellers have no knowledge of any claim of set-off
relating to any CIP other than any claims that individually and in the aggregate
would not reasonably be (x) expected to have a Material Adverse Effect and (y)
any claims relating to the Indemnified Projects or the Retained Claims.
(g) Except as set forth on Schedule 5.4(g), as of the date of
-------- ------
this Agreement, the Sellers have no knowledge of any claim of set-off relating
to any of the current assets of the RECI Companies (determined in accordance
with Modified GAAP), except for (x) any claims that individually and in the
aggregate would not reasonably be expected to have a Material Adverse Effect and
(y) any claims relating to the Indemnified Projects or the Retained Claims.
5.5. Absence of Certain Changes.
------- -- ------- -------
(a) Except as set forth on Schedule 5.5 or in the Financial
-------- ---
Statements, since December 31, 1999 to the date of this Agreement, no RECI
Company has conducted the Purchased Business in a manner outside the ordinary
course of business in any material respect. Except as set forth on Schedule 5.5,
-------- ---
since December 31, 1999 to the date of this Agreement, there has been no change
in the financial condition, results of operations, assets, liabilities or
business of the Purchased Business other than any changes that, individually or
in the aggregate, would not reasonably be expected to have a Material Adverse
Effect. Without limiting the foregoing, since December 31, 1999 to the date of
this Agreement, except as set forth on Schedule 5.5, there has been no material
-------- ---
damage to, or destruction of, or other material adverse change in the physical
condition, capacity or operation of, the assets of the RECI Companies taken as a
whole, other than such damage, destruction or changes that individually or in
the aggregate would not reasonably be expected to have a Material Adverse
Effect.
(b) The Sellers have previously provided to the Buyer correct
and complete copies of the ESRs for all Transferred Risk E&C Contracts, for
which the RECI Companies produce ESRs in the ordinary course of business, as of
a December 31, 1999 data date. Such ESRs were prepared on a basis consistent in
all material respects with the historical practice of the RECI Companies. In the
preparation of such ESRs, the RECI Companies did not intentionally fail to
reflect any known events that would reasonably have been expected to have a
Material Adverse Effect.
<PAGE>
-16-
5.6. No Undisclosed Liabilities. Except as set forth on Schedule
-- ----------- ----------- --------
5.6, as of the date of this Agreement, no RECI Company has any liabilities,
- ---
indebtedness or obligations of any nature, whether accrued, absolute, contingent
or otherwise, which pursuant to GAAP would be required to be reflected on a
balance sheet of the Purchased Business prepared as of the date of this
Agreement or disclosed in a footnote thereto, except for (i) Specified Seller
Liabilities, (ii) liabilities, indebtedness or obligations reflected on the
December Balance Sheet or in a footnote thereto or reflected in the Projected
March 31 Balance Sheet or in a footnote thereto, (iii) liabilities, indebtedness
or obligations incurred since December 31, 1999 in the ordinary course of
business and (iv) any indebtedness, liabilities or obligations that individually
or in the aggregate would not reasonably be expected to have a Material Adverse
Effect.
5.7. Equipment; Sufficiency of Assets.
---------- ----------- -- ------
(a) Schedule 5.7(a) hereto sets forth a complete and accurate
-------- ------
list of all tangible personal property owned as of the dates referred to in
Schedule 5.7(a) by the RECI Companies and used in or relating to the Purchased
- -------- ------
Business and with a net book value at such date(s) of more than $100,000. Except
as set forth in Schedule 5.7(a), the tangible personal property owned by the
-------- ------
RECI Companies, considered collectively and not on an item by item basis, is in
good operating condition, subject to normal wear and tear, except where failure
to be in such condition would not reasonably be expected to have a Material
Adverse Effect.
(b) Except as set forth on Schedule 5.7(b), the assets of the
-------- ------
RECI Subsidiaries and the Acquired RECI Assets, when utilized by a labor force
substantially similar to that utilized by the RECI Companies as of the date of
this Agreement, and taken together with the services to be provided by the
Sellers pursuant to Sections 8.16 and 8.17 and the assets to be provided by the
Buyer pursuant to Section 8.16, will be adequate to conduct the operations of
the Purchased Business immediately after the Closing Date in the same manner in
all material respects as such operations were conducted as of the date of this
Agreement. The preceding sentence shall not be construed as a representation as
to the adequacy or scope of any Intellectual Property, with respect to which the
Sellers are making representations and warranties only as provided in Section
5.12.
5.8. Contracts.
---------
(a) Attached as Schedule 5.8(a) is a list of all real
-------- ------
property leases in effect on the date of this Agreement pursuant to which any
RECI Company leases real property (the "Real Property Leases");
---- -------- ------
(b) Attached as Schedule 5.8(b) is a list of all personal
-------- ------
property leases to which any RECI Company is a party as of the date of this
Agreement, other than any such lease that was entered into in the ordinary
course of business prior to the date of this Agreement and does not require
payments of more than $50,000 per annum and any
<PAGE>
-17-
project-specific personal property leases included in the contracts referred to
in paragraph (c) below;
(c) Attached as Schedule 5.8(c) is a list of all the
-------- ------
contracts, bids, subcontracts and other agreements outstanding as of the date of
this Agreement for the provision or prospective provision by any RECI Company of
engineering, design, procurement, construction, operation, maintenance or other
services (collectively, the "E&C Services"), other than:
--- --------
(i) contracts, subcontracts and other agreements for
the provision or prospective provision by any RECI Company of any E&C
Services entered into in the ordinary course conduct of the Purchased
Business that do not involve the payment to or by any RECI Company of
more than $500,000 and do not provide for compensation on a fixed fee
or lump sum basis;
(ii) in addition to the bids listed in Schedule
--------
5.8(c), any bids for the provision or prospective provision by any RECI
------
Company of any E&C Services outstanding on the date of this Agreement
and made in the ordinary course conduct of the Purchased Business that
do not (including the contract contemplated by such bid) involve the
payment to or by any RECI Company of more than $500,000 or provide for
compensation on a fixed fee or lump sum basis; and
(iii) in connection with the contracts, bids,
subcontracts and agreements listed in Schedule 5.8(c) or described in
-------- ------
any of (i) or (ii) above, all related purchase orders, completed and
uncompleted job orders, change orders, extra work orders, amendments,
modifications, subcontracts and similar agreements, and any ancillary
contracts entered into in connection with such contracts, subcontracts
and agreements, such as project-specific hedging or currency swap
agreements and any services agreements (other than any agency or
representative agreement).
(d) Except as set forth on Schedule 5.8(d) or listed on
-------- ------
Schedule 5.8(c), as of the date of this Agreement none of the RECI Companies is
- -------- ------
a party to any joint venture or consortium agreements other than any such
agreements that are no longer binding on any RECI Company.
(e) Except as listed on Schedule 5.8(e) (the "Listed
-------- ------ ------
Confidentiality Agreements"), as of the date of this Agreement none of the RECI
- --------------- ----------
Companies are party to any confidentiality or secrecy agreements other than any
confidentiality or secrecy agreements entered into in the ordinary course
operation of the Purchased Business or that are no more restrictive than any of
the agreements listed on Schedule 5.8(e) and other than any such agreements that
-------- ------
are no longer binding on any RECI Company.
(f) Except for (A) the contracts, agreements and other
arrangements referred to in Sections 5.8(a)-(e), (B) the ERISA Plans and
Non-ERISA Plans (as defined
<PAGE>
-18-
in Section 5.20), (C) the Support Agreements (as defined in Section 8.8), (D)
the agreements listed in Schedule 5.12(b), (E) the contracts, agreements and
-------- -------
other arrangements listed or described on Schedule 5.8(f), (E) the Retained RECI
-------- ------
Contracts and Retained Risk E&C Contracts, (F) the contracts and other
arrangements listed in Schedule 7.12, (G) any guarantee by a RECI Company of the
-------- ----
obligations of another RECI Company of any of the contracts, agreements or other
arrangements referred to in the foregoing clauses (A) through (F), and (H) any
contracts, agreements or other arrangements that have been fully performed and
with respect to which no RECI Company has any further obligations or
liabilities, as of the date of this Agreement no RECI Company is a party to or
otherwise bound by any:
(i) mortgage, indenture, note, installment obligation
or other instrument relating to the borrowing of money;
(ii) guarantee of any obligation or any letter of credit
or bond (excluding endorsements of instruments for collection in the
ordinary course of the operation of their business);
(iii) offset, countertrade, distributor, sales
representative or sales agency (including any foreign agents or
representatives) agreement;
(iv) agreement for the sale or lease of any of its
assets requiring the payment of more than $250,000;
(v) agreement requiring the payment by such RECI
Company of more than $250,000 for the purchase or lease of any real
estate, machinery, equipment or other capital assets;
(vi) contract, agreement, legal commitment or proposal
for the sale of products or the performance of services which would
involve payment to such RECI Company of more than $1,000,000;
(vii) personal property lease with an annual rent of
$50,000 or more and an original term of more than one year;
(viii) real property lease or sublease (as lessee, lessor,
sublessee or sublessor);
(ix) contract or agreement requiring such RECI Company
to purchase all or substantially all of its requirements for a
particular product from a supplier;
(x) except for the standard form of employee confi-
dentiality agreement that the RECI Companies attempt to enter into with
respect to all of their employees (the current form of which is
included as part of Schedule 5.8(f)), (A) employment agreement, (B)
-------- ------
consulting agreement, (C) agreement providing for severance payments or
(D) agreement providing for any rights or benefits
<PAGE>
-19-
(whether or not optional or subject to other conditions) in the event
of the sale or other change in control of such RECI Company or sale of
all or substantially all of its assets;
(xi) contract or other agreement with any current or
former officer, director, employee or consultant of such RECI Company
or any other member of the Raytheon Group (other than as set forth in
Schedule 5.20 or Schedule 5.21) or any present or former shareholder of
-------- ---- -------- ----
such RECI Company (other than another RECI Company or a member of the
Raytheon Group) or with any partnership, corporation, joint venture or
any other entity in which any such Person has a material interest;
(xii) joint venture or similar agreement;
(xiii) agreement imposing non-competition or exclusive
dealing obligations on such RECI Company;
(xiv) any tax-sharing or other contract or agreement
between any RECI Company and any other member of the Raytheon Group
(other than another RECI Company);
(xv) contract or agreement that is material to the
Purchased Business as a whole and that was not entered into in the
ordinary course operation of the business of such RECI Company;
(xvi) take-or-pay agreement;
(xvii) contract, agreement or arrangement granting to
any Person any preferential rights to purchase any assets or services
from such RECI Company;
(xviii) contract or agreement pursuant to which such RECI
Company provides or has provided consulting or remediation services
with respect to the Year 2000 problem;
(xix) project specific hedging or currency swap
agreement; or
(xx) contract, agreement or arrangement obligating
such RECI Company to make any equity investment in any Person, to make
payments to develop any project or to provide, or arrange for the
provision of, financing for any project.
(g) The Sellers have delivered, made available or offered to
make available to the Buyer correct and complete copies (or in the case of any
oral contracts, agreements or arrangements, summaries that are accurate in all
material respects) of each contract, agreement or other arrangement, as amended
to date, listed in Schedules 5.8 (a),
--------- -------
<PAGE>
-20-
(b), (c), (d) and (f) hereto and each contract listed on any other Schedule
- --- --- --- ---
hereto other than the Listed Confidentiality Agreements (collectively with the
Listed Confidentiality Agreements the "Listed Contracts"). Each Listed Contract
------ ---------
in effect on the date of this Agreement is a valid and binding obligation in all
material respects of such RECI Company party thereto, and, to the knowledge of
the Sellers, the other party or parties thereto, and as of the date of this
Agreement is in full force and effect in all material respects.
(h) Except as set forth in Schedule 5.8(h) hereto, as of the
-------- ------
date of this Agreement, neither any RECI Company nor, to the knowledge of the
Sellers, the other party or parties thereto is in breach of any term of any
Listed Contract, other than any Transferred Risk E&C Contract (as defined in
Article 14), except for any breaches that individually or in the aggregate would
not reasonably be expected to have a Material Adverse Effect. Except as set
forth in Schedule 5.8(h) hereto, as of the date of this Agreement, to the
-------- ------
knowledge of the Sellers neither any RECI Company nor the other party or parties
thereto is in breach of any term of any Transferred Risk E&C Contract, except
for any breaches that individually or in the aggregate would not reasonably be
expected to have a Material Adverse Effect.
(i) Except as set forth in Schedule 5.8(i), to the knowledge
-------- ------
of the Sellers since December 31, 1999 to the date of this Agreement, no RECI
Company has received any default notice or written threat thereof with respect
to any Listed Contract except for any such notices or written threats that
individually or in the aggregate would not reasonably be expected to have a
Material Adverse Effect.
(j) With regard to each of the Government Contracts or
Government Subcontracts that is a Listed Contract, except as set forth in
Schedule 5.8(j) as of the date of this Agreement, to the Sellers' knowledge:
- -------- ------
(i) each RECI Company has complied in all material
respects with all applicable statutes and other regulations, including
the False Claims Act, the Anti-Kickback Act, the Federal Election
Campaign Act, the Sherman Act, the Clayton Act and the regulations
under each of them;
(ii) no RECI Company has made any representations or
certifications that are untrue in any material respect or filed any
accountings that are inaccurate in any material respect;
(iii) there is no pending or threatened governmental
audit or investigation concerning any of the matters referred to in
clause (i) or (ii) above concerning defective pricing or relative to
debarment, other than regular audits in the ordinary course of
governmental contracts;
(iv) none of the managerial personnel of any RECI
Company has (A) engaged in any act of willful misconduct or lack of
good faith and none has failed to exercise prudent business judgment so
as to deprive any RECI
<PAGE>
-21-
Company of any material 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)(S)970.5204-31 (1997), (B) 48 C.F.R.(S)(S)970.5204-61
(1997), or (C) 48 C.F.R.(S)(S)970.3103-3 (1997) or under the insurance,
litigation and claims or similar clauses in any Government Contract or
Government Subcontract, or (B) engaged in any negligent or unreasonable
behavior so as to create any environmental liability in connection with
the performance of the Government Contracts or Government Subcontracts
so as to deprive any RECI Company of any material right to government
reimbursement for liabilities to third persons or to any governmental
authority. For purposes of this Section 5.8(c)(iv), the terms "lack of
good faith," "willful misconduct" and "prudent business judgment" have
the meanings given to such terms in 48 C.F.R. (S)(S)970.5204-31 (1997).
5.9. Backlog. Schedule 5.9 sets forth the backlog of the RECI
------- -------- ---
Companies as of January 31, 2000, including the estimate as of January 31, 2000
of the applicable RECI Company of the total revenues remaining to be earned with
respect to the contracts listed on Schedule 5.9. Except as set forth therein,
-------- ---
Schedule 5.9 has been prepared by senior management of the RECI Companies on a
- -------- ---
basis consistent with their past practice of preparing and tracking the backlog
of the RECI Companies. The Sellers and the Buyer agree that this Section 5.9
------- ---
shall not constitute any representation with respect to the future revenues,
results of operations or performance of the Purchased Business.
5.10. Outstanding Bids. Attached on Schedule 5.10 is a list of
----------- ---- -------- ----
outstanding or in process bids as of April 13, 2000 for the provision of any E&C
Services by a RECI Company which, if awarded, would involve the payment to any
RECI Company of more than $500,000. Except as set forth in Schedule 5.10, as of
-------- ----
the date of this Agreement no such bid listed on Schedule 5.10 which would
-------- ----
involve the payment to any RECI Company of more than $500,000, to the knowledge
of the Sellers was made (determined solely based on the projections of the RECI
Companies as of the time such bid was made) on a basis that would result in a
loss for the applicable RECI Company. Except as set forth in Schedule 5.10, no
-------- ----
bid listed thereon, if awarded, would obligate any RECI Company to make an
equity investment in any Person, to make payments to third parties to develop
any project or to provide, or arrange for the provision of, financing for any
project.
5.11 Major Suppliers and Customers. Attached as Schedule 5.11(a) is a
----- --------- --- --------- -------- -------
list of the top 20 customers, in terms of total dollar value of revenues, for
the RECI Companies for the year ended December 31, 1999. Attached as Schedule
--------
5.11(b) is a list of the top 20 suppliers to the RECI Companies, in terms of
- -------
total dollar value of orders placed, for the year ended December 31, 1999. Since
December 31, 1999 to the date of this Agreement, no RECI Company has received
any written notice or, to the Sellers' knowledge, oral notice from any customer
listed on Schedule 5.11(a) indicating that it intends to cease or reduce its
-------- -------
sales to or purchases from any RECI Company.
<PAGE>
-22-
5.12. Trademarks, Patents, Etc.
---------- ------- ---
(a) As of the date of this Agreement, Schedule 5.12(a) sets
-------- -------
forth a true and complete list of all patents, patent applications, registered
copyrights, registered trademarks and registered service marks owned by the RECI
Companies in connection with the Purchased Business. However, the parties
acknowledge the possibility of inadvertent error or omission with respect to the
items listed in Schedule 5.12(a) and, upon discovery of any such error or
-------- -------
omission, the parties agree to amend said Schedule to correct the error or
omission.
(b) As of the date of this Agreement, the agreements listed
in Schedule 5.12(b) constitute a complete listing of all agreements pursuant to
-------- -------
which any RECI Company has been licensed or otherwise granted rights in or to
any Intellectual Property or computer software owned by a third party which are
used in the operation of the Purchased Business as currently operated or
pursuant to which any RECI Company has granted such rights in Intellectual
Property or computer software to others, except for:
(i) shrink-wrap licenses related to off-the-shelf
computer software;
(ii) agreements covering computer software used by the
RECI Companies pursuant to companywide licenses held by Raytheon that
will be made available to the RECI Companies pursuant to Section 8.16
and 8.17;
(iii) any Retained RECI Contracts;
(iv) any Listed Contracts and any contracts, agreements
or arrangements referred to in Section 5.8(c);
(v) any Retained Risk E&C Contracts entered into in
the ordinary course of business; and
(vi) any other contracts, agreements or arrangements
that are not material to the operation of the Purchased Business and do
not impose any material restrictions on the Purchased Business.
(c) As of the date of this Agreement, neither the Sellers nor
any of the RECI Companies have received any written claims alleging that the
conduct of the Purchased Business infringes any third party intellectual
property rights except for such claims identified in Schedule 5.12(c) and except
-------- -------
for any such claims as have been previously resolved and are no longer
outstanding.
(d) To the knowledge of the Sellers and subject to the
proviso set forth below, neither the use nor other exploitation, which is
material to the operation of the Purchased Business as operated as of the date
of this Agreement, by any RECI Company
<PAGE>
-23-
of any Intellectual Property, as such Intellectual Property is used or exploited
by Sellers in connection with the operation of the Purchased Business as of the
date of this Agreement, (i) infringes on any valid and enforceable patent,
trademark, servicemark or copyright of any other Person where any such
infringement would reasonably be expected to result in a Material Adverse
Affect, or (ii) constitutes a misuse or misappropriation of any trade secret or
of similar confidential information obtained from another Person where any such
misuse or misappropriation would reasonably be expected to result in a Material
Adverse Effect; provided, however, the provisions of this Section 5.12(d) do not
-------- -------
apply with respect to (x) any matters identified in Schedule 5.12(c), (y) any
-------- -------
matters identified in Schedule 5.12(d)1 as being the subject of an opinion from
-------- --------
outside patent counsel, or (z) any matters identified in Schedule 5.12(d)2 as
-------- --------
matters requiring continued evaluation.
(e) As of the date of this Agreement, neither the Sellers nor
any of the RECI Companies have received any written claims alleging that any of
the RECI Companies is in material breach of any agreement granting rights in
Intellectual Property except for any such claims identified in Schedule 5.12(e)
-------- -------
and except for any such claims as have been previously resolved and are no
longer outstanding, and to Sellers' knowledge as of the date of this Agreement,
neither any RECI Company nor the other party or parties thereto is in material
breach of any agreement granting rights in Intellectual Property except for any
such breaches that individually or in the aggregate would not reasonably be
expected to have a Material Adverse Effect; provided, however, the provisions of
-------- -------
this Section 5.12(e) do not apply with respect to any matters identified in
------- -------
Schedule 5.12(e) as matters requiring further evaluation.
- -------- -------
(f) The assets of the RECI Subsidiaries and the Acquired RECI
Assets will include all Intellectual Property owned by the RECI Companies and
will, subject to required consents, include all licenses which have been granted
to any of the RECI Companies by others with respect to Intellectual Property
used by the RECI Companies in the Purchased Business except (i) as otherwise set
forth on Schedule 5.12(f), (ii) any Excluded RECI Assets, (iii) any Intellectual
-------- -------
Property which if not included individually or in the aggregate would not
reasonably be expected to have a Material Adverse Effect, (iv) computer software
made available to the Buyer pursuant to Sections 8.16 and 8.17, and (v) any
licenses to use the Raytheon name (any right to use the Raytheon name shall be
solely as set forth in Section 8.10).
5.13. Governmental Consents; Transferability of Licenses, Etc.
------------ -------- --------------- -- -------- ---
(a) No consent, approval or authorization of, or
registration, qualification or filing with, any governmental agency or authority
is required for the execution and delivery of the Acquisition Agreements by the
Sellers who are parties thereto, or for the consummation by any Sellers of the
transactions contemplated hereby and thereby, except (i) as set forth on
Schedule 5.13(a), (ii) for the filings referred to in Section 8.1 under the
- -------- -------
H-S-R Act, and (iii) for any requirement to provide notices or obtain approvals
with respect to a change of control of any RECI Companies under any Permits,
(iv) for any consents to transfer with respect to any contract included in the
<PAGE>
-24-
Acquired RECI Assets that is a Government Contract or Government Subcontract,
(v) for any consents or approvals referred to in Section 8.18 and (vi) for
filing and recording appropriate documents normally required in connection with
conveyance of title to real or personal property or Intellectual Property.
(b) As of the date of this Agreement, each RECI Company has
and maintains, and Schedule 5.13(b) lists, all licenses, permits and other
-------- -------
authorizations from all governmental authorities ("Permits") required to be
-------
maintained by any RECI Company in connection with the conduct of the Purchased
Business, except for any project-specific licenses (other than any contractor or
engineering licenses), permits or authorizations and any licenses, permits or
other authorizations where the failure of any RECI Company to have and maintain
any or all of such licenses, permits and authorizations individually or in the
aggregate would not subject any RECI Company to any criminal penalty and would
not reasonably be expected to have a Material Adverse Effect. Except as noted on
Schedule 5.13(b) none of the Permits are in the name of RECI or any member of
- -------- -------
the Raytheon Group other than a RECI Subsidiary.
5.14. Claims, Change Orders and Disputes.
------- ------ ------ --- --------
(a) Except as set forth in Schedule 5.14, since December 31,
-------- ----
1999 to the date of this Agreement no RECI Company has received written notice
of any stop work order, suspension of work order or default notice or written
threat of debarment or suspension with respect to any Transferred Risk E&C
Contract except for any of the foregoing that individually or in the aggregate
would not reasonably be expected to have a Material Adverse Effect. Except as
set forth in Schedule 5.14, as of February 25, 2000 no claim, change order, or
-------- ----
request for equitable adjustment to the price or schedule ("Change Orders"),
------ ------
between any RECI Company and any of its suppliers, or between any RECI Company
and any of its customers, relating to any Transferred Risk E&C Contract is
"approved" or "pending" or "potential" (determined on a basis consistent with
the methodologies used by the RECI Companies to prepare ESRs), except for any
claim, change order or request (i) not involving more than $250,000 and (ii) not
reflecting a request for schedule adjustment in excess of ten (10) days.
(b) For each Change Order listed on Schedule 5.14, Schedule
-------- ---- --------
5.14 also indicates, as of February 29, 2000, (i) whether such Change Order is
- ----
classified as either approved or pending or potential and (ii) whether or not
such change orders have been reflected in the applicable project's ESR as of
February 25, 2000.
(c) With respect to any Government Contracts or Government
Subcontracts that are Listed Contracts, as of the date of this Agreement the
RECI Companies have not received any written notice from any governmental
authority that any costs incurred in excess of $250,000 with respect to such
Listed Contract have been disallowed by a contracting officer's final decision
pursuant to the Contracts Dispute Act of 1978. As of the date of this Agreement,
all required CAS disclosure statements and cost impact statements have been
submitted with respect to any Government Contract or Government Subcontract that
is a Listed Contract. As of the date of this Agreement, all
<PAGE>
-25-
required incurred indirect cost reports have been submitted with respect to any
Government Contract or Government Subcontract that is a Listed Contract. As of
the date of this Agreement, negotiated indirect cost years have been closed with
the U.S. government through the year 1997.
5.15. Insurance; Advances. (a) Attached as Schedule 5.15(a) is a
--------- -------- -------- -------
complete list of all insurance policies maintained as of the date of this
Agreement by or for the benefit of the RECI Companies covering any aspect of the
Purchased Business or any portion of the assets of the RECI Subsidiaries or the
Acquired RECI Assets (collectively the "Listed Insurance Policies"). As of the
------ --------- --------
date of this Agreement, all the Listed Insurance Policies are in full force and
effect, are valid and outstanding policies and provide that they will remain in
full force and effect through the respective dates set forth on Schedule
--------
5.15(a). As of the date of this Agreement, no member of the Raytheon Group
- -------
(other than a RECI Subsidiary) maintains any project-specific insurance policies
for the benefit of the RECI Companies covering any aspect of the Purchased
Business or any portion of the assets of the RECI Subsidiaries or the Acquired
RECI Assets.
(b) Schedule 5.15(b) sets forth a correct and complete list as
-------- -------
of March 31, 2000 of all outstanding amounts in excess of $1,000,000 that had
been advanced prior to the time such payments were required to be paid pursuant
to the specific terms of the applicable contract by any RECI Company to
unaffiliated third parties without obtaining a bond, letter of credit or similar
surety arrangement for the benefit of the RECI Company making such advance,
indicating the identity of each such third party and, for each such third party,
the amount of the advances thereto.
5.16. Bank Accounts. Schedule 5.16 lists the bank accounts used by
---- -------- -------- ----
the RECI Companies in connection with the Purchased Business as of the date of
this Agreement, excluding any project-specific or other short-term accounts
(specifying the identifying number and the names of the persons authorized to
make withdrawals therefrom or have access thereto). The Sellers have heretofore
provided to the Buyer a correct and complete reconciliation of the cash
reflected on the December Balance Sheet to the cash on deposit in such accounts
at December 31, 1999.
5.17. Capitalization of RECI Subsidiaries; Title to Assets.
-------------- -- ---- ------------- ----- -- ------
(a) The authorized, issued and outstanding capital stock of
each of the RECI Subsidiaries consists only of those shares and other equity
securities set forth next to the name of such RECI Subsidiary on Schedule
--------
5.17(a) hereto. Except as set forth on Schedule A and except for director's
- ------- -------- -
qualifying shares, all of the RECI Subsidiaries are wholly owned direct or
indirect Subsidiaries of RECI. Except as provided by this Agreement or as set
forth on Schedule 5.17(a), there are no outstanding rights, options or warrants
-------- -------
to purchase any capital stock of any of the RECI Subsidiaries or securities
convertible into or exchangeable for capital stock of any of the RECI
Subsidiaries. All such outstanding shares of capital stock of such RECI
Subsidiaries or rights to acquire such capital stock are owned of record and
beneficially as of the date of this Agreement as set forth in Schedule 5.17(a)
-------- -------
hereto. All shares of the RECI Subsidiaries are validly
<PAGE>
-26-
issued and outstanding and, except as set forth on Schedule 5.17(a), are fully
-------- -------
paid and non-assessable. Each holder of capital stock of any of the RECI
Subsidiaries has or will at Closing have good and valid title to its shares of
the capital stock of such RECI Subsidiary, free and clear of any security
interests, liens, claims, charges, options, mortgages, debts, leases (or
subleases), conditional sales agreements, title retention agreements, defects as
to title or restrictions against the transfer or assignment thereof or
encumbrances of any kind (collectively, "Encumbrances"), except as set forth on
------------
Schedule 5.17(a) and except for restrictions on transfer imposed by applicable
- -------- -------
laws. Except for the obligations to the Buyer under this Agreement or as set
forth on Schedule 5.17(a), no RECI Company is bound by any outstanding
-------- -------
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for such RECI Company to issue, deliver or sell, or cause to
be issued, delivered or sold any shares of the capital stock of any RECI
Subsidiary or any other equity security of any RECI Subsidiary or any securities
convertible into, exchangeable for or representing the right to subscribe for,
purchase or otherwise receive any shares of the capital stock of any RECI
Subsidiary or any other equity security of any RECI Subsidiary or obligating
such RECI Company to grant, extend or enter into any such subscriptions,
options, warrants, calls, commitments or agreements. Except as set forth on
Schedule 5.17(a), there are no outstanding contractual obligations of any RECI
- -------- -------
Company to repurchase, redeem or otherwise acquire any shares of capital stock
of such RECI Subsidiary. Except as set forth on Schedule 5.17(a), there are no
-------- -------
outstanding or existing proxies, voting trusts or other agreements or
understandings with respect to the voting of any shares of capital stock or
other securities of any RECI Subsidiary. Except as set forth on Schedule
--------
5.17(a), there are no outstanding or existing rights to participate in the
- -------
equity, income or election of directors or officers of any of the RECI
Subsidiaries.
(b) Except as set forth on Schedule 5.17(b), each RECI
-------- -------
Subsidiary is the lawful owner of and has good and valid title to all of its
assets, free and clear of any Encumbrances except for Permitted Encumbrances (as
defined in paragraph (c) below) and any Encumbrances that individually or in the
aggregate would not reasonably be expected to have a Material Adverse Effect.
The preceding sentence shall not be construed as a representation as to the
adequacy or scope of any Intellectual Property, with respect to which the
Sellers are making representations and warranties only as provided in Section
5.12. RECI is the lawful owner of and has good and valid title to all of the
Acquired RECI Assets, free and clear of any Encumbrance, except (i) for consents
required to transfer any contracts included in the Acquired RECI Assets, (ii) as
set forth on Schedule 5.17(b), (iii) for Permitted Encumbrances and (iv) for any
-------- -------
Encumbrances that individually or in the aggregate would not reasonably be
expected to have a Material Adverse Effect.
(c) Except as expressly provided in this Agreement (including
without limitation Section 8.3(a)), at and as of the Closing RECI will convey
the Acquired RECI Assets and the Purchased Shares to the Buyer by bills of sale,
certificates of title and instruments of assignment and transfer effective to
vest in the Buyer, and the Buyer will receive, good and valid title to the
Purchased Shares and all of the Acquired RECI Assets, subject to any requirement
to obtain consents to transfer any contracts included in the
<PAGE>
-27-
Acquired RECI Assets, free and clear of all Encumbrances, except for
Encumbrances that (i) are listed in Schedule 5.17(c) or set forth in the
-------- -------
agreements listed in Schedule 5.12(b), (ii) are excepted in title commitments
-------- -------
delivered to and accepted by Buyer, (iii) arise out of Taxes not in default and
payable without penalty or interest or the validity of which is being contested
in good faith by appropriate proceedings, (iv) represent the rights of
customers, suppliers and subcontractors in the ordinary course of business under
the terms of the Transferred Risk E&C Contracts or under general principles of
commercial or government contract law, (v) in the case of any contract, lease,
license or other agreement, are restrictions against the transfer or assignment
thereof that are included in the terms of such contract, lease, license or other
agreement, or (vi) that individually or in the aggregate would not reasonably be
expected to interfere in any material respect with the use of such assets in the
conduct of normal business operations of the Purchased Business (collectively,
"Permitted Encumbrances").
--------- ------------
(d) Schedule 5.17(d) is a correct and complete list of each
-------- -------
Person that is not an RECI Subsidiary (such persons so listed collectively, the
"Investment Entities") in which any RECI Company directly or indirectly owns on
---------- --------
the date of this Agreement any shares of capital stock, partnership interests or
other beneficial ownership interests or any security or other right or interest
convertible into or exercisable for any shares of capital stock, partnership
interests or other beneficial ownership interests, excluding any such interest
with an original acquisition cost and book value, as of the date of this
Agreement, less than $1,000,000 (collectively, the "Investment Interests"),
---------- ---------
indicating for each Investment Entity the Investment Interest therein owned by
any RECI Company and the RECI Company owning such Investment Interest. The
shares of capital stock included in the Investment Interests have been duly
authorized and are fully paid and non-assessable. Each holder of Investment
Interests that is a RECI Subsidiary has or will at the Closing have good and
valid title to its Investment Interests, free and clear of any Encumbrances,
except for Permitted Encumbrances and as set forth on Schedule 5.17(d) and
-------- -------
restrictions imposed by applicable law. Except as set forth on Schedule 5.17(d),
-------- -------
no RECI Company is bound by any agreement of any character that could require it
to sell or otherwise dispose of any Investment Interest and there are no
outstanding or existing proxies, voting trusts or other agreements or
understandings with respect to the voting of any Investment Interest.
5.18. Conformity to Law. Except as set forth on Schedule 5.18, prior
---------- -- --- -------- ----
to the date of this Agreement each RECI Company has complied with, and as of the
date of this Agreement is in compliance with, all laws, statutes, governmental
regulations and all judicial or administrative or tribunal orders, judgments,
writs, injunctions, decrees or similar commands applicable to the Purchased
Business or any RECI Company, except for any violations or noncompliance that
individually or in the aggregate would not reasonably be expected to have a
Material Adverse Effect; provided however that to the extent the foregoing
-------- -------
representation and warranty relates to the bidding, performance, accounting or
administration of any Transferred Risk E&C Contract or any of the matters
referred to in Section 5.8(j), such representation and warranty is limited to
the Sellers' knowledge as of the date of this Agreement. Except as set forth in
Schedule 5.18 hereto, as of the date of this Agreement no RECI Company has
- -------- ----
committed, been charged with,
<PAGE>
-28-
or to the knowledge of the Sellers been under investigation with respect to, nor
does there exist, any violation of any provision of any national, state or local
law or administrative regulation in respect of the Purchased Business or any of
the assets of the RECI Subsidiaries or the Acquired RECI Assets, except for any
charges, investigations or violations that individually or in the aggregate
would not reasonably be expected to have a Material Adverse Effect; provided
--------
however that to the extent the foregoing representation and warranty relates to
- -------
the bidding, performance, accounting or administration of any Transferred Risk
E&C Contract or any of the matters referred to in Section 5.8(j), such
representation and warranty is limited to the Sellers' knowledge as of the date
of this Agreement.
5.19. Litigation, etc. Except as set forth on Schedule 5.19 hereto,
---------- --- -------- ----
as of the date of this Agreement no action, suit, proceeding or investigation is
pending or, to the knowledge of the Sellers, threatened, against any RECI
Company, any of their Affiliates or any of their directors or officers relating
to or affecting the Purchased Business or any of the assets of the RECI
Subsidiaries or the Acquired RECI Assets, or which questions the validity of
this Agreement or any other Acquisition Agreement or challenges any of the
transactions contemplated hereby or thereby, except for any actions, suits,
proceedings or investigations that individually seek monetary damages of not
more than $1,000,000 or that individually or in the aggregate would not
reasonably be expected to have a Material Adverse Effect. As of the date of this
Agreement, no RECI Company is in default under any judgment, order or decree of
any governmental authority relating to the conduct of the Purchased Business or
any of the assets of the RECI Subsidiaries or the Acquired RECI Assets, except
for any defaults that individually or in the aggregate would not reasonably be
expected to have a Material Adverse Effect.
5.20. Employee Benefit Plans.
-------- ------- -----
(a) Except as set forth on Schedule 5.20(a) hereto and except
-------- -------
for the Project-Specific Plans (as defined below), no RECI Company maintains,
has any liability for or has any obligation to make contributions to or for the
benefit of any current or former officer, director, employee or consultant or
independent contractor of the Purchased Business, pursuant to any (i) "employee
benefit plan" within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") which is subject to ERISA (an
-----
"ERISA Plan"), or (ii) other plan, policy, fund, program, contract or
----- ----
arrangement providing bonuses, pension, retirement or profit-sharing benefits,
stock option or other incentive compensation, deferred compensation, vacation
benefits, health and medical benefits, fringe benefits, life insurance or
disability benefits, or severance benefits, other than plans or arrangements
mandated by law (a "Non-ERISA Plan"). RECI Companies contribute to multiemployer
--------- ----
health and welfare and pension plans of collective bargaining units pursuant to
project-specific agreements ("Project-Specific Plans"); except where reference
------- -------- -----
is made in this Section 5.20 to multiemployer plans, no representations are
being made as to Project-Specific Plans even though they are within the defined
terms "ERISA Plan" and "Non-ERISA Plan" for other purposes of this Agreement.
Except as noted on Schedule 5.20(a), the Sellers have heretofore made available
-------- -------
through the data room associated with this transaction at
<PAGE>
-29-
Raytheon's corporate headquarters or delivered to the Buyer true and complete
copies of each ERISA Plan and Non-ERISA Plan (and all agreements relating to the
administration thereof), the most recently completed annual report (with any
required attachments), the most recent IRS determination letter, any submissions
(and a description of the ultimate corrective action taken in connection with
each such submission) under Revenue Procedures 98-22 or 2000-16 (Employee Plans
Compliance Resolution System), any other advisory opinions or rulings applicable
to such Plan and the most recent actuarial valuation report prepared in
connection with such Plan.
(b) Those ERISA Plans and Non-ERISA Plans principally
providing benefits for individuals who are employed by or provide services to
the Purchased Business primarily at locations outside the United States are so
identified on Schedule 5.20(b). Except as set forth on Schedule 5.20(b), there
-------- ------- -------- -------
are no stock options, equity incentives, warrants, bond loans, or similar
benefits that have been granted by Raytheon or an RECI Company to and in
compensation of any of the individuals referred to in the preceding sentence.
(c) Neither Raytheon nor any of the RECI Companies, nor any
entity that together with Raytheon or any of the RECI Companies would be treated
as a single employer under Section 414 of the Code, has incurred or reasonably
expects to incur (i) any liability (unless previously satisfied) as a result of
a prior partial or complete withdrawal from a "multiemployer plan" within the
meaning of Section 3(37) of ERISA, or (ii) any liability to the PBGC (other than
required premiums with respect to on-going plans). All premiums required to be
paid under Section 4006 of ERISA by the RECI Companies or any entity aggregated
with the RECI Companies under Sections 4001(a)(14) and 4001(b)(1) of ERISA have
been timely paid by the RECI Companies or such entity.
(d) Except as set forth on Schedule 5.20(d), no ERISA Plan or
-------- -------
Non-ERISA Plan currently provides or promises or has a current obligation to
provide post-employment or post-retirement medical or life insurance benefits
other than continuation coverage required by Part 6 of Title I of ERISA or
applicable state insurance laws.
(e) Except as set forth on Schedule 5.20(e) and under the
-------- -------
Retention Agreements (as defined in Section 9.3), no employee or former employee
of, or independent contractor or consultant who provides or provided services to
the Purchased Business will become entitled to any bonus, retirement, severance,
job security or similar benefit or enhanced such benefit (including acceleration
of vesting or exercise of an incentive award) for which Buyer or the RECI
Subsidiaries will be responsible after the Closing solely as a result of the
transactions contemplated by this Agreement. There is no contract, plan or
arrangement covering any employee or former employee employed in connection with
the Purchased Business that, individually or collectively, could give rise to
any obligation of the Purchased Business for which the Buyer or the RECI
Subsidiaries will be responsible after the Closing which arises out of or
relates to Section 280G or Section 4999 of the Code.
<PAGE>
-30-
(f) Except as set forth on Schedule 5.20(f), (i) all of the
-------- -------
ERISA Plans and Non-ERISA Plans have been maintained and operated in all
material respects in accordance with all laws applicable to such plans, and the
terms and conditions of the respective plan documents, (ii) each ERISA Plan
intended to qualify under Section 401(a) of the Code (as defined in Article 14)
has been determined to so qualify by the Internal Revenue Service and to Sellers
knowledge and as to any ERISA or Non-ERISA Plan other than a Raytheon Employee
Benefit Plan, no event, omission or condition has occurred or exists that could
reasonably be expected to result in the loss of such qualification or could
reasonably be expected to require action under Revenue Procedures 98-22 or
2000-16 to maintain such qualification, (iii) there is no pending legal action,
proceeding or investigation, other than routine claims for benefits, concerning
any ERISA Plan or Non-ERISA Plan, (iv) no ERISA Plan or Non-ERISA Plan subject
to the requirements of Section 302 of ERISA or Section 412 of the Code has an
outstanding accumulated funding deficiency under Section 302 of ERISA or Section
412 of the Code or has been granted an extension of amortization periods which
remains in effect, (v) as to any ERISA Plan subject to the provisions of Title
IV of ERISA, there has not occurred any reportable event under Section 4043 of
ERISA, or other event or condition, which presents (A) a material risk of
termination of such Plan by the Pension Benefit Guaranty Corporation ("PBGC") or
----
(B) a material risk of plan termination liability to the PBGC under Title IV of
ERISA, (vi) there have been no prohibited transactions (within the meaning of
Section 406 of ERISA or Section 4975 of the Code) for which no exemption exists
under Section 408 of ERISA or Section 4975 of the Code and for which there is
any material liability or civil penalty assessed pursuant to Section 502(i) of
ERISA or material taxes imposed by Section 4975 of the Code, and (vii) with the
exception of the Raytheon Engineers & Constructors, Inc. Retirement Plan (the
"Pension Plan"), none of the ERISA Plans and Non-ERISA Plans are subject to the
------- ----
"minimum funding standards" of Section 412 of the Code or the provisions of
Title IV of ERISA.
(g) Except as set forth in Schedule 5.20(f), to the Sellers'
-------- -------
knowledge, neither the Sellers nor any administrator or fiduciary of any ERISA
Plan (or any agent of any of the foregoing) has engaged in any transaction, or
acted or failed to act in any manner that could subject the Buyer to any
material liability (by indemnity or otherwise) for breach of any fiduciary,
co-fiduciary or other duty under ERISA.
(h) No material tax under Section 4980B or 5000 of the Code
has been incurred with respect to any ERISA Plan or Non-ERISA Plan and to
Sellers' knowledge no circumstances exist which could give rise to such taxes.
(i) With respect to each ERISA Plan and Non-ERISA Plan, each
common law employee of the RECI Companies is either (A) eligible to participate
therein or (B) excluded from participation therein under the written terms of
such plan.
5.21. Compensation of and Contracts with Employees. (a) The Sellers
------------ -- --- --------- ---- ---------
have previously provided to the Buyer a complete and accurate, in all material
respects, list of each employee, consultant, leased employee (other than
short-term hires) or independent contractor who performed services primarily in
connection with the Purchased Business
<PAGE>
-31-
as of December 31, 1999, excluding short-term craft hires. With respect to each
such individual, the list sets forth the location of employment, the date of
hire and years of service for each such employee, the bonus paid, or to be paid,
to each such employee for the fiscal year ended December 31, 1999 and the
monthly salary as of December 31, 1999. Except as described on Schedule 5.21(a),
-------- -------
there have been no changes in, or binding commitments to change, such
compensation since December 31, 1999, other than regularly scheduled annual
increases in compensation in accordance with past custom and practice, and any
additional compensation provisions specified in individual offer letters,
employment agreements, change in control agreements or retention agreements.
(b) Except as set forth on Schedule 5.21(b), since June 30, 1999
-------- -------
to the date of this Agreement no employee who performed services primarily in
connection with the Purchased Business has ceased to perform services primarily
in connection with the Purchased Business but continued as an employee of a
member of the Raytheon Group.
5.22. Labor Relations. Except as set forth on Schedule 5.22, as of
----- --------- -------- ----
the date of this Agreement each RECI Company is in compliance in all material
respects with all national, state and local laws respecting employment and
employment practices, terms and conditions of employment, wages and hours and
nondiscrimination in employment, and is not engaged in any unfair labor
practice. Except as set forth on Schedule 5.22, as of the date of this
-------- ----
Agreement, there is no charge pending or, to the knowledge of the Sellers,
threatened against any RECI Company alleging unlawful discrimination in
employment practices before any court or agency and there is no proceeding or,
to the Sellers' knowledge, charge with regard to any unfair labor practice
against any RECI Company and relating to the Purchased Business pending before
the National Labor Relations Board or any similar governmental agency. Except as
set forth on Schedule 5.22, as of the date of this Agreement, there is no labor
-------- ----
strike, dispute, slow-down or work stoppage actually pending or to the knowledge
of the Sellers threatened against or involving the Purchased Business. Except as
set forth on Schedule 5.22, as of the date of this Agreement, no one has
-------- ----
petitioned within the last three years, and as of the date of this Agreement, no
one is now petitioning, for union representation of any employees of any RECI
Company. Except as set forth on Schedule 5.22, as of the date of this Agreement,
-------- ----
no material grievance or arbitration proceeding arising out of or under any
collective bargaining agreement and relating to the Purchased Business is
pending against any RECI Company and no claim therefor has been asserted. Except
as set forth on Schedule 5.22, as of the date of this Agreement none of the
-------- ----
employees of any RECI Company is covered by any collective bargaining agreement,
and no collective bargaining agreement is currently being negotiated by any RECI
Company. Except as described on Schedule 5.22 hereto, as of the date of this
-------- ----
Agreement, no RECI Company has experienced any material labor strike, dispute,
slow-down or similar work stoppage in the last three years.
5.23. Real Property.
---- --------
(a) Schedule 5.23(a) lists all real property owned by any of
-------- -------
the RECI
<PAGE>
-32-
Companies as of the date of this Agreement (the "Owned Real Property") and all
----- ---- --------
real property leased by the RECI Companies as of the date of this Agreement (the
"Leased Real Property").
------ ---- --------
(b) Except as set forth on Schedule 5.23(b), as of the date
-------- -------
of this Agreement the Owned Real Property and the Leased Real Property
(collectively, the "Real Property") constitute all of the real property owned or
used by the RECI Companies primarily in connection with the conduct of the
Purchased Business.
(c) Except to the extent specified on Schedule 5.23(c), one
-------- -------
or more of the RECI Companies is the undisputed sole lessee, licensee,
permittee, grantee or other beneficiary with respect to, and is in actual
possession of, the Leased Real Property, and is entitled to quiet enjoyment of
the Leased Real Property and the use of the Leased Real Property in connection
with the conduct of the Purchased Business without any interference or claims by
any Person, in accordance with the terms of the relevant Real Property Leases,
which Real Property Leases are, in each case, directly with the fee simple
owners of the Leased Real Property covered thereby.
(d) Except to the extent specified on Schedule 5.23(d), no
-------- -------
RECI Company has leased or sublet, as lessor or sublessor, and no third party is
in possession of, any of the Real Property. No RECI Company has transferred any
air rights, subsurface rights or development rights relating to the Real
Property, and no portion of the Real Property has been condemned, requisitioned
or otherwise taken by any governmental authority and to the Sellers' knowledge
no such condemnation, requisition or taking is threatened or contemplated.
(e) All improvements located on the Owned Real Property (the
"Improvements") were constructed and installed in compliance in all respects
------------
with then applicable laws, statutes, ordinances and codes affecting the Owned
Real Property at the time of construction, except where the failure to be so
constructed and installed individually or in the aggregate would not reasonably
be expected to have a Material Adverse Effect. Except as set forth on Schedule
--------
5.23(e), as of the date of this Agreement there are no structural or latent
- -------
defects in any of the Improvements, except such defects that individually or in
the aggregate would not reasonably be expected to have a Material Adverse
Effect. Except as set forth on Schedule 5.23(e), as of the date of this
-------- -------
Agreement the heating, electrical, plumbing, and other building equipment on the
Owned Real Property are in working order sufficient in all material respects for
the operation of the Purchased Business consistent with current practice.
(f) Except as set forth on Schedule 5.23(f), as of the date
-------- -------
of this Agreement no RECI Company has received any written notice from an
insurance company which has issued a policy or has been requested to issue a
policy with respect to any portion of the Improvements located on the Owned Real
Property or any board of fire underwriters or any other body exercising similar
functions requesting the performance of any repair, alterations or other work
which has not been complied with in all material
<PAGE>
-33-
respects, except where the failure to so comply individually or in the aggregate
would not reasonably be expected to have a Material Adverse Effect.
5.24. Tax Matters.
--- -------
(a) Except as set forth in Schedule 5.24, (i) each RECI
-------- ----
Subsidiary has filed or will file by the Closing Date all material Tax Returns
(as defined in Article 14) for the periods ending prior to the Closing Date
which are required to be filed with any foreign, federal, state or local
governmental authority or agency, and has paid, or made adequate provision for
the payment of, all Taxes (as defined in Article 14) shown to be due on such Tax
Returns. To the Sellers' knowledge, there are no additional assessments since
the date of such returns and reports except with respect to any Taxes for which
the Sellers are responsible under the Tax Sharing Agreement.
(b) Except as set forth in Schedule 5.24:
-------- ----
(i) Liens. There are no liens for Taxes (other than
-----
current Taxes not yet due and payable) on any of the Acquired Assets or
any assets of the RECI Subsidiaries;
(ii) Withholding Taxes. Each RECI Subsidiary has with-
----------- -----
held and paid all Taxes (other than current Taxes not yet due and
payable) required to have been withheld and paid, for the periods
ending prior to the Closing Date, in connection with amounts paid or
owing to any employee, creditor, independent contractor or other third
party for activities relating to the Purchased Business;
(iii) Parachute Payments. None of the RECI Subsidiaries
--------- --------
are parties to any agreement, contract or benefit arrangement that
represents an obligation to make any payments, or an obligation that
under certain circumstances could obligate the Buyer to make any
payments that will not be deductible under Code Section 280G;
(iv) Statute of Limitations. No RECI Subsidiary has
------- -- -----------
waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency;
(v) Claims. No RECI Subsidiary has received a written
------
claim or has knowledge of any other claim by any tax authority in any
jurisdiction where RECI Subsidiaries do not file Tax Returns asserting
that any RECI Subsidiary is or may be subject to taxation in such
jurisdiction, which claim could affect the Buyer or the Purchased
Business;
(vi) Deficiencies. No issue has been raised in writing
------------
by any tax authority which reasonably may be expected to result in a
deficiency for any taxable period of any RECI Subsidiary;
<PAGE>
-34-
(vii) Proceedings. No RECI Subsidiary is a party to, or
-----------
has received written notice of, any pending or threatened
administrative or judicial action or proceeding by any governmental
authority for the assessment or collection of any Taxes against or from
any RECI Subsidiary; and
(viii) Agreements. There is no Tax sharing or allocation
----------
agreement under which any RECI Subsidiary will have any obligations
after the Closing Date.
5.25. Safety, Zoning and Environmental Matters.
----------------------------------------
(a) Except as set forth on Schedule 5.25(a) hereto, as of the
-------- -------
date of this Agreement neither the Owned Real Property or any Leased Real
Property previously owned by a RECI Company and subsequently sold and leased
back (the "Sale Leaseback Property" and collectively the "Controlled Real
---- --------- -------- ---------- ----
Property") nor the activities carried on therein are in violation of any zoning,
- --------
health or safety law or regulation, including, without limitation, the
Occupational Safety and Health Act of 1970, as amended, and except for any
violations that individually or in the aggregate would not reasonably be
expected to have a Material Adverse Effect.
(b) Except as set forth in Schedule 5.25(b) hereto:
-------- -------
(i) as of the date of this Agreement no RECI Company
nor, to the knowledge of the Sellers, any operator of any of the RECI
Companies' present or past properties, is in violation, or alleged
violation, of any Environmental Laws (as defined in Article 14), except
for any violations that individually or in the aggregate would not
reasonably be expected to have a Material Adverse Effect;
(ii) as of the date of this Agreement, neither any RECI
Company nor Raytheon has received notice from any third party,
including without limitation any federal, state or local governmental
authority, (A) that any RECI Company is in violation of any
Environmental Law; (B) that any RECI Company or any predecessor in
interest has been identified by any third party, including without
limitation the United States Environmental Protection Agency ("EPA") or
---
any state regulatory authority as a potentially responsible party under
CERCLA or any similar state statute with respect to any site; (C) that
any hazardous waste as defined by 42 U.S.C. (S)(S)6903(5), any
hazardous substance as defined by 42 U.S.C. (S)(S)9601(14), any
pollutant or contaminant as defined by 42 U.S.C. (S)(S)9601(33) and any
toxic substance, oil or hazardous materials or other chemicals or
substances regulated by any Environmental Laws ("Hazardous Substances")
--------- ----------
which any one of them has handled, manufactured, produced, stored,
generated, transported, arranged for the disposal of or disposed of has
been found at any site at which a federal, state or local agency or
other third party has conducted, is conducting or has ordered that any
RECI Company or any predecessor in interest conduct a remedial
investigation, removal or other response action pursuant to any
Environmental Law; or (D) that any RECI
<PAGE>
-35-
Company or any predecessor in interest is or shall be a named party to
any claim, action, cause or action, complaint (contingent or otherwise)
or legal or administrative proceeding arising out of or relating to any
release of Hazardous Substances;
(iii) to the Sellers' knowledge, as of the date of this
Agreement (A) no portion of the past or present real properties owned,
leased or operated by any RECI Company, has been used for handling,
manufacturing, processing, storage or disposal of Hazardous Substances
by any RECI Company except in accordance in all material respects with
applicable Environmental Laws; and no underground tank or other
underground storage receptacle for Hazardous Substances is located on
any of the Owned Real Property or Leased Real Property; (B) in the
course of any activities conducted by any RECI Company, no Hazardous
Substances have been generated or are being used on such properties
except in accordance in all material respects with applicable
Environmental Laws; (C) there have been no releases (i.e., any past or
present releasing, spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, disposing or dumping) by
any RECI Company on, upon, into or from such properties, except for any
releases effected in compliance in all material respects with
Environmental Laws and that individually or in the aggregate would not
reasonably be expected to have a Material Adverse Effect; (D) any
Hazardous Substances that have been generated by any RECI Company on
such properties have been transported offsite only by carriers having
an identification number issued by the EPA and treated, stored or
disposed of only by treatment, storage, or disposal facilities
maintaining valid permits as required under applicable Environmental
Laws; and (E) with respect to any of the Controlled Real Property,
there have been no releases on, upon, from or into any real property in
the vicinity of any of the Controlled Real Property which, through
migration through soil or groundwater, may have come to be located on
any of the Controlled Real Property, except for any such releases which
individually or in the aggregate would not reasonably be expected to
have a Material Adverse Effect; and
(iv) none of the Controlled Real Property or to the
Seller's knowledge any other real property presently or formerly owned,
leased or operated by any RECI Company is subject to any applicable
environmental cleanup responsibility law or subject to any
environmental lien, and none of such properties shall be subject to the
provisions of any environmental real property transfer law or
regulation, by virtue of the transaction contemplated hereby.
5.26. Year 2000 Compliance.
---- ---- ----------
(a) The RECI Companies have completed a commercially
reasonable plan to investigate and correct any year 2000 problems associated
with (i) the use and operation of the RECI Companies' computer systems,
including the computer hardware and software used in the Purchased Business
(whether constituting or used in information systems, imbedded in or associated
with mechanical or other non-information systems or
<PAGE>
-36-
facilities infrastructure or otherwise); and (ii) the services provided through
the use and operation of the RECI Companies' computer systems. The Sellers,
however, do not represent and warrant that this plan will find and correct all
year 2000 problems which may arise in connection with the use and operation of
the RECI Companies' computer systems or the services provided through the use
and operation of the RECI Companies' computer systems or in connection with the
operation of any facilities designed and/or constructed by any of the RECI
Companies. However, the RECI Companies did not experience any significant
malfunctions or errors in connection with the use or operation of their computer
systems when the date changed from December 31, 1999 to January 1, 2000 or from
February 28, 2000 to February 29, 2000 and as of the date of this Agreement the
Sellers have no knowledge of any fact or circumstance that have caused the
Sellers to believe that the year 2000 problem will have a Material Adverse
Effect.
(b) Except as described on Schedule 5.26, as of the date of
-------- ----
this Agreement no RECI Company has given any express warranty to any Person in
connection with any consulting, remediation or other services performed by any
RECI Company with respect to the Year 2000 readiness of any Person's computer
hardware or software or information or non-information systems or facilities
infrastructure or any other aspect of so-called "Y2K" issues or problems.
5.27. Brokers. Other than Merrill Lynch Pierce Fenner & Smith
-------
Incorporated ("Merrill Lynch"), neither any RECI Company nor Raytheon has
------- -----
retained, utilized or been represented by any broker or finder in connection
with the transactions contemplated by this Agreement. The Sellers acknowledge
that the fees and expenses of Merrill Lynch are their responsibility and not
those of the Buyer.
5.28. Books and Records of RECI Companies. Except as set forth on
----- --- ------- -- ---- ---------
Schedule 5.28, all of the minute books and stock record books of each of the
- -------- ----
RECI Companies (or true and complete copies thereof) have been made available to
the Buyer for inspection and contain materially accurate records of all meetings
of, and written consents by, the boards of directors (and any committees
thereof) and stockholders of each of the RECI Companies since January 1, 1995
(or, if later, since the date of its acquisition by the Sellers).
5.29. Sellers' Representative. Raytheon has been duly appointed by
-------- --------------
RECI as its agent and attorney-in-fact for all purposes of this Agreement.
Without limiting the generality of the foregoing, (a) any delivery to Raytheon
of the Purchase Price in accordance with this Agreement will be conclusively
deemed for all purposes to be delivery of the Purchase Price to the appropriate
Seller(s), (b) any notice or other communication given to or by Raytheon in
accordance with the provisions of Section 16.2 will be conclusively deemed for
all purposes to be a notice or communication given to or by each of the Sellers,
and (c) any other delivery made by the Buyer to Raytheon will be conclusively
deemed for all purposes to be a delivery by the Buyer to the appropriate
Seller(s).
<PAGE>
-37-
Article 6
---------
Representations And Warranties of the Buyer
-------------------------------------------
The Buyer represents and warrants to the Sellers as follows:
6.1. Organization and Standing of Buyer. The Buyer is a corporation
------------ --- -------- -- -----
duly organized, validly existing and in corporate good standing under the laws
of the State of Delaware. The Buyer has full corporate power and authority enter
into the Acquisition Agreements and to consummate the transactions contemplated
hereby and thereby.
6.2. Corporate Approval; Binding Effect. The execution and delivery
--------- -------- ------- ------
of the Acquisition Agreements to which the Buyer is a party and the consummation
of the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action by the Buyer. This Agreement has
been duly executed and delivered by the Buyer and, assuming the due
authorization, execution and delivery thereof by the Sellers, constitutes, and
the other Acquisition Agreements to which the Buyer is a party when executed and
delivered by the Buyer, assuming the due authorization, execution and delivery
thereof by the Sellers who are parties thereto, will constitute, the legal,
valid and binding obligation of the Buyer, enforceable against the Buyer in
accordance with their terms, subject as to enforcement to bankruptcy, insolvency
or similar laws affecting creditors' rights generally or by equitable principles
relating to the availability of remedies.
6.3. Non-Contravention; Approvals. Neither the execution and
----------------- ---------
delivery of the Acquisition Agreements to which the Buyer is a party by the
Buyer nor the consummation by the Buyer of the transactions contemplated hereby
and thereby (including the assumption of the Assumed RECI Liabilities) will
constitute a violation of, or be in conflict with, constitute or create a
default under, or result in the creation or imposition of any Encumbrance upon
any property of the Buyer pursuant to (a) the Certificate of Incorporation or
By-Laws of the Buyer; (b) any agreement or commitment to which the Buyer is a
party or by which the Buyer or any of its properties is bound or to which the
Buyer or any of its properties is subject, except for any violations, conflicts,
defaults and Encumbrances that would not, individually or in the aggregate, (i)
materially impair the ability of the Buyer to perform its obligations hereunder
or under any of the other Acquisition Agreements, (ii) prevent or materially
delay the consummation of the purchase and sale of the Purchased Shares and
Acquired RECI Assets contemplated hereby or (iii) have a material adverse effect
on the business, financial condition or results of operations of the Buyer taken
as a whole (with any of the foregoing clauses (i), (ii) or (iii) referred to as
a "Buyer Material Adverse Effect"); or (c) except as set forth on Schedule 6.3,
----- -------- ------- ------ -------- ---
any statute, regulation, rule, judgment, order, decree, stipulation, injunction,
charge or other restriction of any government, governmental agency or court or
other tribunal to which the Buyer or any of its properties is subject, except
for any violations that would not, individually or in the aggregate, have a
Buyer Material Adverse Effect. Except as set forth on Schedule 6.3 and except
-------- ---
for the filings referred to in Section 8.1 under the H-S-R Act, no consent,
approval or authorization of, or
<PAGE>
-38-
registration, qualification or filing by the Buyer with, any governmental agency
or authority is required for the execution and delivery of the Acquisition
Agreements by the Buyer or for the consummation by the Buyer of the transactions
contemplated hereby and thereby.
6.4. Litigation, Etc. As of the date of this Agreement, no action,
---------- ---
suit, proceeding or investigation is pending or, to the knowledge of the Buyer,
threatened, against the Buyer relating to or affecting the Purchased Business,
or which questions the validity of this Agreement or any other Acquisition
Agreement or challenges any of the transactions contemplated hereby or thereby,
except for any actions, suits, proceedings or investigations that individually
or in the aggregate would not reasonably be expected to have a Buyer Material
Adverse Effect.
6.5. Financing. The Buyer has provided to the Sellers true and
---------
correct copies of commitment letters, dated April 14, 2000 (the "CSFB Commitment
---------------
Letters"), from Credit Suisse First Boston ("CSFB") and Bank of Montreal ("BMO")
- ------- ---- ---
to the Buyer providing for senior secured and unsecured credit facilities in the
aggregate principal amount of $1,275,000,000 (the "Senior Facilities"). The
-----------------
Buyer has also delivered to the Sellers true and correct copies of all ancillary
agreements relating to the CSFB Commitment Letters other than any agreement
relating solely to compensation (the "Ancillary CSFB Agreements"). The CSFB
--------- ---- ----------
Commitment Letters, if funded in accordance with their terms, when combined with
other funds available to the Buyer, will provide sufficient funds to consummate
the transactions contemplated by this Agreement, including, without limitation,
to (i) pay the Final Purchase Price, (ii) refinance the outstanding indebtedness
of the Buyer, (iii) pay any fees and expenses payable by the Buyer in connection
with the transactions contemplated by this Agreement or the financing thereof
and (iv) provide for the working capital needs of the Buyer (as estimated by the
Buyer) immediately following the Closing (collectively, the "Transaction
-----------
Costs"). As of the date of this Agreement, the Buyer has no reasons to believe
- -----
that any condition to obtaining the Senior Facilities cannot or will not be
waived or satisfied prior to the Closing Date.
6.6. Brokers. Except for Credit Suisse First Boston and Batchelder
-------
& Partners, Inc., the Buyer has not retained, utilized or been represented by
any broker or finder in connection with the transactions contemplated by this
Agreement. The Buyer acknowledges that the fees and expenses of Credit Suisse
First Boston and Batchelder & Partners, Inc. are its responsibility and not
those of the Sellers.
Article 7
---------
Conduct of Business Pending Closing
-----------------------------------
Each of the Sellers and the Buyer covenant and agree that, from and
after the date of this Agreement and until the Closing or termination of this
Agreement, except as otherwise specifically consented to or approved by the
other party hereto (which consents and approvals shall not be unreasonably
withheld), each of the Sellers and the Buyer
<PAGE>
-39-
shall perform its respective covenants set forth below. With respect to any
covenant set forth below applicable to any RECI Company, RECI agrees to cause
such other RECI Company to comply with such covenant. The provisions of this
Article 7 are cumulative, and the Sellers' obligations under any particular
Section hereof shall be determined without reference to (x) the provisions of
any other Section hereof or (y) the reference to the conduct of the Purchased
Business in the ordinary course contained in Section 7.2.
7.1. Full Access.
---- ------
(a) Subject to any existing confidentiality obligations of the
RECI Companies and any materials subject to attorney-client or attorney work
product doctrine privilege, RECI shall, and shall cause the other RECI Companies
to, afford to the Buyer and its authorized representatives full access during
normal business hours and upon reasonable notice to all personnel, facilities,
properties, books, records, contracts, bids and documents of such RECI Company
relating to the Purchased Business, the assets and liabilities of the RECI
Subsidiaries, the Acquired RECI Assets and the Assumed RECI Liabilities
(including access to the outside accountants for the RECI Companies and the
audit work papers of such accountants), and such RECI Company shall furnish or
cause to be furnished to the Buyer and its authorized representatives all such
information with respect to the Purchased Business as the Buyer may reasonably
request. The Buyer agrees to utilize such access in a manner so as not to
unreasonably disrupt the Purchased Business. The Sellers agree that the
limitations imposed above by attorney-client privilege or attorney work product
doctrine will not prohibit the Buyer from having access to the Sellers'
applicable legal personnel to discuss their caseloads and to review
non-privileged documents concerning existing and potential claims.
(b) Notwithstanding any provision of this Agreement to the
contrary, the Buyer and its representatives shall not have any access at any
time prior to the Closing to any information regarding pending or proposed bids
for new contracts or any related information where the Buyer or an Affiliate of
the Buyer also has or intends to bid for such contract, except that the Sellers
shall, and shall cause each of the RECI Subsidiaries to, provide such
information to the Bid Reviewer (as defined in the letter agreement dated the
date of this Agreement (the "Fire Wall Letter"), between the Sellers and the
---- ---- ------
Buyer implementing certain "fire wall" procedures). Any such information will be
handled by the Bid Reviewer only in accordance with the Fire Wall Letter.
(c) At or prior to the Closing, the Sellers shall provide the
Buyer with a list of Project-Specific Plans.
7.2. Carry on in Regular Course. Except as set forth on Schedules
----- -- -- ------- ------ ---------
7.4 or 7.5 or as contemplated by Section 8.28 or as otherwise expressly required
- --- ---
under this Agreement, each RECI Company shall operate its business and maintain
and preserve its owned and leased properties relating to the Purchased Business
substantially in the same manner as operated, maintained and preserved since
January 1, 1999 and shall not modify or amend their accounting policies,
practices and procedures or the manner in which their books, records and
financial statements pertaining to the Purchased Business
<PAGE>
-40-
are prepared, maintained and preserved or otherwise make or institute any novel
methods of management or operation. Nothing contained in Sections 7.3 through
7.11 shall limit the generality or effect of this Section 7.2.
7.3. No General Increases. No RECI Company shall increase in any
-- ------- ---------
manner the compensation payable or to become payable to any employee of the
Purchased Business or institute or increase any bonus, insurance, pension or
other benefit plan, payment or arrangement made to, for or with any such
employee, except for any of the foregoing resulting from regularly scheduled
annual increases in compensation in accordance with past custom and practice and
individual merit or other increases made in accordance with past custom and
practices. No RECI Company will amend in any material respect any of the Assumed
Employee Benefit Plans except for any amendments that the RECI Companies
reasonably believe are required by applicable law.
7.4. Contracts and Commitments.
--------- --- -----------
(a) General. Except with respect to any bids or contracts for
-------
the provision of any E&C Services (the requirements for which are set forth in
paragraphs (b)-(c) below) or any guarantees, subcontracts, purchase orders,
vendor agreements, contract modifications or change orders or similar agreements
relating thereto and except as set forth on Schedule 7.4, without the express
-------- ---
written consent of the Buyer, no RECI Company shall enter into any contract or
commitment or engage in any transaction binding on or affecting any RECI Company
or the Purchased Business that (i) is not in the usual and ordinary course of
business and consistent with the business practices of the Purchased Business as
conducted since January 1, 1999, or (ii) whether or not in the usual and
ordinary course of business, relates to the engagement or retention of any
Person as an employee, consultant or independent contractor for personal
services pursuant to a written agreement or could reasonably be expected to
involve a capital expenditure by such RECI Company in excess of $250,000 or
could otherwise reasonably be expected to involve the payment by the applicable
RECI Company of more than $250,000 during the course of such contract,
commitment or transaction or (iii) is between any RECI Company and any member of
the Raytheon Group that is not a RECI Company.
(b) Contracts for E&C Services. Without the express written
--------- --- --- --------
consent of the Buyer (which shall be provided or withheld on the basis set forth
in paragraph (c) below) and subject to paragraph (c) below in the case of
Overlapping Bids (as defined in the Fire Wall Letter), no RECI Company shall
enter into or make any new contract, bid, subcontract or other agreement for the
provision or prospective provision of any E&C Services, or enter into any
contract modification or change order with respect to any such outstanding
contract, bid, subcontract or other agreement if:
(i) such action is not effected in the ordinary course
of business of the RECI Companies and in accordance with the business
practices of the Purchased Business as conducted since January 1, 1999,
<PAGE>
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(ii) any of the foregoing constitutes or relates to a
cost-reimbursable contract for E&C Services and is expected (based
solely on the bid proposal prepared by the applicable RECI Company) to
involve payments to or by such RECI Company in excess of $10,000,000 or
to involve payments to or by such RECI Company in excess of $500,000
and have a fee for the RECI Company of less than 5%;
(iii) any of the foregoing constitutes or relates to a
fixed fee or lump sum contract for E&C Services and involves (based
solely on the bid proposal prepared by the applicable RECI Company)
payments to or by such RECI Company in excess of $2,000,000; or
(iv) such contract, bid, subcontract, agreement,
modification or change order provides for any process or performance
guarantee by a RECI Company, liquidated damages payable by a RECI
Company of more than $50,000 per day, any equity or debt investment by
a RECI Company or any of its Affiliates or is submitted to or entered
into with another member of the Raytheon Group.
However, no consent will be required under this paragraph (b)
for (A) any Retained Risk E&C Contract, (B) any such contracts, subcontracts and
agreements contemplated by and consistent with the terms of any of the bids for
the provision of E&C Services listed on Schedule 5.8(c) hereto and (C) any such
-------- ------
contracts, subcontracts and agreements contemplated by and consistent with the
terms of any of the bids for the provision of E&C Services referred to in clause
(ii) of Section 5.8(c), provided that the terms of such contract, bid,
subcontract or agreement do not meet any of the conditions set forth in clause
(iv) above.
(c) With respect to any contract, bid, subcontract or
agreement for which the Buyer's consent is required under clauses (ii)-(iii) of
paragraph (b) above, the Buyer's consent may be withheld only if (i) the Buyer
(acting through the Bid Reviewer, where applicable) reasonably determines that
such new contract, bid, subcontract or agreement was not effected or made in the
ordinary course of business of the RECI Companies and in accordance with the
business practices of the Purchased Business as conducted since January 1, 1999
or (ii) the Buyer (except in the case of Overlapping Bids) determines, in its
reasonable judgment, that such new contract, bid, subcontract or agreement was
not priced to yield a profit reasonably acceptable to the Buyer. With respect to
any contract, bid, subcontract or agreement for which the Buyer's consent is
required under clause (iv) of paragraph (b) above (with any such contract, bid,
subcontract or agreement referred to below as a "Nonconforming Bid"), the
------------- ---
Buyer's consent (acting through the Bid Reviewer, where applicable) may be
withheld in its discretion. With respect to any bid which the Bid Reviewer and
the Sellers have determined constitutes an Overlapping Bid the making of such
bid shall not be subject to the Buyer's consent. However, the Sellers agree that
any Overlapping Bid will only be made in the ordinary course of business of the
RECI Companies and in accordance with the business practices of the Purchased
Business as conducted since January 1, 1999 and
<PAGE>
-42-
no Overlapping Bid will be made if another member of the Raytheon Group is a
party. Where the Buyer is acting through the Bid Reviewer, the Buyer's consent
under this Section 7.4(c) shall be deemed given if the Bid Reviewer fails to
respond within five business days following their receipt of a written request
for such consent. Where the Buyer is not acting through the Bid Reviewer, the
Buyer's consent under this Section 7.4(c) shall be deemed given if the Buyer
fails to respond within two business days following its receipt of a written
request for such consent. The RECI Companies will not be required to prepare or
provide any information not customarily used or prepared by the RECI Companies
in its normal course of business regarding approval of contracts and bids.
(d) The Buyer and the Sellers agree to immediately develop
procedures to streamline the bid approval process contemplated by paragraph (c)
above and, to the maximum extent practicable, to run through the Buyer's bid
approval process at the same time the RECI Companies are completing their
internal approval process.
(e) Without the express written consent of the Buyer, no RECI
Company shall amend or modify in writing in any material respect, expressly
waive in writing a material right under or terminate any contract, subcontract
or other agreement meeting any of the conditions set forth in clauses (ii) or
(iii) of paragraph (a) above or clauses (ii)-(iv) of paragraph (b) above.
7.5. Sale of Capital Assets. Other than pursuant to this Agreement,
---- -- ------- ------
except as set forth on Schedule 7.5 no RECI Company shall sell or otherwise
-------- ---
dispose of any capital asset relating to the Purchased Business, and included in
the RECI Companies' property, plant and equipment account, with a net book value
in excess of $100,000, or any such capital assets relating to the Purchased
Business with aggregate net book values in excess of $500,000, without the prior
written consent of the Buyer, and in no event shall sell or otherwise dispose of
any such capital asset relating to the Purchased Business, other than in the
ordinary course of business and as contemplated by Section 1.4(l), without the
prior written consent of the Buyer.
7.6. Insurance. (a) Each member of the Raytheon Group shall
---------
maintain through the Closing Date insurance with respect to the Purchased
Business of the type and in the amounts as is consistent with the past practices
of the Raytheon Group with respect to the Purchased Business.
(b) From and after the Closing the Sellers shall use
commercially reasonable efforts to assure that the Buyer or the RECI
Subsidiaries shall have the right, power, and authority to make, or, if made
prior to the Closing, to continue to pursue, directly any claim for any loss,
liability or damage (other than any Specified Seller Liabilities) relating to
the Purchased Business and relating to or arising out of the pre-Closing
operation of the Purchased Business, but excluding any of the foregoing related
to the Indemnified Projects, Specified Seller Liabilities, Retained Risk E&C
Contracts, Retained RECI Assets or Distributed Assets (an "Insurance Claim"),
--------- -----
under any insurance maintained by any member of the Raytheon Group for the
benefit of the RECI
<PAGE>
-43-
Companies covering any aspect of the Purchased Business or any portion of the
assets of the RECI Subsidiaries or the Acquired RECI Assets (the "Seller
------
Insurance") and to receive directly recoveries thereunder. This paragraph (b)
- ---------
will not require the Sellers to convert any "claims made" policies to
"occurrence based" policies and will not obligate the Sellers to maintain any of
these policies with respect to Insurance Claims made or events occurring after
the Closing Date. Any such rights of the Buyer or the RECI Subsidiaries to make
any Insurance Claim shall be subject to any deductibles, exclusions,
retrospectively rated premiums and other terms of the applicable insurance
policy. The Buyer shall notify the Sellers, promptly upon making any such
Insurance Claim, of the basis and amount of such Insurance Claim.
(c) Where the Seller Insurance has been, or is, maintained
primarily for the benefit of the RECI Companies, the Purchased Business, the
assets of the RECI Subsidiaries or the Acquired RECI Assets, but excluding any
Seller Insurance that relates primarily to the Indemnified Projects, Specified
Seller Liabilities, Retained Risk E&C Contracts, Retained RECI Assets and
Distributed Assets, at the Closing the Sellers shall transfer such Seller
Insurance to the Buyer or the RECI Subsidiaries and the named insureds under
such Seller Insurance shall be changed to the RECI Subsidiaries and the Buyer
and the Sellers will be named as additional insureds or loss payee as their
interests may appear, and the Sellers shall assure that any consent required of
the insurer shall be granted to the Buyer upon Closing and through the
completion of all obligations under the policy, including those activities
regarding the handling, investigation, defense, and settlement of any claims.
However, all insurance premium obligations including return of dividends,
advances, and retrospective rating provisions and final audit premiums shall be
for the account of the Sellers.
7.7. Preservation of Organization. Each RECI Company shall use its
------------ -- ------------
commercially reasonable efforts, consistent with the past practice of the
Purchased Business as conducted since January 1, 1999 (i) to preserve the
business organization of the Purchased Business intact, (ii) to keep available
to the Buyer the Assumed Employees and (iii) to preserve for the Buyer the
present relationships of the Purchased Business with its suppliers and
customers, it being understood that some employees who would be Assumed
Employees may leave the employ of the Sellers, and the announcement of the
transactions contemplated by this Agreement may affect the relationships
described in clause (iii) above.
7.8. Compliance with Laws. Each RECI Company shall comply in all
---------- ---- ----
material respects with all laws, statutes and governmental regulations and all
judicial, administrative or tribunal orders, judgments, writs, injunctions,
decrees or similar commands applicable to the Purchased Business, the assets of
any RECI Subsidiary or the Acquired RECI Assets or as may be required for the
valid and effective transfer of the Purchased Shares and the Acquired RECI
Assets.
7.9. Notice of Proceedings. The Sellers shall promptly advise the
------ -- -----------
Buyer in writing of the commencement of any material suit, claim, action,
arbitration, legal or administrative proceeding, governmental investigation or
tax audit relating to or
<PAGE>
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involving the Purchased Business, the assets of any RECI Subsidiary or the
Acquired RECI Assets.
7.10. Permits; Intellectual Property. None of the Sellers shall, nor
-------- ------------ --------
shall they permit any RECI Subsidiary to, surrender, modify, amend, waive,
forfeit or otherwise adversely affect any right under any material Permit or any
material Intellectual Property owned, held or used by the RECI Companies.
7.11. Purchased Shares. None of the Sellers shall, nor shall they
--------- ------
permit any RECI Subsidiary to, sell, purchase, transfer or otherwise modify or
alter in any way the beneficial or record ownership of, or permit any of its
Affiliates to sell, purchase, transfer or otherwise modify or alter the
beneficial or record ownership of, any of the Purchased Shares or any other
shares of capital stock of any RECI Subsidiary or any Investment Interest,
including without limitation any such sale, purchase, transfer or other
modification or alteration of beneficial or record ownership among the Sellers
and one or more of their Affiliates in connection with any corporate
restructuring or reorganization.
7.12. Intercompany Obligations. Notwithstanding anything to the
------------ -----------
contrary contained herein, except as described in Schedule 7.12, at or
-------- ----
immediately prior to the Closing, the Sellers, in consultation with the Buyer,
shall cause all financial obligations due and payable as of the Closing Date or
attributable to any period ending on or prior to the Closing Date in respect of
Intercompany Obligations (as defined below) to be assigned and transferred,
canceled or otherwise satisfied and discharged as of the Closing, in each case
in a manner that has no adverse tax consequences (including the loss or
reduction of net operating loss carryforwards) to the Buyer or the RECI
Subsidiaries, with the result that immediately following the Closing, except as
set forth on Schedule 7.12, there shall be no obligations that constitute
-------- ----
Intercompany Obligations. For purposes of this Agreement, the term "Intercompany
------------
Obligations" means all intercompany notes, cash advances and payables between
- -----------
any of the RECI Subsidiaries, on the one hand, and the Sellers and any of their
Affiliates (other than any of the RECI Subsidiaries), on the other hand, other
than those arising under the terms of any contract or bid for E&C Services
listed on Schedule 5.8(c) or entered into after the date of this Agreement in
-------- ------
compliance with Section 7.4.
7.13. Advice of Change.
------ -- ------
(a) The Sellers will promptly advise the Buyer in writing of
any change in the business, assets, liabilities, financial condition or results
of operations of the Purchased Business of which the Sellers have or obtain
knowledge and which would reasonably be expected to have a Material Adverse
Effect.
(b) The Sellers will promptly advise the Buyer in writing of
any breach of any Transferred Risk E&C Contract of which the Sellers obtain
knowledge after the date of this Agreement and prior to the Closing, except for
any such breaches that individually or in the aggregate would not reasonably be
expected to have a Material Adverse Effect.
<PAGE>
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7.14. Satisfaction of Conditions Precedent. Each RECI Company shall
------------ -- ---------- ---------
use its commercially reasonable efforts to cause the conditions set forth in
Article 10 to be satisfied as promptly as practicable. The Buyer shall use its
commercially reasonable efforts to cause the conditions set forth in Article 11
to be satisfied as promptly as practicable.
Article 8
------- -
Transitional Matters and Additional Covenants
-------------------- --- ---------- ---------
8.1. HSR Act and Other Filings.
--- --- --- ----- -------
(a) The Buyer and the Sellers shall (a) as promptly as
practicable after the date hereof, with each of the Buyer and the Sellers using
their commercially reasonable efforts to make a prompt filing, make such filings
as may be required by the HSR Act with respect to the transactions contemplated
hereby, (b) respond promptly to inquiries from the Department of Justice and the
Federal Trade Commission in connection with such filings, (c) file or cause to
be filed as promptly as practicable with the Department of Justice and Federal
Trade Commission any supplemental information that may be requested pursuant to
the HSR Act, and (d) seek the earliest possible termination or waiver of the
waiting period under such statute. The Buyer and the Sellers shall also file or
cause the filing of the notices, applications, and requests with federal, state
and local governmental authorities described in Schedule 5.13.
-------- ----
(b) Each of the Sellers and the Buyer shall use commercially
reasonable efforts to resolve such objections, if any, as may be asserted with
respect to the transactions contemplated by this Agreement under any Antitrust
Law (as defined below). If any administrative, judicial or legislative action or
proceeding is instituted (or threatened to be instituted) challenging any
transaction contemplated by this Agreement as violative of any Antitrust Law,
the Sellers and the Buyer shall cooperate to contest and resist any such action
or proceeding, and to have vacated, lifted, reversed or overturned any decree,
judgment, injunction or other order (whether temporary, preliminary or
permanent) that is in effect and that restricts, prevents or prohibits
consummation of the transactions contemplated by this Agreement, including,
without limitation, by pursuing all reasonable avenues of administrative and
judicial appeal. The commercially reasonable efforts on the part of the Buyer
will include complying with any request to sell or otherwise dispose of, or hold
separate (through the establishment of a trust or otherwise) particular assets
or categories of assets, or businesses of the Buyer or the Purchased Business or
any of their Affiliates or withdraw from doing business in a particular
jurisdiction or take any other action requested so long as such action would
not, in the reasonable judgment of the Buyer, reasonably be expected to
substantially impair or substantially reduce the overall benefits expected, as
of the date hereof, to be realized by the Buyer from the consummation of the
transactions contemplated by this Agreement.
<PAGE>
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(c) Each of the Sellers and the Buyer shall promptly inform
each other of any material communication made to, or received by such party
from, the Federal Trade Commission, the Antitrust Division of the Department of
Justice or any other governmental or regulatory authority regarding any of the
transactions contemplated hereby.
(d) "Antitrust Law" means the Sherman Act, as amended, the
--------- ---
Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as
amended, and all other federal and state statutes, rules, regulations, orders,
decrees, administrative and judicial doctrines, and other laws that are designed
or intended to prohibit, restrict or regulate actions having the purpose or
effect of monopolization or restraint of trade.
8.2. Access to Books and Records.
------ -- ----- --- -------
(a) Subject to any existing confidentiality obligations of the
Sellers, from and after the Closing Date, during normal business hours and upon
reasonable notice, the Sellers will permit the Buyer and its auditors, through
its authorized representatives, to have access to and examine and take copies of
all records, contracts, bids and documents of the Sellers relating to the
Purchased Business which are not delivered to the Buyer pursuant to this
Agreement (including, but not limited to, correspondence, memoranda, books of
account and the like) and relating to (i) events occurring prior to the Closing
and (ii) transactions or events occurring subsequent to the Closing which are
related to or arise out of transactions or events occurring prior to the
Closing. The foregoing access will include any access reasonably required to
monitor the Sellers' compliance with the terms of this Agreement.
(b) Subject to any existing confidentiality obligations of the
Buyer, from and after the Closing Date, during normal business hours and upon
reasonable notice, the Buyer will permit the Sellers and their auditors, through
their authorized representatives, to have access to and examine and take copies
of all books, records, contracts, bids and documents of the Sellers and the RECI
Subsidiaries relating to the Purchased Business which are delivered to the Buyer
pursuant to this Agreement (including, but not limited to, correspondence,
memoranda, books of account and the like). The foregoing access will include any
access reasonably required to monitor the Buyer's compliance with the terms of
this Agreement.
(c) The Buyer and the Sellers will each direct its employees
to render any assistance which the other party may reasonably request in
examining or utilizing records referred to in this Section 8.2, provided that
each party shall be reimbursed by the other for any out-of-pocket expenses which
it may incur in rendering the services provided for in this Section 8.2. In
addition, to the extent that any records referred to in this Section 8.2
retained by the Sellers and any records referred to in this Section 8.2
transferred to the Buyer or belonging to the RECI Subsidiaries are located in
the same third-party storage facilities, the Buyer and the Sellers shall enter
into mutually acceptable arrangements regarding the sharing of costs, security
procedures and similar matters. In addition, to the extent that either the Buyer
or the Sellers concludes at any
<PAGE>
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time more than sixty (60) days after the Closing Date in its reasonable judgment
that its personnel have been devoting significantly more time providing the
services referred to in paragraph (a) or paragraph (b) above than the personnel
of the other party, the Buyer and the Sellers will agree on mutually acceptable
reimbursement provisions to reflect such disparity.
(d) The Buyer and each of the Sellers shall preserve and
protect, and the Buyer shall cause the RECI Subsidiaries to preserve and
protect, all books, records, contracts, bids and documents, files and data
referred to in paragraph (a) above or paragraph (b) above, (i) maintained for
the preparation of Tax Returns, for a period of ten (10) years after the Closing
Date, and (ii) other than those described in (i) above, for a period of six (6)
years after the Closing Date (or, in the case of Government Contracts and
Government Subcontracts, for a period of six (6) years following Contract
Completion with respect thereto).
(e) Neither the Buyer nor any of the Sellers shall destroy,
and the Buyer shall cause the RECI Subsidiaries not to destroy, any files or
records which are subject to this Section 8.2 (i) for the periods described in
clause (d) of this Section 8.2 and (ii) thereafter, without giving at least
thirty (30) days' notice to the other party. Upon receipt of such notice, such
other party may (i) cause to be delivered to it the records intended to be
destroyed, at such other party's expense or (ii) notify the first party that
such other party will pay the cost of storing and maintaining such books and
records (including any necessary costs of moving such books and records to a
location under control of such other party).
(f) Each of the Sellers and the Buyer will keep all
information of the other party referred to in this Section 8.2 confidential in
accordance with Article 12 hereof.
(g) In addition, as soon as practicable after the date of this
Agreement, the Sellers will use reasonable efforts to provide to the Buyer (i) a
list of all individuals formerly employed in connection with the Purchased
Business primarily at locations outside the United States and who terminated
employment within five years before the date hereof, showing their latest
position and the grounds for termination, and describing any known claims
against the Purchased Business by such former employees and (ii) with respect to
any such individuals who perform services primarily at locations outside the
United States, a description of the type of employment agreement applicable to
such employee, the actuarial value of accrued pension rights (whether or not
vested), termination notice period, special termination protection (if any), and
membership in any body of employee representation.
8.3. Nonassignable Contracts.
------------- ---------
(a) To the extent that any contract, governmental license
(other than any corporate charter or foreign qualification or similar
authorization) or permit included in the Acquired RECI Assets may not be
transferred to the Buyer pursuant to this
<PAGE>
-48-
Agreement without the consent, approval or waiver of a third person or entity
(including a governmental authority), and such consent, approval or waiver is
not obtained prior to the Closing, or if such transfer or attempted transfer
would constitute a breach thereof or a violation of any law, rule or regulation,
nothing in this Agreement (or, except as expressly provided to the contrary
therein, in any document or instrument delivered at the Closing pursuant to
Section 4.2 hereof) will constitute a transfer or an attempted transfer thereof.
(b) Notwithstanding anything contained in this Agreement to
the contrary, RECI will not be obligated to transfer to the Buyer any of its
rights and obligations in, to or under any of the contracts, governmental
licenses or permits referred to in paragraph (a) above and the Buyer will not be
obligated to assume any obligations under any such contract, government license
or permit, unless and until all consents, approvals and waivers necessary for
such transfer and assumption shall have been obtained. RECI will use
commercially reasonable efforts, and the Buyer will cooperate with RECI and use
its commercially reasonable efforts, to obtain such consents, approvals and
waivers as promptly as practicable. Each of the Buyer and RECI shall bear its
own expenses incurred in connection with such efforts.
(c) In the event that any consent, approval or waiver
necessary to assign to the Buyer any such contract, governmental license or
permit is not obtained by RECI prior to the Closing, then the Sellers and the
Buyer will each use its commercially reasonable efforts, each at its own
expense, to (i) provide to the Buyer the benefits and burdens of any such
contract, governmental license or permit, (ii) cooperate in any reasonable and
lawful arrangement designed to provide such benefits and burdens to the Buyer in
accordance with this Agreement, without incurring any additional obligation to
any other person or entity, including without limitation the appointment of the
Buyer as RECI's agent for purposes of such contract, governmental license or
permit and (iii) enforce, at the request of the Buyer for the account of the
Buyer any rights of RECI arising from any such contract, governmental license or
permit (including without limitation the right to elect to terminate such
contract in accordance with the terms thereof upon the advice of the Buyer).
Following the Closing, the Sellers shall not terminate, modify, amend or take
any action that would result in a breach of any contract, governmental license
or permit referred to in paragraph (a) without the Buyer's prior written consent
(which the Buyer may grant or withhold in its sole and absolute discretion).
(d) No consent, approval or waiver of a third person or entity
(including a governmental authority) with respect to the transfer of, or any
novation with respect to, any contract (including any Government Contract or
Government Subcontract), shall cause a Specified Seller Liability to be deemed
for purposes of this Agreement to have become a Specified Buyer Liability or
vice-versa or otherwise affect the respective rights of the Buyer and the
Sellers under Article 13.
<PAGE>
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8.4. Retained Risk E&C Contracts.
-------- ---- --- ---------
(a) With respect to the Retained Risk E&C Contracts (other
than the Indemnified Project Agreements), at the request of the Sellers the
Buyer agrees to perform, or cause the RECI Subsidiaries to perform, all warranty
and other obligations thereunder that do not constitute Specified Buyer
Liabilities in accordance with the requirements of such contracts and in a
commercially reasonable manner consistent with the Buyer's ordinary business
practices. The Sellers shall compensate the Buyer and the RECI Subsidiaries for
their services pursuant to this paragraph (a) (i) for the first 5,000 hours of
service provided by the Buyer and the RECI Subsidiaries pursuant to this
paragraph (a), at the Buyer Labor Rate (as defined in Article 14) for all
personnel of the Buyer and its Affiliates who would be chargeable to contracts
for E&C Services under the normal charging policies of the Buyer and its
Affiliates and (ii) for services in excess of 5,000 hours, at rates based on
market rates provided for similar services provided by third parties, as agreed
from time to time by the Buyer and the Sellers. The Sellers also shall reimburse
the Buyer and the RECI Subsidiaries for out-of-pocket expenses and a reasonable
charge for use of any of their equipment. All such amounts shall be paid within
five (5) business days after submissions of invoices in reasonable detail on a
monthly basis. The payment by the Sellers of any such amounts as provided above
shall not prejudice their rights to subsequently contest the amounts set forth
in the applicable invoice. The Sellers' obligations with respect to Retained
Risk E&C Contracts under Section 13.1 shall not be limited by, nor duplicative
of, the Sellers' obligations under this Section 8.4.
(b) The Buyer agrees to cause the RECI Subsidiaries to grant
to the Sellers a non-exclusive non-transferable royalty-free license to use all
Intellectual Property of the RECI Subsidiaries or included in the Acquired RECI
Assets as required by the Sellers to complete any obligations under the Retained
Risk E&C Contracts, fulfill their obligations under this Agreement and the other
Acquisition Agreements and otherwise wind down their ownership of the Purchased
Business.
8.5. General Assistance.
------- ----------
(a) The Buyer agrees to provide, or cause the RECI
Subsidiaries to provide, such support (including the availability of personnel
and records) as the Sellers may reasonably request to assist the Sellers in (i)
defending any litigation, arbitration or other dispute-resolution proceeding
relating to any casualty, personal injury, property damage, EEOC or other claims
of third parties relating to the Specified Seller Liabilities, or (ii) pursuing
claims of the Sellers against any third party, including insurers, and relating
to the Purchased Business, the RECI Companies, the assets of any RECI Subsidiary
or the Acquired RECI Assets. Without limiting the generality of the foregoing,
it shall constitute a reasonable request for assistance for the Sellers to
request that the Buyer use commercially reasonable efforts to provide witnesses
for interview and the giving of sworn testimony, including preparation of the
witness to testify, in connection with any trial, deposition, hearing or other
legal proceeding, arbitration or alternative dispute resolution proceeding. The
Sellers shall continue to direct all such
<PAGE>
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litigation and shall be responsible for all costs (including legal fees and
expenses incurred in connection therewith). The Sellers agree to pay all
out-of-pocket expenses incurred by the Buyer in providing such support. In
addition, after the Buyer or its Affiliates have expended in the aggregate a
total of 1,000 man-hours providing assistance pursuant to this Section 8.5, for
all additional services provided by the Buyer or its Affiliates pursuant to this
Section 8.5, the Sellers agree to pay the personnel costs for the services so
provided at the Buyer Labor Rate with respect to all personnel of the Buyer and
its Affiliates who would be chargeable to contracts for E&C Services under the
normal charging policies of the Buyer and its Affiliates. All such amounts shall
be paid in all cases within five (5) business days after submissions of invoices
in reasonable detail on a monthly basis. The payment by the Sellers of any such
amounts as provided above shall not prejudice their rights to subsequently
contest the amounts set forth in the applicable invoice. The Buyer agrees to use
commercially reasonable efforts to obtain from any Assumed Employee who
subsequently leaves pursuant to a severance arrangement undertakings of the sort
provided by the Buyer in the second sentence of this paragraph (a) and to use
commercially reasonable efforts to obtain such undertakings from any Assumed
Employee who leaves outside of a severance arrangement.
(b) Each of the Sellers agrees to use its commercially
reasonable efforts to provide such support (including the availability of
personnel and records) as the Buyer may reasonably request to assist the Buyer
and the RECI Subsidiaries in (i) defending any litigation, arbitration or other
dispute-resolution proceeding relating to any casualty, personal injury,
property damage, EEOC or other claims of third parties against the Buyer or the
RECI Subsidiaries relating to the Purchased Business (other than Specified
Seller Liabilities) or (ii) pursuing claims against any third party, including
insurers, and relating to the Purchased Business, the RECI Companies, the assets
of any RECI Subsidiary or the Acquired RECI Assets. Without limiting the
generality of the foregoing, it shall constitute a reasonable request for
assistance for the Buyer to request that the Sellers use commercially reasonable
efforts to provide witnesses for interview and the giving of sworn testimony,
including preparation of the witness to testify, in connection with any trial,
deposition, hearing or other legal proceeding, arbitration or alternative
dispute resolution proceeding. The Buyer and the RECI Subsidiaries shall direct
all such litigation and shall be responsible for all costs (including legal fees
and expenses incurred in connection therewith). In addition, after the Sellers
and their Affiliates have expended in the aggregate a total of 1,000 man-hours
providing assistance pursuant to this Section 8.5, the Buyer agrees to pay the
personnel costs of each of the Sellers or its Affiliates at the Buyer Labor
Rate, with respect to all personnel of the Sellers or their Affiliates who would
be chargeable to contracts for E&C Services under the normal charging policies
of the Sellers and their Affiliates, and out-of-pocket expenses incurred by the
Sellers in connection with providing such support, in all cases within five (5)
business days after submissions of invoices in reasonable detail on a monthly
basis. The payment by the Buyer of any such amounts as provided above shall not
prejudice its rights to subsequently contest the amounts set forth in the
applicable invoice.
<PAGE>
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8.6. Collection Assistance; RR Assets. (a) The Sellers and the Buyer
---------- ---------- -- ------
acknowledge that, although the RECI Subsidiaries retain legal title to the
claims listed on Schedule 8.6 (the "Retained Claims"), they have agreed that as
-------- --- -------- ------
between them the Sellers will be entitled to any amounts received with respect
to the Retained Claims except as provided in paragraph (b) below. The Buyer
agrees to use, or to cause the RECI Subsidiaries to use, such commercially
reasonable efforts (including commercially reasonable efforts to use
appropriately qualified personnel) in a manner consistent with the Buyer's
ordinary business practice of the Buyer and its Subsidiaries to collect for the
account of the Sellers any Retained Claims. This support will include causing
the RECI Subsidiaries to permit the Sellers (on terms reasonably acceptable to
the Buyer) to pursue these amounts as agent of the RECI Subsidiaries and the
Buyer and may include, when requested by the Sellers, taking a leading role on
behalf of the Sellers in actively pursuing collection. As part of these
commercially reasonable efforts, the Buyer will permit the Sellers adequate and
timely access (which may be by telephone) to any Assumed Employees that formerly
worked on such Retained Claims. The Sellers agree to pay 75% of the Buyer's
out-of-pocket expenses incurred in connection with the services so provided. All
such amounts shall be paid in all cases within five (5) business days after
submissions of invoices in reasonable detail on a monthly basis. The payment by
the Sellers of any such amounts as provided above shall not prejudice their
rights to subsequently contest the amounts set forth in the applicable invoice.
The Sellers shall not be required to reimburse the Buyer or RECI Subsidiaries
for personnel costs incurred in connection with the services contemplated by
this paragraph (a).
(b) The Buyer agrees that in the event it or any RECI
Subsidiary receives any payments on the Retained Claims, it will transfer or
cause the transfer of such amount less the MK Retained Amount (as defined below)
-- -------- ------
to RECI within five (5) business days of receipt and until such transfer it will
hold such funds (less the MK Retained Amount) in trust for the benefit of the
Sellers. The "MK Retained Amount" shall mean the first $30,000,000 in payments
received on the Retained Claims and thereafter 25% of all payments on the
Retained Claims that the Buyer or any RECI Subsidiary receives. The Buyer will
provide such information relating to collections on the Retained Claims as the
Sellers may reasonably request from time to time, and will in any event deliver
to the Sellers, at least once per month, a reasonably detailed report of
collections. The Buyer will also meet from time to time with the Sellers as
requested to discuss collections on the Retained Claims.
(c) The Sellers and the Buyer acknowledge that the Buyer will
be entitled to any amounts received with respect to any contract balances or
other current assets related to Retained Risk E&C Contracts, other than the
Indemnified Project Agreements ("RR Assets"). The Buyer agrees to use, or to
-- ------
cause the RECI Subsidiaries to use, such commercially reasonable efforts
(including commercially reasonable efforts to use appropriately qualified
personnel) in a manner consistent with the Buyer's ordinary business practice of
the Buyer and its Subsidiaries to collect any RR Assets.
(d) The Buyer will provide such information relating to
collections on the RR Assets as the Sellers may reasonably request from time to
time, and will in any
<PAGE>
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event deliver to the Sellers, at least once per month, a reasonably detailed
report of collections. The Buyer will also meet from time to time with the
Sellers as requested to discuss collections on the RR Assets.
(e) In the event that by the first anniversary of the Closing
Date, the Buyer and the RECI Subsidiaries have not received collections on the
RR Assets in an amount equal to the total amount of RR Assets reflected on the
Cut-Off Date Balance Sheet (as finally adjusted pursuant to Section 3.3) (the
"RR Asset Book Value"), then upon written request from the Buyer the Sellers
-- ----- ---- -----
will pay the Buyer an amount equal to the difference between the total
collections on the RR Assets received by the Buyer and the RR Asset Book Value.
Upon such payment the Buyer will at the request of the Sellers transfer any
outstanding RR Assets to the Sellers.
8.7. Indemnified Projects.
----------- --------
Each of the Sellers and the Buyer agree to proceed
expeditiously and in good faith to prepare definitive forms of Indemnified
Project Subcontracts having the terms set forth in Exhibits E-1 to E-4 and such
------------ ---
other terms that are consistent with Exhibits E-1 to E-4 that are mutually
------------ ---
acceptable to the Sellers and the Buyer. The Sellers and the Buyer also agree to
proceed expeditiously to obtain any required consents and novations and to take
the other actions set forth under "Assignments" in Exhibits E-1 to E-4.
----------- ---
8.8. Guaranties and Indemnities on Open Jobs.
---------- --- ----------- -- ---- ----
(a) The Sellers represent and warrant to the Buyer that
Schedule 8.8 sets forth a correct and complete list of all bonds, letters of
- -------- ---
credit, guaranties and similar credit supports outstanding as of the date of
this Agreement in connection with the Transferred Risk E&C Contracts (together
with any guarantee entered into or letter of credit or surety bond obtained,
relating to a Transferred Risk E&C Contract, after the date of this Agreement
not in violation of Section 7.4, the "Support Agreements"). The Buyer agrees,
------- ----------
from and after the Closing, to use commercially reasonable efforts, which will
not include the payment of any consent fee or similar amount, but which will
include commercially reasonable efforts to provide substitute security of like
character, quality and amount, to provide substitute arrangements for, and to
obtain the release of the Sellers from, those Support Agreements indicated as
"To Be Released" on Schedule 8.8 and those entered into or obtained after the
-------- ---
date of this Agreement not in violation of Section 7.4. The Buyer will consult
with the Sellers from time to time concerning the progress made with respect to
any such releases, and will permit the Sellers reasonable participation in such
process. The Support Agreements to be retained by the Sellers are referred to
herein as the "Retained Support Agreements" and the Support Agreements to be
-------- ------- ----------
released are referred to as the "Transferred Support Agreements".
----------- ------- ----------
(b) The Sellers shall cause each of the Support Agreements to
remain in effect in accordance with its terms until its scheduled expiration or,
in the case of any Transferred Support Agreement, such earlier time as the Buyer
shall have obtained the
<PAGE>
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release of Raytheon or RECI from its obligations thereunder pursuant to
paragraph (a) above.
(c) With respect to all the Retained Support Agreements and
all the Transferred Support Agreements not released as provided above, the Buyer
will reimburse the Sellers and their Affiliates for all premiums, payments and
other carrying costs of such Support Agreements, promptly after receipt of
invoices therefor. In the event the Sellers or their Affiliates are required to
reimburse a letter of credit issuer for any drawing under a Support Agreement,
or are required to make any payment under a Support Agreement that is a guaranty
or surety bond (other than carrying costs as provided above), then the Buyer
will reimburse the Sellers or such Affiliate within three (3) days after demand
for the payment of such amount. The Buyer's reimbursement obligation under this
Section 8.8 shall not be subject to any right of set-off or defense to payment
otherwise available to the Buyer. However, the payment by the Buyer of any such
reimbursement obligation will not constitute a waiver by the Buyer of any of its
rights to make a subsequent claim under Section 13.1, to the extent applicable.
(d) Promptly after the Buyer has provided substitute surety
bonds or other substitute security for the Pine Bluff project and the Buyer has
been released from the Transferred Support Agreements for the Pine Bluff project
pursuant to Section 8.8(a), the Sellers shall pay the Buyer the sum of
$1,000,000.
8.9. Sales and Transfer Taxes. As contemplated by Section 16.1, the
----- --- -------- -----
Sellers and the Buyer agree to cooperate with respect to any sales and transfer
taxes payable with respect to the consummation of the transactions contemplated
by this Agreement. In connection with the foregoing, at or after the Closing the
Sellers and the Buyer shall prepare and deliver any applicable sales/use tax
resale certificates or other certificates required to be delivered in connection
with any available exemption from sales or use taxes and otherwise shall use
reasonable efforts to minimize the amount of all such sales and transfer taxes.
8.10. Use of Raytheon Name.
--- -- -------- ----
(a) Except as otherwise expressly provided in this Section
8.10, the Buyer agrees that immediately after the Closing Date, it will not use
and will cause the RECI Subsidiaries to cease using any reference to the
Raytheon name or the name "Raytheon Engineers & Constructors" or any variations
thereof, except that the Buyer and the RECI Subsidiaries may use up existing
stocks of printed materials, including, but not limited to, stationery,
promotional materials, drawings, and the like, so long as they are marked or
stickered so as to clearly indicate in a manner approved in writing by Raytheon
that the Purchased Business and RECI Subsidiaries are no longer affiliated with
Raytheon.
(b) In addition to the rights granted under paragraph (a)
above, the Sellers agree that during the two (2) year period after the Closing
the Buyer will be permitted to conduct its business under the name "Morrison
Knudsen - Raytheon
<PAGE>
-54-
Engineers & Constructors" or "MK/Raytheon Engineers & Constructors". However,
all materials (whether in printed materials, in electronic media or in any other
manner) available to the public or any third party, including, but not limited
to, press releases, advertisements and other promotional materials, letterhead,
proposals, contracts, drawings and the like, must contain, in each and every
instance, a statement in a form approved in writing by Raytheon clearly
indicating that neither the Purchased Business, the RECI Subsidiaries nor the
Buyer are affiliated with Raytheon.
(c) Buyer shall indemnify Raytheon and its Affiliates as
provided in Section 13.2(v) in connection with Buyer's use of the Raytheon mark
and/or from the use of the name "Raytheon Engineers & Constructors" or any
variation thereof whether alone or in combination with other words or designs.
(d) Except for such permitted uses authorized above in this
Section 8.10, and notwithstanding anything contained herein to the contrary, no
rights or licenses are granted to the Buyer with respect to the Raytheon mark or
the name "Raytheon Engineers & Constructors" or any variation thereof whether
alone or in combination with other words or designs, and the Buyer agrees that
any license, whether express or implied, the RECI Subsidiaries may have been
granted with respect to the use of the Raytheon name, whether alone or in
combination with other words or designs, is hereby terminated effective as of
the Closing. Except as provided in paragraphs (a) and (b) above, the Buyer
agrees to cause each of the RECI Subsidiaries to amend its corporate name and
its charter documents as promptly as practicable after the Closing to delete any
use of the word "Raytheon". Prior to the Closing, the Sellers will cause the
RECI Subsidiaries to terminate any license, express or implied, that they may
have been granted with respect to the Raytheon name and to enter into an
agreement binding the REC Subsidiaries to the obligations set forth in paragraph
(e) below.
(e) The Buyer acknowledges that (i) Raytheon is, as between
the Buyer and any RECI Company on the one hand and Raytheon on the other hand,
the owner of all right, title and interest in and to the Raytheon mark, whether
alone or in combination with other words or designs and the Buyer shall not use
the Raytheon mark or permit any of the RECI Subsidiaries to use the Raytheon
mark except as expressly authorized by this Agreement and (ii) after the
Closing, it will not and will not permit the RECI Subsidiaries to (a) take any
action which would interfere with Raytheon's registration and/or use of the
Raytheon mark throughout the world; (b) take any action which would diminish or
dilute the distinctiveness or validity of the Raytheon mark; (c) challenge
Raytheon's ownership of the Raytheon mark and/or registration thereof; or (d)
attempt to register the Raytheon mark or any mark confusingly similar thereto,
alone or in combination with other words or designs, as a trademark, service
mark or trade name in its own name anywhere in the world. After the Closing, the
Buyer shall (at Sellers' expense) provide reasonable assistance to Raytheon in
connection with steps taken by Raytheon to protect the Raytheon mark, including,
but not limited to signing any registered user document or other documents
required by any Trademark Office or other Government Authority.
<PAGE>
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8.11. Bank Accounts.
---- --------
(a) Subject to the terms of the Receivables Termination
Agreement, the Sellers shall take all steps required to transfer all bank
accounts of the RECI Companies (insofar as they relate to the Purchased
Business) to the Buyer at Closing subject to receipt of any consents required
from the applicable financial institutions. In addition, subject to the terms of
the Receivables Termination Agreement, to the extent any cash (other than
Retained Cash) related to the Purchased Business is deposited after the Closing
into bank accounts controlled by the Sellers, which relate to both the Purchased
Business and other businesses of the Sellers, the Sellers will take all steps
required so that at and after the Closing the Buyer has access to the cash
generated by the Purchased Business after the Closing on a daily basis.
(b) In the event any Seller receives any cash after the
Closing to which the Buyer is otherwise entitled under this Agreement, it will
promptly remit such cash to the Buyer. In the event the Buyer or any RECI
Subsidiary receives any cash after the Closing that is related to an Excluded
Asset, the Buyer will promptly remit such cash to the Sellers.
8.12. Non-Solicitation.
----------------
(a) From the date hereof to the third anniversary of the
Closing Date, neither the Sellers nor any Subsidiary of the Sellers shall
solicit or encourage any of the officers and employees listed on Schedule
--------
8.12(a) hereto (the "Key RECI Employees") to leave the employ of the RECI
- ------- --- ---- ---------
Companies or, after the Closing, the Buyer or any of its Subsidiaries; from the
date hereof to the third anniversary of the Closing Date, neither the Sellers
nor any Subsidiary of the Sellers shall solicit or encourage any of the officers
of the Buyer or its Subsidiaries listed on Schedule 8.12(b) hereto (the "MK
-------- ------- --
Officers") to leave the employ of the Buyer or any of its Subsidiaries; and from
- --------
the Closing Date to the 18 month anniversary of the Closing Date, neither the
Sellers nor any Subsidiary of the Sellers shall solicit or encourage any other
Assumed Employees, leased employees or independent contractors, to leave the
employ of, or cease to be under contract to, the Buyer or any of its
Subsidiaries; provided, that nothing contained in this sentence shall prevent or
--------
restrict the Sellers or any of their Subsidiaries from employing any individual
who responds to a general solicitation for employment made by or on behalf of
the Sellers or any of their Subsidiaries that is not specifically directed at
employees or officers of the Buyer or any of its Subsidiaries, or any individual
who, after the Closing, initiates contact with the Sellers or any of their
Subsidiaries for purposes of seeking employment. In addition, for the period
from the Closing Date to the second anniversary of the Closing Date neither the
Sellers nor any of their Subsidiaries shall hire any of the Key RECI Employees
or MK Officers, other than any Key RECI Employee or MK Officer whose employment
has been terminated by MK or one of its Subsidiaries. In addition, except with
respect to certain persons identified in the letter agreement dated the date
hereof between the parties hereto (the "Ancillary Letter Agreement"), between
--------- ------ ---------
the date of this Agreement and the Closing Date neither the Seller nor any of
their
<PAGE>
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Subsidiaries shall discourage any employees of the RECI Companies from accepting
the offers of employment to be made by the Buyer pursuant to Section 9.1.
(b) From the Closing Date to the third anniversary of the
Closing Date, in the case of the Raytheon employees listed on Schedule 8.12(c),
-------- -------
and 18 months in the case of all other employees, except as provided in Section
9.1 neither the Buyer nor any Subsidiary of the Buyer shall solicit or encourage
any employee or officer of the Sellers or any of their Subsidiaries to leave the
employ of the Sellers or any of their Subsidiaries; provided, that nothing
--------
contained herein shall prevent or restrict the Buyer or any of its Subsidiaries
from employing any individual who responds to a general solicitation for
employment made by or on behalf of the Buyer or any of its Subsidiaries that is
not specifically directed at employees or officers of the Sellers or any of
their Subsidiaries, or any individual who, after the Closing, initiates contact
with the Buyer or any of its Subsidiaries for purposes of seeking employment.
8.13. PP9 Agreements. (a) The Sellers agree that they will remain
--- ----------
responsible for liquidated damages required to be paid pursuant to the terms of
the PP9 Agreements (as defined in Article 14) as a Specified Seller Liability.
(b) To the extent permitted under the PP9 Agreements and
applicable law, the Sellers and their representatives will be permitted to have
access to and examine and take copies of the books and records of the Buyer and
RECI Subsidiaries relating to the PP9 Agreements. To the extent permitted under
the PP9 Agreements and applicable law, the Buyer will provide the Sellers with
copies of all internal and external project reports and correspondence as
generated or received. In addition, the Sellers will be entitled to place one or
more employees or consultants on-site to observe the performance of the PP9
Agreements. The Sellers and the Buyer will appoint liaisons to meet and discuss
the PP9 Agreements on an ongoing basis (the "PP9 Liaisons"). The Sellers and the
--- --------
Buyer may not designate a replacement PP9 Liaison without the consent of the
other party, not to be unreasonably withheld. To the extent that there are any
legal or contractual impediments to the Buyer providing the access and
information described above, the Buyer will use commercially reasonable efforts
to obtain any required consents or otherwise seek to provide the access and
information while addressing such impediments.
8.14. Internet Protocol and Related Matters.
-------- -------- --- ------- -------
(a) The Sellers and the Buyer will cooperate and work
diligently so that, promptly following the Closing all text, images and other
content contained in all web sites relating to the REC Companies maintained by
any member of the Raytheon Group are provided to MK for inclusion in its web
site and except as otherwise expressly set forth in Section 8.10, to remove all
references to the "Raytheon" name, from any such text images, or other content.
(b) Raytheon shall retain ownership of all domain names
employing the name Raytheon and neither Buyer nor any RECI Subsidiaries nor any
of their
<PAGE>
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Affiliates shall have any right or license to any such domain name, except as
otherwise expressly set forth in Section 8.10.
(c) To the extent the RECI Subsidiaries utilize any internet
protocol address space allocated to Raytheon, such internet protocol address
space shall remain the property of Raytheon, and no rights or licenses are
granted to Buyer or the RECI Subsidiaries with respect thereto.
(d) Except as may be provided in Sections 8.16 and 8.17, Buyer
and the RECI Subsidiaries shall have no right to continued access to the
Raytheon phone network, Raytheon internet mail, or any other Raytheon computer
network.
8.15. Non-Competition.
---------------
(a) The Sellers agree that for a period of four (4) years
after the Closing Date (the "Restricted Period"), the Sellers will not, and the
---------- ------
Sellers will not permit any of their Subsidiaries to, engage directly or
indirectly in competition with the Buyer or any of its Subsidiaries, whether
individually or as a consultant, partner, investor, lender, owner or
stockholder, in the engineering and construction business, consisting of the
provision of design, engineering, procurement, construction, construction
management, architectural services, project management services and plant
operation and maintenance services of the type provided by the RECI Companies in
the conduct of the Purchased Business on or prior to the Closing Date (the
"Restricted Business"). Notwithstanding the foregoing, nothing herein shall
---------- --------
prohibit the Sellers or any Subsidiary from:
(i) owning, directly or indirectly, less than five per-
cent (5%) of any class of securities listed on a national securities
exchange or traded publicly in the over-the-counter market;
(ii) directly or indirectly acquiring a business which
engages in the Restricted Business if such business constitutes 25% or
less (measured by total revenues for the most recent fiscal year, but
excluding from the numerator any revenues generated by activities
permitted under clause (viii) below) of a larger business so acquired
by a Seller or such Subsidiary and the total revenues of that portion
of the business so acquired that is engaged in the Restricted Business
(measured by total revenues for the most recent fiscal year, but
excluding revenues generated by activities permitted under clause
(viii) below) is less than $50,000,000, provided that if such
acquisition would result in the total consolidated revenues of the
Sellers and their Subsidiaries derived from the Restricted Business
exceeding $200,000,000 (measured by total revenues for the most recent
-----------
fiscal year, but excluding any revenues generated by activities
permitted under clause (viii) below) (with that portion of such newly
acquired business engaged in the Restricted Business, excluding that
portion engaged in activities permitted under clause (viii) below,
referred to as the "Incremental Restricted Business"), then the Seller
----------- ---------- --------
or such Subsidiary must place such Incremental Restricted Business for
sale to one or more unaffiliated third parties
<PAGE>
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promptly after its acquisition and use reasonable commercial efforts to
complete such a sale within the Restricted Period;
(iii) acquiring a business which engages in the
Restricted Business if such business constitutes (A) more than 25%
(measured by total revenues for the most recent fiscal year, but
excluding from the numerator any revenues generated by activities
permitted under clause (viii) below) of a larger business so acquired
by a Seller or such Subsidiary or (B) less than 25% (measured by total
revenues for the most recent fiscal year, but excluding from the
numerator any revenues generated by activities permitted under clause
(viii) below) of a larger business so acquired by a Seller or such
Subsidiary but the portion of the business so acquired that is engaged
in the Restricted Business (measured by total revenues for the most
recent fiscal year, but excluding any revenues generated by activities
permitted under clause (viii) below) is more than $50,000,000, provided
that in either case the Seller or such Subsidiary places that portion
of such business engaged in the Restricted Business (other than that
portion engaged in activities permitted under clause (viii) below) for
sale to one or more unaffiliated third parties promptly after its
acquisition and uses reasonable commercial efforts to complete such a
sale within the Restricted Period;
(iv) selling products or services that do not themselves
constitute a Restricted Business and are not uniquely and inherently
related to the Restricted Business to any Person engaged in a
Restricted Business;
(v) completing performance of any obligations included
in any contracts constituting part of the Excluded RECI Assets,
performing its obligations under this Agreement and the other
Acquisition Agreements or otherwise taking actions in connection with
the winding up of their ownership of the Purchased Business;
(vi) entering into and performing a contract that
includes the provision of services constituting part of the Restricted
Business (the "Restricted Services"), if the Restricted Services are
only ancillary to the primary purpose of the contract and the
Restricted Services are subcontracted to or otherwise performed by a
third party other than Raytheon or any Subsidiary of Raytheon;
(vii) the performance by Raytheon or any of its
Subsidiaries of any contract in existence as of the date of this
Agreement or for which a bid has been submitted as of the date of this
Agreement;
(viii) engaging directly or indirectly, whether
individually or as a consultant, partner, investor, lender, owner or
stockholder, in any business activities currently conducted by
Raytheon, Raytheon Technical Services Company (f/k/a "Raytheon Service
Company"), or Raytheon's other Subsidiaries (other than the RECI
Companies), including the development, use, licensing or
<PAGE>
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sale of any Intellectual Property held by Raytheon or such other
Subsidiary, or any similar, ancillary or related business activities,
including the acquisition of or investment in or merger with other
Persons engaged in activities permitted under this clause (viii), but
excluding in every case any Core Business (as defined below).
(b) For purposes of clause (viii) above, the term "Core
----
Business" means the provision of any Core Services (as defined below) to:
- --------
producers of petroleum products and chemicals; utilities, independent power
producers and other power producers, including producers of fossil power,
hydroelectric power and nuclear power; the pharmaceutical and biotechnology
industries; the pulp and paper industry; the metals and mining industries; the
food and beverage, consumer products and general manufacturing industries; and
infrastructure projects in the areas of mass transit systems (other than
airports), railroads, highways, bridges, tunnels, dams, marine ports and space
vehicle launch sites and similar structures. For purposes of this Agreement, the
term "Core Services" means architectural, design, engineering, procurement,
---- --------
construction management and other construction services, but excluding
facilities maintenance and operation services and any of the foregoing services
if they relate to activities not typically associated with an engineering and
construction business, such as providing technical services (which may include
engineering) in the form of seismic data analysis for a petroleum producer, or
designing a product, such as a photovoltaic cell, to be used by a power
producer.
(c) In addition to the foregoing, at no time after the Closing
will the Sellers or any Subsidiary represent to any Person that the Sellers
still own or operate the Purchased Business or are the successors in interest of
or otherwise operating the Purchased Business.
(d) The parties hereto acknowledge that any breach of the
covenants contained in this Section 8.15 will result in irreparable damage to
the Buyer for which the Buyer will have no adequate remedy at law and,
accordingly, that the Buyer shall be entitled to an injunction restraining the
Sellers from such breach; provided, however, that resort to such injunctive
-------- -------
relief shall not be exclusive of any other remedy at law, in equity or
otherwise, and shall not preclude the recovery of the Buyer of monetary damages
or other relief in addition thereto. If any of the restrictions contained in
this Section 8.15 shall be deemed by a court of competent jurisdiction to be
unenforceable by reason of the extent, duration or geographical or other scope
hereof, then such restrictions will be interpreted to apply only to the maximum
extent, duration, geographical or other scope that such court would find to be
enforceable.
8.16. Information Technology Transition. The Sellers and the Buyer
----------- ---------- ----------
agree that they will take the steps required, if any, to obtain consents from
software vendors or obtain new software licenses so that the Buyer and RECI
Subsidiaries will have access to the software and information technology
described in Schedule 8.16(a). The costs of obtaining such consents or licenses
-------- -------
will be borne by the Buyer. With respect to the software listed on
Schedule 8.16(b) the Sellers agree that they will continue to provide
- -------- -------
<PAGE>
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the Buyer and the RECI Subsidiaries with continued rights to use such software
as described on Schedule 8.16(b), and the Buyer agrees that it will pay a pro
-------- ------- ---
rata share of the Sellers' cost of the applicable software licenses as described
- ----
on Schedule 8.16(b).
-------- -------
8.17. General Transitional Assistance. The Sellers agree to provide
------- ------------ ----------
general transition assistance to Buyer and the RECI Subsidiaries after the
Closing in the areas described on Schedule 8.17(a) and other transitional
-------- -------
business services similar to the ongoing business services provided to the
Purchased Business at the time of the Closing. These services will also include
the right to use any internet protocol address space or any proprietary software
systems held by Raytheon or any of its Subsidiaries, subject to any appropriate
confidentiality and security procedures. The Sellers will not be required to
provide any assistance to the extent not permitted by applicable law or the
Sellers' other contractual arrangements. Any such transitional assistance will
be at the request of Buyer. Buyer will reimburse the Sellers for any
out-of-pocket costs and an allocable portion of wages or salaries and related
costs and overhead of any Seller employees providing this assistance. Unless it
otherwise agrees, the Sellers will not be required to provide this assistance
for more than 365 days after Closing. The Sellers' only obligation is to provide
these services as provided in this Section 8.17 and they shall not be
responsible to the Buyer or the RECI Subsidiaries for any Losses (as defined in
Article 13) arising out of the provision of such services other than any Losses
that result from the Sellers' gross negligence or willful misconduct.
8.18. Foreign RECI Subsidiaries. In the event any foreign govern-
------- ---- ------------
mental approvals required for the transfer of the RECI Subsidiaries are not
obtained by the Closing, then the Sellers and the Buyer shall consummate the
transactions contemplated by this Agreement without the transfers of any such
RECI Subsidiaries (the "Deferred Conveyance Subsidiaries").
-------- ---------- ------------
(a) The transfer of any Deferred Conveyance Subsidiary shall
be consummated within ten days following the procurement of such governmental
approvals as are applicable thereto. The Sellers and the Buyers shall work
diligently to cause all governmental approvals with respect to the Deferred
Conveyance Subsidiaries to be procured as promptly as practicable after the
Closing.
(b) To the maximum extent permitted under applicable law, the
economic interest in any Deferred Conveyance Subsidiary shall be deemed to have
transferred from Sellers to the Buyer effective as of the Closing Date. During
the period from the Closing Date to the consummation of the transfer of a
Deferred Conveyance Subsidiary (the "Interim Ownership Period"), the Sellers
------- --------- ------
shall hold the ownership interests of such Deferred Conveyance Subsidiary in the
manner provided in this Section 8.18 (such actions being "Deferred Operation
-------- ---------
Services"), with all gains, income, expense, profits and losses generated
- --------
thereby during such Interim Ownership Period being for the account of the Buyer.
Promptly following the conclusion of each Interim Ownership Period, the Sellers
and the Buyer shall jointly prepare and agree upon an accounting with respect to
the net cash transferred by RECI to such Deferred Conveyance Subsidiary or
received by RECI from such Deferred Conveyance Subsidiary and shall
<PAGE>
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effect a cash settlement of all amounts due and payable in respect thereof. To
the maximum extent permissible under applicable law, the Buyer shall direct the
operation of each Deferred Conveyance Subsidiary during the applicable Interim
Ownership Period. In all other respects the Sellers shall continue to operate
each Deferred Conveyance Subsidiary in the geographic areas in which it was
operated prior to the Closing in the ordinary course of business, consistent
with past practice, and otherwise at the direction of the Buyer. The Buyer shall
cooperate fully with the Sellers in connection with their performance of the
Deferred Operation Services, and shall provide to the Sellers, without charge,
such technical or other assistance and resources as the Sellers may reasonably
request in connection therewith.
8.19. Assumed Non-Competition Obligations. The Buyer agrees that it
------- --------------- -----------
will comply, and cause the RECI Subsidiaries to comply, with the non-competition
and other obligations identified in Schedule 8.19, for the periods identified in
-------- ----
Schedule 8.19.
- -------- ----
8.20. Required Financing.
-------- ---------
(a) The Buyer hereby agrees to use its best efforts to arrange
the financing contemplated by the CSFB Commitment Letters and to satisfy the
conditions set forth in the CSFB Commitment Letters on an expeditious basis.
These best efforts will include taking all actions required to satisfy the
conditions under the CSFB Commitment Letters but will not include the Buyer
being required to accept any commercially unreasonable terms. As provided in the
CSFB Commitment Letters, the Buyer will not unreasonably withhold its consent to
any request by CSFB and BMO to change the amount, pricing, terms and structure
of the Senior Facilities. The Buyer will enforce all of its rights under the
CSFB Commitment Letters and will not waive or amend any provision of the CSFB
Commitment Letters without the Sellers' prior written consent (which shall not
be unreasonably withheld or delayed), except that the Sellers' consent shall not
be required in connection with any waiver or amendment that will not adversely
impact the ability of the Buyer to obtain funding on a timely basis sufficient
for the Buyer to pay the Final Purchase Price and perform its other obligations
under this Agreement. The Buyer shall keep the Sellers informed of the status of
its financing arrangements, including providing written notification to the
Sellers as promptly as reasonably possible (but in any event within forty-eight
(48) hours) with respect to (i) any indication that CSFB may be unable to
provide the financing as contemplated by the CSFB Commitment Letters, including
without limitation, any indication from CSFB that there has occurred a Capital
Market Event (as defined in Section 10.4) or Financing Failure (as defined in
paragraph (c) below), (ii) any inability of the Buyer to satisfy any of the
conditions set forth in the CSFB Commitment Letters, and (iii) any adverse
developments relating to the financing contemplated by the CSFB Commitment
Letters. The Buyer shall provide reasonably prompt (and in any event within
forty-eight (48) hours) written notice to the Sellers if CSFB or BMO has
indicated to the Buyer that CSFB or BMO lender will be unable to provide the
financing contemplated by the CSFB Commitment Letters (a "Buyer Financing
---------------
Notice").
- ------
<PAGE>
-62-
(b) In the event a Capital Market Event has occurred, the
Buyer will use its best efforts to complete the financing contemplated by the
CSFB Commitment Letters as soon as possible after such Capital Market Event and
prior to June 30, 2000. These best efforts will include increasing the pricing
on the loans and changing the other terms and structure, including a reduction
in the total amount of financing to be provided, of the Senior Facilities to be
provided pursuant to the CSFB Commitment Letters as provided in the eighth
paragraph of the CSFB Commitment Letter relating to the secured facility and the
eighth paragraph of the CSFB Commitment Letter relating to the unsecured
facility. However, these best efforts will not include the Buyer being required
to accept any commercially unreasonable terms. At the Sellers' request, the
Buyer will discuss, and if requested meet to discuss, with the Sellers the
status of any negotiations between CSFB, BMO and the Buyer regarding any
proposed changes required to the Senior Facilities to complete the financing
contemplated by the CSFB Commitment Letters, and will use commercially
reasonable efforts to provide the Sellers with direct access to CSFB and BMO to
discuss such negotiations and proposed changes.
(c) In the event that the CSFB Commitment Letters are
terminated or CSFB and BMO otherwise do not provide financing under the CSFB
Commitment Letters, other than as a result of a Capital Market Event (a
"Financing Failure"), then if this Agreement has not been terminated, the Buyer
--------- -------
will use its best efforts to obtain as promptly as practicable alternative debt
and/or equity financing sufficient to pay the Final Purchase Price and to fund
the reasonable working capital needs of the Purchased Business after the
Closing. These best efforts will include taking advantage of all financial
resources available to the Buyer but will not include the Buyer being required
to accept any commercially unreasonable terms. The Buyer will keep the Sellers
informed concerning the progress of its financing efforts and will meet with the
Sellers as reasonably requested to discuss these efforts.
(d) The Sellers agree to cooperate with the Buyer as
reasonably requested to facilitate the pursuit by the Buyer of its financing.
This cooperation includes: permitting the Buyer to make information about the
Purchased Business available on a confidential basis to its financing sources;
making certain members of senior management available to participate in Buyer's
presentations to its prospective lenders and investors; providing the Buyer with
unaudited consolidated balance sheets of the RECI Companies at March 31, 2000
and March 31, 1999 and the consolidated statements of operations and cash flows
of the RECI Companies for the three-month periods ended on such dates and other
financial information regarding the RECI Companies for use in disclosure
documents to be utilized in connection with the Buyer's financing efforts as
reasonably requested by the Buyer; and using their commercially reasonable
efforts to cause their outside auditors to deliver a comfort letter relating to
financial information regarding the RECI Companies included in any such
disclosure document. Any out-of-pocket expenses incurred by the Seller or their
Subsidiaries in connection with the foregoing will be reimbursed by the Buyer.
8.21. Hague Restructuring. With respect to the proposed
----- -------------
restructuring plan in place for the operations located in the Netherlands and
described in Schedule 8.21, the
<PAGE>
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Sellers will reimburse the Buyer for severance and related costs described in
Schedule 8.21 and incurred by the Buyer or any RECI Subsidiary after the
- -------- ----
Closing, promptly after receipt by the Sellers of documentation in reasonable
detail evidencing such payment. However, the total amount to be reimbursed by
the Sellers shall not exceed an amount equal to $9.8 million less amounts paid
by the RECI Subsidiaries with respect to such restructuring prior to the
Closing.
8.22. Foreign Exchange. At the Closing, the Buyer will assume the
------- --------
Sellers' rights and obligations with respect to the foreign exchange contracts
and instruments listed on Schedule 8.22 and any similar contracts and
-------- ----
instruments entered into for the benefit of the Purchased Business consistent
with the provisions of Section 7.4.
8.23. Hawker Aircraft. With respect to the Hawker 800 aircraft
---------------
included in the Acquired RECI Assets, the Sellers agree that prior to or as
promptly as practicable after Closing the aircraft will be repainted and receive
an airworthiness certification as described in Schedule 1.3 at the Sellers'
-------- ---
cost. In addition, an engine MPI (Major Periodic Inspection) will be performed
as described in Schedule 1.3, and the Sellers will pay for the cost of this
-------- ---
service. The Sellers also agree that prior to delivery they will cause at their
cost to be completed the 12 month, 24 month and 48 month required inspections
(including non-destructive testing) in compliance with FAA airworthiness
requirements and the Raytheon Hawker recommended maintenance schedule. The
Sellers will perform or select the vendors to perform this work and will oversee
and control this work.
8.24. East Side Reservoir. The Buyer agrees that it will not assert
---- ---- ---------
or pursue, and will not permit any Subsidiary to assert or pursue, any claim
against the Sellers or any RECI Subsidiary arising from the performance by the
RECI Companies prior to Closing of the East Side Reservoir Project Agreements
other than any claim for indemnification under Section 13.1 relating to a
Third-Party Claim (as defined in Article 13) and any claim pursuant to the
provisions of Section 3.3 or Section 4.3.
8.25. REOL. The Buyer agrees that without the Sellers' prior written
----
consent it will not conduct any new business through Raytheon Ebasco Overseas
Ltd. ("REOL"), and in connection with the defense of any claim relating to the
Pakistani judgment described on Schedule 14.4, at the request of the Sellers the
-------- ----
Buyer will transfer the capital stock of REOL back to the Sellers for a purchase
price equal to its book value at such time.
8.26. Arayco Documents. The Buyer agrees that, effective as of the
------ ---------
Closing, it will assume jointly and severally with RECI, all of RECI's
obligations under the Stock Purchase Agreement, between RECI, Raytheon
Constructors International, Inc. and United Rentals (North America), Inc., dated
as of May 20, 1999 (the "Arayco Purchase Agreement"), and the Ancillary
------ -------- ---------
Agreements (as defined therein) to which RECI is a party. However, the parties
acknowledge and agree that they are effecting the foregoing assumption only to
fulfill a commitment of Raytheon to United Rentals, Inc., and this Section 8.26
is not intended to change the treatment, as between the Sellers and the Buyer,
of all of these obligations other than RECI's obligations under the June 25,
1999
<PAGE>
-64-
National Supply Agreement, as Specified Seller Liabilities for purposes of this
Agreement. The Buyer acknowledges that RECI's obligations under this National
Supply Agreement constitute Specified Buyer Liabilities for purposes of this
Agreement.
8.27. Basic Ordering. (a) Raytheon's operating units will award
----- --------
individual job orders to the Buyer for certain services, of the type described
in paragraph (d) below, subject to and on the terms and conditions listed below
and provided that Raytheon does not determine in its reasonable judgement that
awarding a particular job order to the Buyer would be inconsistent with
Raytheon's practices in specific circumstances, such as entering into labor
agreements, in a manner that is detrimental to Raytheon. At Buyer's request,
Raytheon will meet with the Buyer to discuss these practices and ways for the
Buyer to overcome any obstacles presented by these practices. Each order will
identify the specific work to be performed and the terms specific to the order
and will be subject to a definitive agreement containing terms and conditions
that are consistent with this Section 8.27 and otherwise customary for the type
of work to be performed.
(b) This Section 8.27 shall remain in effect for five (5)
years after the Closing Date.
(c) Job orders will be priced to reflect prevailing
competitive market rates for the class and type of service being provided,
including a 7% fee (i.e. profit) payable to the Buyer, provided that costs
(exclusive of fees payable to the Buyer) and other terms are competitive. Only
bids that offer competitive costs will be considered by Raytheon. Pricing for
both existing contracts and new bids will be reviewed and benchmarked annually.
(d) Subject to the other provisions of this Section 8.27,
Raytheon's operating units will endeavor to award job orders to the Buyer under
this Section 8.27 aggregating $40 million per year on a revenue basis. Services
subject to this Section 8.27 are operations and maintenance and construction
services in support of Raytheon's facilities.
(e) The quality of the Buyer's work and performance will be
reviewed by Raytheon annually and will be considered equally with cost
competitiveness in awarding and renewing job orders.
(f) In any year that this Section 8.27 is in effect, Raytheon
shall have the option to award job orders to parties other than the Buyer even
in the event that the Buyer meets the conditions of this Section 8.27 (including
the condition that Raytheon does not determine in its reasonable judgement that
the award of such a job order to the Buyer would be inconsistent with Raytheon's
practices in specific circumstances, such as entering into labor agreements, in
a manner that is detrimental to Raytheon), if, but only if, Raytheon pays the
Buyer the 7% fee (i.e. profit) included in the Buyer's bid; provided that
-------- ----
Raytheon shall have no obligation to pay the Buyer such a fee if the $40 million
annual target for such year has already been met pursuant to the provisions of
this
<PAGE>
-65-
Section 8.27. If Raytheon exercises its option pursuant to this Section 8.27(f),
the Buyer's bid shall be counted toward the applicable $40 million annual
target.
(g) In the event that through contacts initiated by Raytheon,
any consortium partner of Raytheon awards the Buyer a job order to perform
services of the type described in Section 8.27(d), such order shall be counted
toward the $40 million annual target.
8.28. Receivables Termination Agreement. The Sellers and the Buyer
----------- ----------- ---------
agree that they will use all commercially reasonable efforts required to obtain
the consent of Canadian Imperial Bank of Commerce ("CIBC") and its affiliate,
----
Asset Securitization Cooperation Corporation ("ASCC"), to the Receivables
----
Termination Agreement, including modifying the Receivables Termination Agreement
as CIBC and ASCC may reasonably request, provided that such modifications do not
adversely affect in any material respect the rights or obligations of the Buyer
thereunder. If CIBC and ASCC do not consent to the Receivables Termination
Agreement, then Raytheon will cause REC Receivables Corporation to repurchase
all of the ASCC Receivables and Raytheon, REC Receivables Corporation, the
applicable REC Subsidiaries and the Buyer will enter into a receivables
termination agreement in substantially the same form as the Receivables
Termination Agreement, modified to remove CIBC and ASCC as a party and to
substitute Raytheon in place of CIBC and ASCC and as otherwise agreed by the
parties thereto.
Article 9
------- -
Employees and Employee Benefit Matters
--------- --- -------- ------- -------
9.1 Hiring Employees.
------ ---------
(a) At the Closing, the Buyer will or will cause an RECI
Company to offer employment to those individuals listed on Schedule 9.1(a), each
-------- ------
an employee of one or another of the Sellers primarily engaged in providing
services with respect to the Purchased Business. The offer for each such
individual shall be for the same base pay as such individual receives as of the
Closing Date and with benefits satisfying the Buyer's obligations under Section
9.2. The employment with the Buyer (or an RECI Company) of all such employees
accepting such offers (the "Seller Employees") will be deemed to have commenced
------ ---------
immediately after 11:59 p.m., Boston local time, on the Closing Date.
(b) The Buyer agrees that, for a period of 60 days after the
Closing Date, it will not cause any Seller Employee or any of the employees of
the RECI Subsidiaries (including employees on leave, disability or workers
compensation) at Closing (collectively with the Seller Employees, the "Assumed
-------
Employees") to suffer "employment loss" for purposes of the Worker Adjustment
- ---------
and Retraining Notification Act, 29 U.S.C. (S)(S)2101-2109, and related
regulations (the "WARN Act") if such employment loss could create any liability
---- ---
for the Sellers, unless the Buyer delivers
<PAGE>
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notices under the WARN Act in such a manner and at such a time that the Sellers
bear no liability with respect thereto.
(c) The Sellers shall remain responsible for any severance
benefits, termination indemnity payments or similar payments, if any, owed to
any individual made an offer of employment as provided in paragraph (a) above
who does not accept such offer.
9.2. Benefit Plan Commitments.
------- ---- -----------
(a) Assumption of Certain Plans; Responsibility for Plans.
---------- -- ------- ----- -------------- --- -----
Schedule 9.2 identifies each ERISA Plan or Non-ERISA Plan listed on Schedule
- -------- --- --------
5.20(a), sponsorship of which is to be assumed by Buyer (the "Assumed Employee
- ------- ------- --------
Benefit Plans") and each ERISA Plan or Non-ERISA Plan listed on Schedule
- ------- ----- --------
5.20(a), sponsorship of which is to be retained by Seller (such Plans,
- -------
collectively with the Pension Plan and any ERISA Plan or Non-ERISA Plan
benefiting an individual on Schedule 9.1 prior to closing, the "Raytheon
-------- --- --------
Employee Benefit Plans"). All liabilities and obligations remaining in respect
- -------- ------- -----
of Raytheon Employee Benefit Plans shall constitute Specified Seller Liabilities
for purposes of this Agreement. At and effective as of the Closing Date, the
Buyer will or will cause an RECI Subsidiary to be substituted as plan sponsor
within the meaning of Section 3(16) of ERISA with respect to the Assumed
Employee Benefit Plans, and Buyer (or such RECI Subsidiary) will succeed to all
powers, duties, rights and privileges relating to the sponsorship of the Assumed
Employee Benefit Plans and will assume all liabilities and obligations arising
out of or relating to sponsorship and maintenance of the Assumed Employee
Benefit Plans (which liabilities and obligations will constitute Specified Buyer
Liabilities for purposes of this Agreement). Effective as of the Closing Date,
the RECI Subsidiaries will cease to maintain or participate in each Raytheon
Employee Benefit Plan and thereafter shall have no liabilities or obligations in
connection therewith except to the extent such liability or obligation is
accrued on the Cut-Off Date Balance Sheet or otherwise constitutes an Assumed
RECI Liability. From and after the Closing Date the RECI Companies will remain
responsible for all liabilities and obligations (which liabilities and
obligations will constitute Specified Buyer Liabilities for purposes of this
Agreement) arising out of or relating to sponsorship and maintenance of each
ERISA Plan and Non-ERISA Plan which is neither an Assumed Employee Benefit Plan
nor a Raytheon Employee Benefit Plan (each such Plan, collectively with the
Assumed Employee Benefit Plans, the "RECI Employee Benefit Plans"). The Buyer
---- -------- ------- -----
and the Sellers will and will cause the RECI Subsidiaries to cooperate in good
faith to facilitate the effective transfer of responsibilities with respect to
ERISA and non-ERISA Plans required by this Section 9.2(a) on or as promptly as
possible after Closing. Without limiting the generality of the foregoing
sentence, Sellers will make available to the Buyer, and the Buyer will and after
Closing will cause the RECI Subsidiaries to make available to the Sellers, each
in accordance with Section 8.2 hereof, any information (including current and
historic data and files) which either may reasonably request of the other and
which is required or helpful for the continued and lawful operation of the
Raytheon Employee Benefits Plans (in the case of a request from the Sellers) or
the RECI Employee Benefits Plans (in the case of a request from the
<PAGE>
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Buyer).
(b) Collective Bargaining. On and after the Closing Date, the
---------- ----------
Buyer shall provide and cause the RECI Subsidiaries to provide benefits to
Assumed Employees in units represented for collective bargaining, works council
or other collective representation purposes ("Represented Employees") in
----------- ---------
compliance with the applicable collective bargaining agreement or other
collective agreement and the requirements of applicable laws, including the
National Labor Relations Act (the "NLRA"), except that the Represented Employees
----
shall be given the opportunity to participate in the Buyer Defined Contribution
Plans instead of the Raytheon Savings and Investment Plan. Any changes in the
benefits for Represented Employees will be made only after notice to and
consultation with the recognized collective bargaining, works council or other
applicable representative, as and to the extent required by the NLRA and any
other applicable labor law.
(c) Benefits Maintenance. Commencing as of the Closing Date
-------- -----------
and for a period of one (1) year thereafter (the "Benefits Maintenance Period"),
-------- ----------- ------
with respect to the Assumed Employees, other than Represented Employees, and
dependents and beneficiaries thereof, the Buyer shall provide base compensation
at the rates in effect for each Assumed Employee at the Closing Date and other
bonus and option opportunities and welfare and retirement benefits comparable in
the aggregate to the opportunities and benefits provided by Buyer to Buyer's
other similarly situated employees from time to time after the Closing Date.
Buyer shall not be considered to have failed to meet the foregoing requirement
solely because it elects to continue to maintain (or cause the RECI Subsidiaries
to maintain) for the benefit of Assumed Employees any RECI Employee Benefit
Plan. Furthermore, the Buyer shall continue or cause to be continued the
provision of COBRA continuation coverage to individuals, whether or not Assumed
Employees, who qualified for the same on or prior to the Closing Date under each
RECI Employee Benefit Plan which is a group health plan, under such Plan or any
succeeding plan thereto which Buyer may adopt or cause to be adopted.
(d) Defined Contribution Plan. The Raytheon Employee Benefit
------- ------------ ----
Plans include the Raytheon Savings and Investment Plan and the active
participation of all Assumed Employees in such Plan shall end, effective as of
the Closing Date. The Sellers agree that they will cause the accounts in the
Raytheon Savings and Investment Plan of all Assumed Employees to be fully vested
as of the Closing Date. Following the Closing Date the Assumed Employees shall
be permitted to elect to take distributions (subject to applicable law) of their
accounts thereunder and, if such Assumed Employees so elect, to roll them over,
directly or otherwise, in accordance with applicable law and regulations, to an
individual retirement account or to one or more defined contribution retirement
plans qualified under Section 401(a) of the Code (the "Buyer Defined
----- -------
Contribution Plans") and maintained by Buyer and the Buyer Defined Contribution
- ------------ -----
Plans shall accept such rollovers (including any plan loans). Furthermore, the
Buyer Defined Contribution Plans shall not be required to accept any transfer or
rollover of a plan loan unless the Assumed Employee electing such a transfer or
rollover elects to transfer or rollover his or her entire account balance under
the Raytheon Savings and Investment Plan as of the date
<PAGE>
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of the transfer or rollover nor shall Buyers' Defined Contribution Plans be
required to accept any rollover of property other than participant loans. The
Buyer Defined Contribution Plans shall recognize service of the Assumed
Employees with the Sellers and RECI Companies prior to the Closing Date for
eligibility and vesting purposes.
(e) Stock Options. Sellers shall retain responsibility for
----- -------
satisfying any outstanding obligations of Sellers or any of their Affiliates
under any outstanding stock option issued to any of the Assumed Employees, in
accordance with the respective terms of such options (and the Retention
Agreements as defined in Section 9.3 below, if applicable).
(f) Transfer Sponsorship of Pension Plan. As of the execution
-------- ----------- -- ------- ----
of this Agreement, the Pension Plan (as defined in Section 5.20(f)) is sponsored
by an RECI Subsidiary. Prior to Closing, Sellers shall assign and transfer
sponsorship of the Pension Plan to a company designated by the Sellers other
than an RECI Subsidiary with such assignment and transfer to be completed prior
to the Closing and fully vest all Assumed Employees who have an accrued benefit
under the Pension Plan.
(g) Limits on Rights. Nothing contained in this Section 9.2
------ -- ------
shall (i), except where expressly provided otherwise, limit the discretion of
Buyer after Closing over the hiring, promotion, firing and other terms and
conditions of employment of any employee of Buyer or any of its Subsidiaries or
obligate the Buyer to continue any particular benefits for any particular period
after the Closing Date and (ii) without limitation on the generality or effect
of Section 16.6, confer on any third party any claim or right as a beneficiary
of the provisions of this Section 9.2.
9.3. Retention Agreements.
--------- ----------
(a) One of the Sellers has entered into letter agreements
("Retention Agreements") with the employees of the RECI Companies listed on
--------- ----------
Schedule 9.3(a) (the "Key Employees"). The Sellers have previously furnished to
- -------- ------ --- ---------
the Buyer true and correct copies of the Retention Agreements. Schedule 9.3(a)
-------- ------
also lists the total "Retention Bonus" payable to each Key Employee pursuant to
the applicable Retention Agreement.
(b) With respect to "Part 1" of the Retention Bonus payable to
any Key Employee pursuant to the applicable Retention Agreement, the Buyer
agrees to pay such portion of the Retention Bonus when due in accordance with
the terms of the applicable Retention Agreement. The Sellers agree to reimburse
the Buyer for any such payment, plus any employer liability for related FICA or
similar payments to be made by the Buyer. The Sellers will make such payment
within ten (10) business days after receipt from the Buyer of supporting
documentation in reasonable detail.
(c) With respect to Part 2 and Part 3 of the Retention Bonus
payable to any Key Employee pursuant to the applicable Retention Agreement, the
Buyer agrees to pay such portion of the Retention Bonus when due in accordance
with the applicable Retention Agreement. The Sellers agree to reimburse the
Buyer for one-half of any such
<PAGE>
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payment, plus one-half of any employer liability for related FICA or similar
payments to be made by the Buyer; provided, however, that if such payments and
-------- -------
related employer liability exceed $10,000,000 in the aggregate, the Sellers
agree to reimburse the Buyer for all such payments and related employer
liability in excess thereof. The Sellers will make such payment within ten (10)
business days after receipt from the Buyer of supporting documentation in
reasonable detail.
(d) The Sellers shall be responsible for amounts payable and
any other obligations under the Retention Agreements not specifically addressed
in this Section 9.3, when and if such obligations become due, and for severance,
change of control or similar amounts payable to any Assumed Employees and
arising solely from the consummation of the transactions contemplated by this
Agreement.
Article 10
------- --
Conditions Precedent to Buyer's Obligations
---------- --------- -- ------- -----------
The obligations of the Buyer to consummate the Closing shall be subject
to the satisfaction at or prior to the Closing of each of the following
conditions (to the extent noncompliance is not waived in writing by the Buyer):
10.1. Representations and Warranties True at Closing. The
--------------- --- ---------- ---- -- -------
representations and warranties made by the Sellers in Article 5 of this
Agreement, which for purposes of this Section 10.1 shall be deemed not to
include any limitation or qualification with respect to materiality (whether by
reference to "Material Adverse Effect" or otherwise), shall be true and correct
-------- ------- ------
at and as of the Closing Date, with the same effect as though such
representations and warranties had been made or given at and as of the Closing
Date, except with respect to any representations and warranties that address
matters only as of a particular date or for a particular period (which shall be
true and correct in all respects as of such date or for such period), and except
where the failure of any representations and warranties in Article 5 to be true
and correct, in the aggregate, would not have a Material Adverse Effect.
10.2. Compliance With Agreement. Each Seller shall have performed
---------- ---- ---------
and complied in all material respects (without giving any effect to any
materiality qualifier contained in the applicable obligation) with all of its
obligations under this Agreement to be performed or complied with by it at or
prior to the Closing.
10.3. No Material Adverse Change. Since the date of this Agreement,
-- -------- ------- ------
there shall not have been any material adverse change in the business,
operations, financial condition, assets, liabilities, or prospects of the
Purchased Business.
10.4. No Financial Market Adverse Change. There shall not have
-- --------- ------ ------- ------
occurred and be continuing any material disruption or material adverse change in
the banking, financial or capital markets that (x) has materially adversely
affected the syndication of the Senior Facilities, including after giving effect
to any changes or proposed changes to
<PAGE>
-70-
the Senior Facilities as contemplated by Section 8.20(b), and (y) has caused
CSFB to withdraw or refuse to honor its commitment to provide financing as
contemplated by the CSFB Commitment Letters (a "Capital Market Event").
------- ------ -----
10.5. No Litigation. No restraining order or injunction shall
-- ----------
prevent the transactions contemplated by this Agreement and no action, suit or
proceeding shall be pending before any court or administrative body seeking to
restrain or prohibit this Agreement or the consummation of the transactions
contemplated hereby, and no action, suit or proceeding shall be threatened by
any governmental authority before any court or administrative body seeking to
restrain or prohibit this Agreement or the consummation of the transactions
contemplated hereby, and no law shall have been enacted which renders unlawful,
materially restrains or prohibits, as of the Closing Date, the consummation of
the transactions contemplated hereby in accordance with the terms of this
Agreement or which could reasonably be expected to limit in any material respect
the Buyer's ownership or control of the Purchased Business.
10.6. Delivery of Documents. The Sellers shall have delivered
-------- -- ---------
original signed copies of the following documents in the form required under
this Agreement: the Bill of Sale and other transfer instruments referred to in
Section 4.2; the Receivables Termination Agreement; the Tax Sharing Agreement;
the Mutual Release; and the Indemnified Project Subcontracts; and certificate(s)
representing the Purchased Shares, duly endorsed for transfer or accompanied by
signed stock powers in appropriate form.
10.7. HSR Act. Any applicable waiting period under the HSR Act,
-------
including any extension thereof, shall have expired, or shall have been earlier
terminated.
10.8. Leasing Programs. The applicable RECI Companies shall have
------- --------
terminated the "off balance sheet" leasing programs in place with State Street
Bank and Trust Company and any other financial institution party thereto and
repurchased the tangible personal property subject to such leases.
10.9. Officer's Certificate. The Sellers shall have furnished the
--------- -----------
Buyer with a certificate of the Sellers' appropriate officers as to compliance
with the conditions set forth in Sections 10.1 and 10.2.
10.10. Financial Statements. The Sellers shall have furnished the
--------- ----------
Buyer at least 5 business days prior to the Closing with correct and complete
copies of unaudited consolidated balance sheets of the RECI Companies at March
31, 2000 and March 31, 1999 and unaudited consolidated statements of operations
and cash flows for the three months ended March 31, 2000 and March 31, 1999,
accompanied by a review report of PriceWaterhouseCoopers LLP in accordance with
Statements on Auditing Standards #71, "Interim Financial Reporting".
<PAGE>
-71-
Article 11
----------
Conditions Precedent to the Obligations of the Sellers
------------------------------------------------------
The obligation of the Sellers to consummate the Closing shall be
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (to the extent noncompliance is not waived in writing by
the Sellers):
11.1. Representations and Warranties True at Closing. The
--------------- --- ---------- ---- -- -------
representations and warranties made by the Buyer in Article 6 of this Agreement,
which for purposes of this Section 11.1 shall be deemed not to include any
limitation or qualification with respect to materiality (whether by reference to
"Material Adverse Effect" or otherwise), shall be true and correct at and as of
the Closing Date, with the same effect as though such representations and
warranties had been made or given at and as of the Closing Date, except with
respect to any representations and warranties that address matters only as of a
particular date or for a particular period (which shall be true and correct in
all respects as of such date or for such period), and except where the failure
of any representations and warranties in Article 6 to be true and correct, in
the aggregate, would not have a Material Adverse Effect.
11.2. Compliance with Agreement. The Buyer shall have performed and
---------- ---- ---------
complied in all material respects (without giving any effect to any materiality
qualifier contained in the applicable obligation) with all of its obligations
under this Agreement that are to be performed or complied with by it at or prior
to the Closing.
11.3. No Litigation. No restraining order or injunction shall
-- ----------
prevent the transactions contemplated by this Agreement and no action, suit or
proceeding shall be pending before any court or administrative body seeking to
restrain or prohibit this Agreement or the consummation of the transactions
contemplated hereby, and no action, suit or proceeding shall be threatened by
any governmental authority before any court or administrative body seeking to
restrain or prohibit this Agreement or the consummation of the transactions
contemplated hereby, and no law shall have been enacted which renders unlawful,
materially restrains or prohibits, as of the Closing Date, the consummation of
the transactions contemplated hereby in accordance with the terms of this
Agreement.
11.4. Delivery of Documents. The Buyer shall have delivered original
-------- -- ---------
signed copies of the following documents in the form required under this
Agreement: the Assumption Agreement; the Receivables Termination Agreement; the
Tax Sharing Agreement; the Mutual Release; and the Indemnified Project
Subcontracts.
11.5. HSR Act. Any applicable waiting period under the HSR Act,
--- ---
including any extension thereof, shall have expired, or shall have been earlier
terminated.
11.6. Officer's Certificate. The Buyer shall have furnished the
--------- -----------
Sellers with a certificate of the Buyer's appropriate officers as to compliance
with the conditions set forth in Sections 11.1 and 11.2.
<PAGE>
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Article 12
----------
Confidentiality
---------------
12.1. Buyer Confidentiality.
----- ---------------
(a) The Buyer, subject to the conditions and exceptions set
forth below, shall (i) keep secret and maintain in strictest confidence and (ii)
not use for its own benefit (other than as reasonably required in connection
with concluding the transactions contemplated by this Agreement and/or in
connection with the exercise of its rights under this Agreement or under any
ancillary agreements) or for the benefit of others any information which
concerns the business and operations of any member of the Raytheon Group or the
RECI Companies ("Raytheon Information") and which is or has been acquired by the
-------- -----------
Buyer pursuant to this Agreement and/or pursuant to the Confidentiality
Agreement dated as of August 4, 1999 between Raytheon Company and Morrison
Knudsen Corporation (the "Buyer Confidentiality Agreement"), including any such
----- --------------- ---------
Raytheon Information which is related to any liability retained by the Sellers
pursuant to this Agreement and/or to any Retained Risk E&C Contract; provided,
--------
however, that the Buyer's obligations hereunder with respect to information
- -------
concerning the business and operations of any RECI Subsidiary, the Acquired RECI
Assets, the Assumed RECI Liabilities or the Purchased Business shall expire at
Closing but shall continue with respect to any Raytheon Information related to
any liability retained by the Sellers pursuant to this Agreement and/or to any
Retained Risk E&C Contract and the Indemnified Projects, Retained Claims,
Excluded RECI Assets and Distributed Assets.
(b) The Buyer's obligations under Sections 12.1(a) above
shall not apply with respect to any information which the Buyer can demonstrate:
(i) was known to the Buyer prior to receipt from the
RECI Companies or any member of the Raytheon Group;
(ii) is in the public domain at the time of receipt
from the RECI Companies or any member of the Raytheon Group or
thereafter becomes part of the public domain through no fault of the
Buyer or of any party who received such information from the Buyer; or
(iii) is rightfully received by it from a third party
having a lawful right to disclose same without breach of any obligation
to the RECI Companies or to any member of the Raytheon Group.
(c) Notwithstanding the foregoing, the Buyer may disclose
Raytheon Information to its employees, consultants, advisors and lenders
(collectively, "Representatives") to the extent necessary in connection with
---------------
concluding the transactions contemplated by this Agreement and/or in connection
with the exercise of its rights under this Agreement or under any ancillary
agreements. The Buyer shall instruct all Representatives who have access to the
Raytheon Information of the necessity to
<PAGE>
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maintain the confidentiality of the same, and shall take reasonable care to
prevent the disclosure or use of the Raytheon Information other than as
permitted in this Agreement. The Buyer shall be responsible for any breach of
this Section 12.1 by any of its Representatives.
(d) In the event of termination of this Agreement, the Buyer
shall, upon the Sellers' request (which may include a direction that return or
destruction is requested), return all Raytheon Information, including all copies
thereof, or shall destroy all such material and deliver an officer's certificate
certifying such destruction. Furthermore, at or at any time after Closing, the
Buyer shall return to the Sellers all Raytheon Information related to any
liability retained by the Sellers pursuant to this Agreement and/or any Retained
Risk E&C Contract, including all copies thereof, except that the Buyer shall not
be required to return any such information which the Buyer may reasonably
require in connection with the exercise of its rights under this Agreement
and/or under any ancillary agreements or in connection with any filings required
to be made with government authorities.
(e) The Buyer's obligations under this Section 12.1(a) shall
supercede and terminate the Buyer's obligations under the Buyer Confidentiality
Agreement.
(f) Nothing in the foregoing shall prohibit the Buyer's use
or disclosure of any such Raytheon Information to the extent required by law,
statute, regulation, ordinance, rule, order, decree, judgment, consent decree,
settlement agreement or governmental requirement enacted, promulgated, entered
into, agreed to or imposed by any court or other governmental authority or body
(collectively, "Laws"), or as is necessary to prepare Tax Returns or other
----
filings with governmental authorities, or to assert or protect any rights of the
Sellers under this Agreement; provided that the Sellers are given notice and an
adequate opportunity to contest such disclosure or to use any means available to
minimize such disclosure (e.g., the "confidential treatment" provisions of Rule
----
24b-2 promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"); and provided that in connection with any such required
-------- ---
disclosure the Buyer cooperate with the Sellers and takes reasonable steps to
invoke any confidentiality protection which is available in connection with the
required disclosure and to mark any documents provided in connection therewith
with an appropriate restrictive legend.
(g) The obligations under this Section 12.1 shall survive any
termination of this Agreement.
12.2. Sellers Confidentiality.
------- ---------------
(a) The Sellers, subject to the conditions and exceptions set
forth below, shall (i) keep secret and maintain in strictest confidence and (ii)
not use for their own benefit (other than as reasonably required in connection
with concluding the transactions contemplated by this Agreement and/or in
connection with the exercise of its rights under this Agreement or under any
ancillary agreements) or for the benefit of others any information which
concerns the business and operations of the Buyer ("Buyer
-----
<PAGE>
-74-
Information") and which is or has been acquired by the Sellers pursuant to
- -----------
either this Agreement and/or pursuant to the Confidentiality Agreement of August
16, 1999 between Raytheon Company and Morrison Knudsen Corporation (the "Seller
------
Confidentiality Agreement").
- --------------- ---------
(b) The Sellers' obligations under Section 12.1(a) above
shall not apply to any information which the Sellers can demonstrate:
(i) was known to the Sellers prior to receipt from the
Buyer;
(ii) is in the public domain at the time of receipt
from the Buyer or, thereafter, becomes part of the public domain
through no fault of the Sellers or of any party who received such
information from the Sellers; or
(iii) is rightfully received by the Sellers from a third
party having the lawful right to disclose same without breach of any
obligation to the Buyer.
(c) Notwithstanding the foregoing, the Sellers may disclose
Buyer Information to their employees, consultants, and advisors and lenders
(collectively, "Representatives") to the extent necessary in connection with
---------------
concluding the transactions contemplated by this Agreement and/or with
exercising their rights under this Agreement or under any ancillary agreement.
The Sellers shall instruct all Representatives who have access the Buyer
Information of the necessity to maintain the confidentiality of the same, and
shall take reasonable care to prevent the disclosure or use of the Buyer
Information other than as permitted in this Agreement. The Sellers shall be
responsible for any breach of this Section 12.2 by any of their Representatives.
(d) In the event of termination of this Agreement, the
Sellers shall, upon the Buyer's request, return all Buyer Information, including
all copies thereof, upon request or shall destroy all such material and deliver
an officer's certificate certifying such destruction. Furthermore, at or at any
time after Closing, the Sellers shall return to the Buyer all Buyer Information,
including all copies thereof, except that the Sellers shall not be required to
return any such information which the Sellers may reasonably require in
connection with the exercise of their rights under this Agreement and/or under
any ancillary agreements or in connection with any filings required to be made
with government authorities.
(e) The Sellers' obligations under this Section 12.1(b) shall
supercede and terminate the Sellers' obligations under the Seller
Confidentiality Agreement.
(f) Nothing in the foregoing shall prohibit the Sellers' use
or disclosure of any such Buyer Information to the extent required by law,
statute, regulation, ordinance, rule, order, decree, judgment, consent decree,
settlement agreement or governmental requirement enacted, promulgated, entered
into, agreed to or imposed by any court or other governmental authority or body
(collectively, "Laws"), or as is
----
<PAGE>
-75-
necessary to prepare Tax Returns or other filings with governmental authorities,
or to assert or protect any rights of the Seller under this Agreement; provided
that the Buyer is given notice and an adequate opportunity to contest such
disclosure or to use any means available to minimize such disclosure (e.g., the
----
"confidential treatment" provisions of Rule 24b-2 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); and provided
-------- ---
that in connection with any such required disclosure the Sellers cooperate with
the Buyer and take reasonable steps to invoke any confidentiality protection
which is available in connection with the required disclosure and to mark any
documents provided in connection therewith with an appropriate restrictive
legend.
(g) The Sellers' obligations under this Section 12.2 shall
survive any termination of this Agreement.
Article 13
----------
Indemnification
---------------
13.1. Indemnity by the Sellers. Subject to the provisions of
--------- -- --- -------
Sections 13.3 through 13.9 and Section 16.16, from and after the Closing each
Seller shall jointly and severally indemnify and hold the Buyer, its
Subsidiaries and Affiliates (and each of their respective directors, officers,
shareholders, agents and employees) (collectively, the "Buyer Indemnified
----- -----------
Parties") harmless from and with respect to any and all claims, actions, suits,
- -------
demands, assessments, judgments, obligations, liabilities, losses, damages,
costs and expenses, including without limitation reasonable investigation,
defense and prosecution costs and the reasonable fees and disbursements of
counsel (collectively, the "Losses"), related to or arising out of any of the
------
following:
(i) any breach of any representation or warranty made
by either Seller in this Agreement or the certificate referred to in
Section 10.9, but excluding any breach of the Sellers' representations
and warranties set forth in Sections 5.4 (e), 5.4(f), 5.4(g), 5.5(b),
5.6, 5.14(b) and 5.14(c) (the "Terminated Representations");
---------- ---------------
(ii) any breach by either Seller of any covenant,
obligation, or undertaking made by any Seller in this Agreement or any
other Acquisition Agreement or the Ancillary Letter Agreement;
(iii) any Specified Seller Liabilities; provided,
--------
however, that the Sellers shall not be obligated to indemnify or hold
-------
the Buyer harmless from or with respect to Losses related to or arising
out of the Pakistani judgment described on Schedule 14.4 to the extent
-------- ----
that such Losses are incurred as a result of the conduct by the Buyer
or its Subsidiaries of operations in Pakistan other than those
operations that are conducted by the RECI Companies on the date of this
Agreement or the Closing Date; and
(iv) any claim, liability or obligation relating to any
broker or finder retained or utilized by any member of the Sellers or
representing any member of
<PAGE>
-76-
the Sellers in connection with the transactions contemplated by this
Agreement, including but not limited to Merrill Lynch.
13.2. Indemnity by the Buyer. Subject to the provisions of Sections
--------- -- --- -----
13.3 through 13.9 and Section 16.16, from and after the Closing the Buyer shall
indemnify and hold each Seller and their Subsidiaries and Affiliates (and each
of their respective directors, officers, shareholders, agents and employees)
(collectively, the "Seller Indemnified Parties") harmless from and with respect
------ ----------- -------
to any and all Losses related to or arising out of any of the following:
(i) any breach in any representation or warranty made
by the Buyer in this Agreement or the certificate referred to in
Section 11.6;
(ii) any breach by the Buyer of any covenant,
obligation or undertaking made by the Buyer in this Agreement or any
other Acquisition Agreement or the Ancillary Letter Agreement;
(iii) any Specified Buyer Liabilities;
(iv) except for those matters for which the Buyer is
entitled to indemnification under Section 13.1 and whether or not the
event, circumstance or fact giving rise to Losses also constitutes a
breach of any of the Buyer's representations or warranties or
covenants, (i) any and all claims, liabilities and obligations arising
out of the operation after the Closing Date of the Purchased Business
or any other business conducted by the RECI Subsidiaries, including any
claims for workers compensation relating to the period after the
Closing and (ii) any claims arising from the offer or sale of
securities or from any lending arrangements in connection with Buyer's
obtaining financing in connection with the transactions contemplated by
this Agreement;
(v) any third party claim relating to any use of the
Raytheon mark and/or from the use of the name "Raytheon Engineers and
Constructors" or any variation thereof whether alone or in combination
with other words or designs; and
(vi) any claim, liability or obligation relating to any
broker or finder retained or utilized by the Buyer or representing the
Buyer in connection with the transactions contemplated by this
Agreement, including but not limited to CSFB or Batchelder & Partners,
Inc.
13.3. Time Limitations.
---- -----------
(a) Neither the Sellers nor the Buyer shall be liable to the
other under this Article 13 for any claim relating to a breach of any
representation or warranty referred to in Section 13.1(i) or Section 13.2(i) (a
"Misrepresentation Claim") unless, except in the case of any claim arising under
----------------- -----
any of Sections 5.2, 5.17(c) or 6.2 ("Specified Misrepresentation Claims"), the
--------- ----------------- ------
claim is asserted in writing by the party
<PAGE>
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seeking indemnification hereunder no later than the fifteenth month anniversary
of the Closing Date (for example, if the Closing occurred on May 27, 2000 the
deadline would be August 27, 2001). No claims may be asserted under this Article
13 for any breach of any of the Terminated Representations. Any Specified
Misrepresentation Claim may be made at any time in the future, subject to any
applicable statute of limitations or repose.
(b) Any claim for indemnification under Sections 13.1(ii),
13.1(iii) or 13.1(iv) or 13.2(ii), 13.2(iii), 13.2(iv), 13.2(v) or Section
13.2(vi) may be made at any time in the future, subject to any applicable
statute of limitations or repose.
13.4. Dollar Thresholds.
------ ----------
(a) With respect to any Misrepresentation Claim relating to a
representation or warranty that contains a materiality qualifier (whether by
reference to "Material Adverse Effect" or otherwise), except for
Misrepresentation Claims arising under Sections 5.5, 5.7(b), 5.8(f)(xi),
5.8(f)(xv), 5.12(b)(vi), 5.17(c) or 5.26(a) ("Qualified Misrepresentation
--------- -----------------
Claims"), for purposes of determining whether any such breach exists for
- ------
purposes of this Article 13 such representations and warranties shall be deemed
not to include or be qualified by any such materiality qualifier. Neither the
Sellers nor the Buyer shall be liable to the other for any Misrepresentation
Claim (other than a Qualified Misrepresentation Claim) if the total Losses with
respect to such Misrepresentation Claim do not exceed $1,000,000, except with
respect to any Misrepresentation Claim arising under Sections 5.4, the second
sentence of Section 5.8(h), Section 5.9 or Section 5.14(a), for which the
Sellers shall not be responsible if the total Losses with respect to such
Misrepresentation Claim do not exceed $3,000,000 (collectively, "Minor Claims").
----- ------
The parties acknowledge that these $1,000,000 and $3,000,000 thresholds have
been designated only for those Misrepresentation Claims that are not Qualified
Misrepresentation Claims. Qualified Misrepresentation Claims will not be subject
to the $1,000,000 or $3,000,000 thresholds described above, but will be
interpreted for purposes of determining whether a breach has occurred taking
into account the materiality qualifiers set forth in the text of the applicable
representation and warranty. For this purpose, the parties acknowledge that the
$1,000,000/$3,000,000 thresholds do not represent any agreement between the
parties as to what constitutes a "material" matter for purposes of this
Agreement.
(b) The Sellers shall not be liable to the Buyer for any
Misrepresentation Claims unless and until the total Losses suffered by the Buyer
and its Affiliates with respect to all Misrepresentation Claims exceeds
$25,000,000, excluding Losses with respect to Minor Claims, and then only to the
extent of such excess. The Buyer shall not be liable to the Sellers or their
Affiliates for any Misrepresentation Claims unless and until the total Losses
suffered by the Sellers and their Affiliates with respect to all
Misrepresentation Claims exceeds $25,000,000, excluding Losses with respect to
Minor Claims, and then only to the extent of such excess.
<PAGE>
-78-
(c) The total amount payable by the Sellers under Section
13.1(i) with respect to all Misrepresentation Claims, other than Specified
Misrepresentation Claims, shall not exceed $87,500,000. The total amount payable
by the Buyer under Section 13.2(i) with respect to all Misrepresentation Claims,
other than Specified Misrepresentation Claims, shall not exceed $87,500,000.
(d) No claim for indemnification under Section 13.1 or
Section 13.2, other than a Misrepresentation Claim (other than Specified
Misrepresentation Claims), shall be subject to any threshold amount or
deductible amount or cap on liability.
13.5. Claims.
------
(a) Any party seeking indemnification hereunder (the
"Indemnified Party") shall within five (5) business days notify the other party
----------- -----
hereto obligated to provide indemnification hereunder (the "Indemnifying Party")
------------ -----
of any action, suit, proceeding, demand or breach (a "Claim") with respect to
-----
which the Indemnified Party claims indemnification hereunder, provided that
--------
failure of the Indemnified Party to give such notice shall not relieve any
Indemnifying Party of its obligations under this Article 13 except to the
extent, if at all, that such Indemnifying Party shall have been prejudiced
thereby. If such Claim relates to any action, suit, proceeding or demand
instituted against the Indemnified Party by a third party (a "Third Party
----- -----
Claim"), upon receipt of such notice from the Indemnified Party, the
- -----
Indemnifying Party shall be entitled to participate in the defense of such Third
Party Claim, and if and only if each of the following conditions is satisfied,
the Indemnifying Party may assume the defense of such Third Party Claim, and in
the case of such an assumption the Indemnifying Party shall have the authority
to negotiate, compromise and settle such Third Party Claim:
(i) the Indemnifying Party confirms to the Indemnified
Party in writing that it is willing to assume the defense of such Third
Party Claim in accordance with this Article 13; and
(ii) the Indemnified Party does not give the
Indemnifying Party written notice that it has determined, in the
exercise of its reasonable discretion, that a conflict of interest
makes separate representation by the Indemnified Party's own counsel
advisable.
If the Indemnifying Party has so elected to assume the defense
of any such Third Party Claim, such defense shall be conducted by counsel chosen
by the Indemnifying Party, provided that such counsel is reasonably satisfactory
to the Indemnified Party. The Indemnified Party shall retain the right to employ
its own counsel and to participate in the defense of any Third Party Claim, the
defense of which has been assumed by the Indemnifying Party pursuant hereto, but
the Indemnified Party shall bear and shall be solely responsible for its own
costs and expenses in connection with such participation.
(b) Notwithstanding the foregoing provisions of this Section
13.5, (i) no Indemnifying Party shall be entitled to settle any Third Party
Claim without the
<PAGE>
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Indemnified Party's prior written consent unless as part of such settlement the
Indemnified Party is released in writing from all liability with respect to such
Third Party Claim and (ii) no Indemnified Party shall be entitled to settle any
Third Party Claim without the Indemnifying Party's prior written consent unless
as part of such settlement the Indemnifying Party is released in writing from
all liability with respect to such Third Party Claim.
(c) In the event any Indemnified Party shall have a claim for
indemnification hereunder that does not involve a Third-Party Claim, the
Indemnified Party shall promptly send notice of such Claim to the Indemnifying
Party; provided that failure to give such notice shall not relieve any
Indemnifying Party of its obligations under this Article 13 except to the
extent, if at all, that such Indemnifying Party shall have been prejudiced
thereby. If the Indemnifying Party does not respond to such notice within 30
days after receipt thereof, it shall be deemed to have disputed the validity of
such claim. If the Indemnifying Party disputes or is deemed to have disputed
such Claim, such dispute shall be resolved by agreement of the Buyer and the
Sellers or in accordance with Section 16.13.
13.6. Losses Net of Tax Costs and Benefits. Losses under this Article
------ --- -- --- ----- --- --------
13 shall not include any Taxes payable as a result of any indemnity payment made
with respect to any claims under this Article 13 and Losses under this Article
13 will be calculated without regard to any tax benefits arising from the matter
giving rise to an indemnity claim for Losses under this Article 13.
13.7. Insurance Proceeds.
--------- --------
(a) No Indemnifying Party shall be entitled to postpone
performance of any indemnification obligation under this Article 13 while an
insurance claim is pending. However, without limiting any of the provisions of
Sections 13.1 through 13.6, in connection with any Losses subject to
indemnification under this Article 13, all parties shall pursue and cooperate
with each other in giving notice of any claim to any insurer (including an
insurer of an Indemnified Party) from which recovery in respect of such Losses
is reasonably believed to be available and in pursuing recovery therefrom in
respect of such Losses; provided, however, that no Indemnified Party shall be
-------- -------
required to provide notice of or pursue recovery in respect of any claim under
the Indemnified Party's insurance policies where the Indemnified Party
determines in its sole discretion that such notice, pursuit, cooperation or
assistance could invalidate any portion of the coverage available under such
policy or result in the imposition of retroactive premiums or material
prospective premium increases. In addition, if an Indemnified Party makes such a
determination after it has notified its insurer, it shall be entitled to retract
such notice.
(b) If an Indemnified Party actually receives insurance
proceeds, the amount of the Losses for which such Indemnified Party is entitled
to indemnification under this Article 13 shall be reduced by the amount
received, net of any retroactive premiums or prospective premium increases. In
the event an Indemnified Party receives
<PAGE>
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insurance proceeds in respect of Losses after receiving payment in respect of
such Losses from the Indemnifying Party under this Article 13 and the amount of
insurance proceeds received exceeds the remaining unpaid balance of such Losses,
then the Indemnified Party shall promptly remit to the Indemnifying Party the
excess (if any) of (A) the sum of the amount therefore paid by the Indemnifying
Party in respect of such Losses plus the amount of insurance proceeds received,
less (B) the sum of the full amount of such Losses and any retroactive premiums
or prospective premium increases relating to such Losses. Nothing in this
Section 13.7 shall be deemed to waive or limit the subrogation rights of any
insurer.
13.8. Scope of Indemnity. The Sellers and the Buyer each acknowledge
----- -- ---------
and agree that, after the Closing and except for equitable relief before or
after the Closing, including specific performance, its and their sole and
exclusive remedy with respect to any and all claims relating to the subject
matter of this Agreement shall be pursuant to the indemnification provisions set
forth in this Article 13 and the Tax Sharing Agreement. The provisions of the
Tax Sharing Agreement, and not this Article 13, shall allocate responsibility
between the Sellers and the Buyer for Taxes of the Purchased Business.
13.9. Waiver of Statutory Claims. The Buyer hereby waives and releases
------ -- --------- ------
the Sellers and their other Subsidiaries from any and all Losses, known or
unknown, it may have under CERCLA (as defined in Article 14) or any other
statutes or regulations relating to environmental matters now or hereafter in
effect or any other statutes or regulations if the assertion of a right under
such statute or regulation would circumvent the intended effect of Section 13.8.
The Sellers hereby waive and release the Buyer from any and all Losses, known or
unknown, it may have under CERCLA or any other statutes or regulations relating
to environmental matters now or hereafter in effect or any other statutes or
regulations if the assertion of a right under such statute or regulation would
circumvent the intended effect of Section 13.8.
Article 14
----------
Certain Definitions
-------------------
As used herein the following terms not otherwise defined have the
following respective meanings:
"Affiliate": with respect to any Person, any Person controlling,
---------
controlled by or under common control with such Person.
"ASCC Receivables": all account receivables that as of the Closing have
---- -----------
been sold by the RECI Companies to REC Receivables Corporation, and subsequently
resold to Asset Securitization Cooperative Corporation pursuant to the
receivables sales facility referred to in the Receivables Termination Agreement,
and not subsequently repurchased by a RECI Company other than RE&C Receivables
Corporation prior to the Closing.
<PAGE>
-81-
"Buyer Labor Rate": means an amount equal to the actual fully burdened
----- ----- ----
labor costs of the Buyer and the RECI Companies, without any fee component,
based on (i) a multiple of actual W-2 wages or salaries agreed to by the Buyer
and the Sellers or (ii) if they are unable to so agree, based on the forward
pricing rates used by the Buyer and the RECI Subsidiaries for U.S. government
contracting purposes as defined in the Federal Acquisition Regulations Subpart
31.2, Contracts With Commercial Organizations.
"Continuing Services Agreement": a standing contract to perform E&C
---------- -------- ---------
Services from time to time when requested to do so by a customer pursuant to a
job order, work order or similar task-specific request and subject, where
applicable, to acceptance of such order. Included as part of Schedule 5.8(c)) is
-------- -------
a list of Transferred Risk E&C Contracts that constitute Continuing Services
Agreements.
"Contract Completion": a contract for the performance of any E&C
-------- ----------
Services shall be deemed to have reached Contract Completion for purposes of
this Agreement when (i) the applicable project or scope of work is 100%
physically complete, and (ii) all work under the contract has been completed
except for warranty work and, if applicable, the job site has been demobilized.
With respect to any contract for the performance of any E&C Services that is a
Continuing Services Agreement, any particular job order or work order under such
E&C Contract shall be deemed to have reached Contract Completion for purposes of
this Agreement when such job order meets the criteria set forth in (i) and (ii)
above.
"Control" (including its correlatives "controlled by" and "under common
------- ---------- -- ----- ------
control with"): the possession, directly or indirectly, of the power to direct
- ------- ----
or cause the direction of the management or policies of any Person through
ownership of a majority of securities or partnership or other ownership rights
or agreements.
"East Side Reservoir Project Agreements": the contracts, subcontracts
--------------------------------------
and other agreements listed on Schedule 14.1 hereto for the provision of E&C
-------- ----
Services in connection with the East Side Reservoir project described in
Schedule 14.1, together with all related purchase orders, job orders, change
- -------- ----
orders, extra work orders, amendments, modifications, subcontracts and similar
agreements and any ancillary contracts entered into in connection with such
contracts, subcontracts and agreements, such as project-specific hedging or
currency swap agreements and any services agreements.
"ECAC": with respect to any particular contract, the estimate of the
----
total costs that will have been incurred upon completion of the contract.
"Environmental Law": any judgment, decree, order, law, license, rule or
------------- ---
regulation pertaining to environmental matters, including without limitation,
those arising under the Resource Conservation and Recovery Act ("RCRA"), the
----
Comprehensive Environmental Response, Compensation and Liability Act of 1980 as
amended ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986
------
("SARA"), the Federal Water Pollution Control Act, the Solid Waste Disposal Act,
----
as amended, the Federal Clean Water Act, the Federal Clean Air Act, the Toxic
Substances Control Act,
<PAGE>
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or any state or local statute, regulation, ordinance, order or decree relating
to health, safety or the environment.
"GAAP": generally accepted accounting principles which are (a)
----
consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, in effect for the applicable
period of the Sellers and the RECI Subsidiaries, and (b) such that a "big five"
accounting firm would, insofar as the use of accounting principles is pertinent,
be in a position to deliver an unqualified opinion as to financial statements in
which such principles have been properly applied.
"Government Contract": any contract with any domestic or foreign
---------- --------
government or agency or executive office thereof.
"Government Subcontract": any subcontract between a RECI Company and a
---------- -----------
third party relating to a contract between such third party and any domestic or
foreign government or agency or executive office thereof.
"Income Taxes": any Taxes based upon or related to income, including
------ -----
any Taxes calculated in whole or in part based upon net revenues.
"Indemnified Project Agreements": the contracts described in Exhibits
----------- ------- ----------
E-1 to E-4 as the "Project Agreements".
------- ----------
"Intellectual Property" means any patents (including patent
------------ --------
applications, abandoned patent applications, divisions, rights to file divisions
on non-elected claims, continuations, reissues, renewals, reexaminations,
extensions, utility models, certificates of invention and like statutory
rights), inventions (including invention disclosures assigned a disclosure
number, all disclosures submitted but not numbered, disclosures in preparation,
and all inventions conceived and recorded in any ordinarily kept business
record, such as lab notebooks, reports, computer databases and the like),
copyrights, brand names, trademarks, service marks, trade names, trade dress,
logos, technologies, trade secrets, processes, formulae, software, designs,
drawings, know-how and all other intellectual property rights.
"Knowledge" or "to knowledge of Sellers" or similar knowledge
---------
qualifications shall mean the actual knowledge of any of the following persons:
Assad, Myers, Modigliani, Hissong, Wiesel, Rocca, Zaist, Barry, Iotti, Kinsella,
Maher, Gaufin, Ferguson, Scarpino and Dickman.
"Person": A corporation, an association, a partnership, a limited
------
liability company, an organization, a business, a trust, an individual, a
government or political subdivision thereof or a governmental agency.
"PP9 Agreements" means the contracts, subcontracts and other agreements
--------------
listed on Schedule 14.2 hereto for the provision of E&C Services in connection
-------- ----
with the PP9 project described on Schedule 14.2, together with all related
-------- ----
purchase orders, job orders, change orders, extra work orders, amendments,
modifications, subcontracts and similar
<PAGE>
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agreements and any ancillary contracts entered into in connection with such
contracts, subcontracts and agreements, such as project-specific hedging or
currency swap agreements and any services agreements.
"Raytheon Group" means Raytheon and all its Subsidiaries other than the
-------- -----
RECI Companies.
"Retained Risk E&C Contracts": all contracts, bids, subcontracts or
-------- ---- --- ---------
other agreements for the provision or prospective provision by any RECI Company
of any E&C Services, other than the Transferred Risk E&C Contracts, together
with all related subcontracts, purchase orders, completed and uncompleted job
orders, change orders, extra work orders, amendments, modifications,
subcontracts and similar agreements and any ancillary contracts entered into in
connection with such contracts, subcontracts and agreements such as
project-specific hedging or currency swap agreements and any services
agreements.
"Specified Buyer Liabilities" means the following obligations and
--------- ----- -----------
liabilities (excluding in all cases any Specified Seller Liabilities):
(i) all obligations and liabilities of the RECI Companies
under or arising from the Transferred Risk E&C Contracts;
(ii) all contractual warranty obligations of the RECI
Companies arising under the express terms of the contracts listed on
Schedule 14.3 hereto (all of which are Retained Risk E&C Contracts) and
-------- ----
any E&C Contracts listed on Schedule 5.8(c) (or, in the case of
-------- ------
Continuing Services Agreements listed on Schedule 5.8(c) hereto, the
-------- ------
applicable job or work orders outstanding as of the date of this
Agreement) which will not constitute Transferred Risk E&C Contracts for
purposes of this Agreement because such contracts (or, in the case of
Continuing Services Agreements listed on Schedule 5.8(c), the
-------- ------
applicable job or work orders) will have reached Contract Completion
prior to the Cut-Off Date (collectively, the "Warranty Obligations");
-------- -----------
(iii) all other obligations and liabilities of the RECI
Companies of any nature, fixed or contingent, known or unknown,
relating to or arising from the operation of the Purchased Business at
any time prior to the Closing, including the following:
(A) those matters listed on Schedule 5.19 hereto that
-------- ----
are designated on Schedule 5.19 as being the responsibility of
-------- ----
the Buyer, but specifically excluding those matters designated
on Schedule 5.19 as being the responsibility of the Sellers
-------- ----
and the matter listed on Schedule 14.4 hereto and accordingly
-------- ----
included within the definition of "Specified Seller
Liabilities";
<PAGE>
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(B) all obligations and liabilities under the RECI
Employee Benefits Plans; and
(C) the Assumed RECI Liabilities.
The parties hereto acknowledge that a particular
liability or obligation may be included in more than one of
the foregoing clauses and that such clauses are not intended
to be mutually exclusive.
"Specified Seller Liabilities" means the following obligations and
--------- ------ -----------
liabilities, none of which shall constitute Specified Buyer Liabilities, but
excluding those matters listed on Schedule 5.19 that are designated as being the
-------- ----
responsibility of the Buyer:
(i) all obligations and liabilities for Taxes for which the
Sellers are responsible pursuant to the Tax Sharing Agreement (as
defined in Section 4.2); and
(ii) (x) those matters listed on Schedule 5.19 that are
-------- ----
designated on Schedule 5.19 as being the responsibility of the Sellers,
-------- ----
and (y) all obligations and liabilities (including obligations and
liabilities to non-contract parties) arising under or in connection
with the performance of Retained Risk E&C Contracts, but excluding for
purposes of this clause (y) Warranty Obligations, matters referred to
in Clause (x) above and any matter that is listed on Schedule 5.19 that
-------- ----
is designated as being the responsibility of the Buyer; and
(iii) all obligations and liabilities relating to employee
benefit plans assumed or retained by the Sellers pursuant to Article 9;
(iv) all obligations and liabilities associated with
Excluded RECI Assets (except as provided in Section 8.26), Retained
Claims (including any counterclaims relating thereto), ASCC Receivables
(other than ASCC Receivables related to any Transferred Risk E&C
Contracts), and Distributed Assets;
(v) except for the Buyer's obligations under the
Indemnified Project Subcontracts, all obligations and liabilities
(including liabilities to non-contract parties) associated with the
Indemnified Projects;
(vi) all obligations and liabilities relating to any
investments of employee plan assets in Raytheon securities and qui tam
--- ---
actions relating to pre-Closing activities of the Purchased Business;
(vii) all obligations and liabilities to the customer under
the East Side Reservoir Project Agreements attributable to pre-Signing
Date performance by any RECI Company of those agreements;
<PAGE>
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(viii) all obligations and liabilities for liquidated damages
under the PP9 Agreements;
(ix) all obligations and liabilities of any member of the
Raytheon Group (other than any RECI Subsidiary) not related to the
Purchased Business for which any RECI Subsidiary may have joint and
several liability;
(x) all obligations and liabilities associated with the
Pakistani judgment described in Schedule 14.4 (subject to the
-------- ----
limitation set forth in Section 13.1(iii));
(xi) all obligations and liabilities associated with
manufacturing operations of the RECI Companies discontinued prior to
the Closing Date and the sale prior to the Closing Date of divested
subsidiaries or lines of business, except as provided in Sections 8.19
and 8.26.
The parties hereto acknowledge that a particular liability or
obligation may be included in more than one of the foregoing clauses and that
such clauses are not intended to be mutually exclusive.
"Subsidiary": With respect to any Person, any corporation a majority
----------
(by number of votes) of the outstanding shares of any class or classes of which
shall at the time be owned by such Person or by a Subsidiary of such Person, if
the holders of the shares of such class or classes (a) are ordinarily, in the
absence of contingencies, entitled to vote for the election of a majority of the
directors (or persons performing similar functions) of the issuer thereof, even
though the right so to vote has been suspended by the happening of such a
contingency, or (b) are at the time entitled, as such holders, to vote for the
election of a majority of the directors (or persons performing similar
functions) of the issuer thereof, whether or not the right so to vote exists by
reason of the happening of a contingency.
"Tax": Any federal, state, local, or foreign income, gross receipts,
---
franchise, estimated, alternative minimum, add-on minimum, sales, use, transfer,
registration, value added, excise, natural resources, severance, stamp,
occupation, premium, windfall profit, environmental, customs, duties, real
property, personal property, capital stock, intangibles, social security,
unemployment, disability, payroll, license, employee, withholding, or other tax
or levy, of any kind whatsoever, including any interest, penalties, or additions
to tax in respect of the foregoing.
"Tax Return": Any return, declaration, report, claim for refund,
--- ------
information return, or other document (including any related or supporting
estimates, elections, schedules, statements, or information) filed or required
to be filed in connection with the determination, assessment, or collection of
any Tax or the administration of any laws, regulations, or administrative
requirements relating to any Tax.
<PAGE>
-86-
"Transferred Risk E&C Contracts" means the following:
----------- ---- --- ---------
(i) all contracts, bids, subcontracts and other agreements
for the provision or prospective provision by any RECI Company of E&C
Services (other than the Indemnified Project Agreements);
(ii) in connection with the contracts, bids, subcontracts and
agreements described in (i) above, all related purchase orders,
completed and uncompleted job orders, change orders, extra work orders,
amendments, modifications, subcontracts and similar agreements and any
ancillary contracts entered into in connection with such contracts,
subcontracts and agreements such as project-specific hedging or
currency swap agreements and any services agreements (other than any
agency or representative agreement);
but, in the case of clauses (i) - (ii) above, excluding all such
contracts, subcontracts and other agreements (and all related or
ancillary purchase and job orders, change orders, extra work orders,
amendments, modifications, subcontracts and similar agreements and
ancillary contracts of the type referred to in clause (ii) above)
having reached Contract Completion at any time prior to the Cut-Off
Date (or, in the case of Continuing Services Agreements, excluding any
particular job order or work order having reached Contract Completion
at any time prior to the Cut-Off Date), which shall be treated as
Retained Risk E&C Contracts for purposes of this Agreement.
Article 15
----------
Termination
-----------
15.1. Termination of Agreement. The parties may terminate this
----------- -- ---------
Agreement as provided below:
(a) the Buyer and the Sellers may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(b) the Buyer may terminate this Agreement by giving written
notice to the Sellers at any time prior to the Closing in the event:
(i) the Sellers are in material breach of any covenant
contained in this Agreement and such material breach is not cured
within thirty (30) days after written notice from the Buyer of such
breach; or
(ii) the representations and warranties of the Sellers
contained in Article 5 of this Agreement, which representations and
warranties shall be deemed for purposes of this Section 15.1(b) not to
include any qualification or limitation with respect to materiality,
whether by reference to a "Material Adverse Effect" or otherwise, shall
have been untrue in any respect on the date when made (or in the case
of any representations or warranties that are made as of a different
<PAGE>
-87-
date or period, as of such different date or period) and the matters in
respect of which such representations and warranties shall have been
untrue, in the aggregate, have had a Material Adverse Effect, in either
case only to the extent that such material breach or inaccuracy of
representation or warranty is not cured within thirty (30) days after
the date of the applicable notice;
(c) The Sellers may terminate this Agreement by giving
written notice to the Buyer at any time prior to the Closing in the event:
(i) the Buyer is in material breach of any covenant
contained in this Agreement and such material breach is not cured
within thirty (30) days after written notice from the Sellers of such
breach; or
(ii) the representations and warranties of the Buyer
contained in Article 6 of this Agreement, which representations and
warranties shall be deemed for purposes of this Section 15.1(c) not to
include any qualification or limitation with respect to materiality,
whether by reference to a "Buyer Material Adverse Effect" or otherwise,
shall have been untrue in any respect on the date when made (or in the
case of any representations or warranties that are made as of a
different date or period, as of such different date or period) and the
matters in respect of which such representations and warranties shall
have been untrue, in the aggregate, have had a Buyer Material Adverse
Effect, in either case only to the extent that such material breach or
inaccuracy of representation or warranty is not cured within thirty
(30) days after the date of the applicable notice;
(d) the Buyer may terminate this Agreement by giving written
notice to the Sellers at any time prior to the Closing if the Closing has not
occurred on or before June 30, 2000, by reason of the failure to occur of any
closing condition under Article 10 (unless the failure results primarily from
the Buyer itself breaching any representation, warranty or covenant contained in
this Agreement);
(e) the Sellers may terminate this Agreement by giving
written notice to the Buyer at any time prior to the Closing if the Closing has
not occurred on or before June 30, 2000, by reason of the failure to occur of
any closing condition under Article 11 (unless the failure results primarily
from the Sellers themselves breaching any representation, warranty or covenant
contained in this Agreement);
(f) the Sellers may terminate this Agreement by giving
written notice to the Buyer at any time prior to the Closing if the Closing has
not occurred on or before June 30, 2000, by reason of the failure of the Buyer
to take the actions required to be taken by it at the Closing and all conditions
set forth in Article 10 shall have been satisfied (or, in the case of any such
condition that is capable of being satisfied by actions taken by the Sellers at
the Closing, the Sellers either took such action or notified the Buyer in
writing that they were ready, willing and able to take such action); or
(g) the Buyer may terminate this Agreement by giving written
notice to the Sellers at any time prior to the Closing if (i) the Buyer is
unable to obtain financing
<PAGE>
-88-
for the acquisition described herein, (ii) the Buyer has complied with its
obligations under Section 8.20 and (iii) prior to such termination the Buyer
pays the Sellers a termination fee of $12.5 million.
15.2. Effect of Termination. If any party terminates this Agreement
------ -- -----------
pursuant to Section 15.1, all obligations of the parties hereunder will
terminate without liability of any party to the other party (except for any
liability of any party for willful and intentional breach hereof); provided (i)
that the confidentiality provisions contained in Article 12 and the provisions
of Article 16 will survive termination and remain in full force and effect, (ii)
in the event of any termination by the Sellers pursuant to paragraph (f) above,
such termination shall not relieve the Buyer from its liability for failure to
purchase the Purchased Business as contemplated by this Agreement and (iii) in
the event of any termination of this Agreement by the Buyer pursuant to
paragraph (g) above, the Buyer shall be fully released and discharged from any
liability or obligation resulting from or under this Agreement (other than any
obligations contained in Articles 12 or 16).
Article 16
----------
General
-------
16.1. Expenses. All transfer and sales taxes payable with respect to
--------
the sale and conveyance of the Acquired RECI Assets and Purchased Shares to the
Buyer shall be shared one-half by the Buyer and one-half by the Sellers. All
expenses of the preparation, execution and consummation of this Agreement and of
the transactions contemplated hereby, including, without limitation, attorneys',
accountants' and outside advisers' fees and disbursements, shall be borne by the
party incurring such expenses.
16.2. Notices. All notices, demands and other communications here-
-------
under shall be in writing or by facsimile, and shall be deemed to have been duly
given when delivered personally or three days after being mailed by certified
mail, return receipt requested, postage prepaid, or one day after being sent by
overnight courier, or one day after being sent by facsimile with a confirmation
copy sent by overnight courier or certified mail, as follows:
If to the Sellers, to:
Raytheon Company
141 Spring Street
Lexington, MA 02173
Attention: General Counsel
Telephone: (781) 860-2681
Facsimile: (781) 860-2924
with a copy sent contemporaneously to:
<PAGE>
-89-
Bingham Dana LLP
150 Federal Street
Boston, MA 02110
Attention: John R. Utzschneider, Esq.
Telephone: (617) 951-8852
Facsimile: (617) 951-8736
If to the Buyer, to:
Morrison Knudsen Corporation
720 Park Boulevard
Boise, ID 83712
Attention: Corporate Secretary
Telephone: (208) 386-5223
Facsimile: (208) 386-5298
with a copy sent contemporaneously to:
Jones, Day, Reavis & Pogue
2727 N. Harwood Street
Dallas, TX 75201
Attention: Mark E. Betzen, Esq.
Telephone: (214) 969-3704
Facsimile: (214) 969-5100
16.3. Entire Agreement. Except for the Fire Wall Letter and the
------ ---------
Ancillary Letter Agreement, this Agreement (including the Exhibits and Schedules
hereto) contains the entire understanding of the parties, supersedes all prior
agreements and understandings relating to the subject matter hereof and shall
not be amended except by a written instrument hereafter signed by all of the
parties hereto. EXCEPT AS SET FORTH IN ARTICLE 5 AND ARTICLE 13, SELLERS MAKE NO
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION
ANY REPRESENTATION OR WARRANTY WITH RESPECT TO MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, WITH RESPECT TO THE SALE OF THE PURCHASED SHARES OR THE
PURCHASED BUSINESS AND SUCH SALE IS MADE ON AN "AS IS" BASIS.
16.4. Governing Law. THE VALIDITY AND CONSTRUCTION OF THIS AGREEMENT
--------- ---
SHALL BE GOVERNED BY THE INTERNAL LAWS (AND NOT THE CHOICE-OF-LAW RULES WHICH
WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION) OF THE STATE
OF NEW YORK.
16.5. Sections and Section Headings. The headings of sections and
-------- --- ------- --------
subsections are for reference only and shall not limit or control the meaning
thereof.
<PAGE>
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16.6. Assigns. This Agreement shall be binding upon and inure to the
-------
benefit of the parties hereto and their respective heirs, successors and
permitted assigns. Neither this Agreement nor the rights or obligations of any
party hereunder shall be assigned or delegated (by operation of law or
otherwise) by such party without the prior written consent of the other parties
hereto, except that the Buyer may assign its rights and obligations hereunder,
in whole or in part, to one or more wholly owned subsidiaries of the Buyer (but
no such assignment shall relieve the Buyer of any of its obligations hereunder).
Notwithstanding the foregoing provisions of this Section 16.6, the Buyer's
rights hereunder may be assigned as security to one or more financial
institutions providing financing to the Buyer and may be assigned pursuant to
the terms of the relevant security agreement, it being understood that no such
assignment shall release the Buyer from any of its obligations hereunder (or be
deemed to constitute an assumption by the assignee of such obligations) or
increase or otherwise modify the obligations of the Sellers hereunder.
16.7. Survival of Representations and Warranties. The representations
-------- -- --------------- --- ----------
and warranties of the parties hereto contained in this Agreement (in each case
except as affected by the transactions contemplated by this Agreement) shall
survive the Closing and the consummation of the transactions contemplated
hereby. Such representations and warranties shall expire on the last day (if
any) on which a claim for indemnification may be made pursuant to Article 13 for
a breach thereof, unless such representation or warranty is the subject of a
pending claim pursuant to Article 13 on such date, in which case such
representation or warranty shall expire upon resolution of such claim. The
Terminated Representations will expire upon the occurrence of the Closing.
16.8. Further Assurances. From time to time, at the request of the
------- ----------
Buyer and without further consideration, each Seller shall execute and deliver
such further instruments of conveyance and transfer and take such other actions
as the Buyer may reasonably require to more effectively convey and transfer any
of the Purchased Shares or Acquired RECI Assets to the Buyer. From time to time,
at the request of the Sellers and without further consideration, the Buyer shall
execute and deliver such further instruments of assumption and take such other
actions as the Sellers may reasonably require to more effectively cause the
assumption by the Buyer of the Assumed RECI Liabilities.
16.9. No Implied Rights or Remedies. Except as otherwise expressly
-- ------- ------ -- --------
provided herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or to give any person, firm or corporation, except the
Sellers and the Buyer and as provided in Article 13 with respect to the Buyer
Indemnified Parties and Seller Indemnified Parties, any rights or remedies under
or by reason of this Agreement.
16.10. Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
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16.11. Public Statements or Releases. The parties hereto each agree
------ ---------- -- --------
that prior to Closing no party to this Agreement shall make, issue or release
any public announcement, statement or acknowledgment of the existence of, or
reveal the status of, this Agreement or the transactions provided for herein,
without first obtaining the consent of the other party hereto, which consent
shall not be unreasonably withheld or delayed. Nothing contained in this Section
16.11 shall prevent any party from making such public announcements as such
party may consider necessary or desirable in order to satisfy such party's legal
obligations (including under any applicable securities laws), provided that such
disclosing party shall to the extent practicable give prior notice to the other
party of the contents of, and requirement for, such disclosure.
16.12. Nature of Obligations. With respect to any covenant in this
------ -- -----------
Agreement applicable (prior to the Closing) to the RECI Subsidiaries, the
Sellers shall cause the applicable RECI Subsidiary to comply with such covenant.
16.13. Arbitration.
-----------
(a) All disputes or claims arising under or in any way
relating to this Agreement or to the acquisition of the Purchased Business by
the Buyer shall be settled by arbitration before a panel of three arbitrators
(with one designated by the Buyer and one designated by the Sellers, and the
third arbitrator designated by the first two) pursuant to the rules of the
American Arbitration Association. Any arbitrator designated by the Buyer or the
Sellers must be an "Independent Person." For the purposes of this Section 16.13,
----------- ------
an "Independent Person" shall be an individual who is not and has not been (i) a
director, officer, employee, agent or shareholder of either party hereto, (ii) a
consultant to either party hereto, (iii) a person with a direct or indirect
financial interest in any contract with either party hereto, (iv) a director,
officer or key employee of a company at a time when such company was party to a
contract with either party hereto, or (v) a relative of any person referred to
in clauses (i), (ii), (iii) or (iv) above. As used in the immediately preceding
sentence, the term "either party hereto" shall be deemed to include any
Affiliates of the parties hereto. Any such arbitration shall take place in
Chicago, Illinois. Arbitration may be commenced at any time by either party
hereto giving written notice to the other party hereto that such dispute has
been referred to arbitration under this Section 16.13. The third arbitrator
shall be selected as prescribed above, but if the first two arbitrators do not
so agree within 30 days after the date of the notice referred to above, the
selection shall be made pursuant to the rules of the American Arbitration
Association from the Commercial Arbitration Panel (and not the Construction
Arbitration Panel) maintained by such Association. Any award rendered by the
arbitrators shall be conclusive and binding upon the parties hereto; provided,
--------
however, that any such award shall be accompanied by a written opinion of the
- -------
arbitrators giving the reasons for the award. In making such award, the
arbitrators shall be authorized to award interest on any amount awarded. This
provision for arbitration shall be specifically enforceable by the Sellers and
the Buyer and the decision of the arbitrators in accordance herewith shall be
final and binding and there shall be no right of appeal therefrom. Each of the
Sellers and the Buyer shall pay its own expenses of arbitration and the expenses
of the arbitrators shall be equally shared; provided, however, that if in
-------- -------
<PAGE>
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the opinion of the arbitrators any claim for indemnification or any defense or
objection thereto was frivolous or in bad faith, the arbitrators may assess, as
part of the award, all or any part of the arbitration expenses of the other
party (including reasonable attorneys' fees) and of the arbitrators against the
party raising such unreasonable claim, defense or objection.
(b) To the extent that arbitration may not be legally
permitted hereunder and the Sellers and the Buyer do not at the time of such
dispute or claim mutually agree to submit such dispute or claim to arbitration
either the Sellers or the Buyer may commence a civil action in a court of
appropriate jurisdiction to resolve disputes or claims hereunder. Nothing
contained in this Section 16.13 shall prevent the Sellers and the Buyer from
settling any dispute or claim by mutual agreement at any time.
(c) Neither party shall be precluded hereby from seeking,
from the courts of any jurisdiction, provisional or equitable remedies of a type
not available in arbitration, including without limitation, temporary
restraining orders and preliminary or permanent injunctions, nor shall the
pursuit of such provisional or equitable relief constitute a waiver or
modification of such party's right and obligation to arbitrate any related or
unrelated dispute which is otherwise subject to arbitration under this
Agreement, unless such waiver is expressed in writing and signed by such party.
In the event any person not a party to this Agreement shall commence any
interpleader or similar action which either directly or indirectly raises issues
which are subject to arbitration hereunder, the Sellers and the Buyer shall seek
a stay of such proceedings pending arbitration in accordance with this
Agreement.
(d) In the event of any Third Party Claim where the
Indemnifying Party does not assume the defense of such Third Party Claim,
nothing in this Section 16.13 shall prevent the Indemnified Party from
impleading the Indemnifying Party or otherwise joining the Indemnifying Party to
any litigation relating to such Third Party Claim.
(e) Disputes relating to the performance of the Indemnified
Project Subcontracts shall be resolved pursuant to the procedures set forth in
the Indemnified Project Subcontracts.
16.14. Construction. The language used in this Agreement will be
------------
deemed to be the language chosen by the parties to express their mutual intent,
and no rule of strict construction will be applied against any party.
16.15. Waiver of Jury Trial. EACH PARTY HERETO WAIVES ITS RIGHTS TO A
------ -- ---- -----
JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN
CONNECTION WITH THIS AGREEMENT, ANY AGREEMENT, CONTRACT OR OTHER DOCUMENT OR
INSTRUMENT EXECUTED IN CONNECTION HEREWITH, OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY.
<PAGE>
-93-
16.16. Waiver of Certain Damages. EACH OF THE SELLERS AND THE BUYER TO
-------------------------
THE FULLEST EXTENT PERMITTED BY LAW, IRREVOCABLY WAIVES ANY RIGHTS THAT THEY MAY
HAVE TO INCIDENTAL, CONSEQUENTIAL OR SPECIAL (INCLUDING PUNITIVE OR MULTIPLE)
DAMAGES BASED UPON, OR ARISING OUT OF, THIS AGREEMENT OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS OR ACTIONS OF ANY OF THEM RELATING THERETO.
16.17. Disclosure in Schedules. For purposes of this Agreement, with
---------- -- ---------
respect to any matter that is clearly disclosed in any portion of the Disclosure
Schedule in such a way as to make its relevance to the information called for by
another Section of this Agreement readily apparent, such matter shall be deemed
to have been included in the Disclosure Schedule in response to such other
Section, notwithstanding the omission of any appropriate cross-reference
thereto.
<PAGE>
-94-
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
parties hereto have caused this Stock Purchase Agreement to be duly executed and
delivered as of the date and year first above written.
RAYTHEON COMPANY
By: /s/ Thomas D. Hyde
-----------------------------------
Title: Senior Vice President and
General Counsel
RAYTHEON ENGINEERS &
CONSTRUCTORS INTERNATIONAL, INC.
By: /s/ William J. Ferguson, Jr.
-----------------------------------
Title: Senior Vice President,
Secretary and General
Counsel
MORRISON KNUDSEN CORPORATION
By: /s/ Stephen G. Hanks
-----------------------------------
Stephen G. Hanks
President
<PAGE>
Schedules to
Stock Purchase Agreement
------------------------
SCHEDULES
[The registrant agrees to provide the Securities and Exchange
Commission, upon request, with copies of the Schedules hereto.]
<PAGE>
Exhibit A to
---------
Stock and Asset Purchase Agreement
----------------------------------
BILL OF SALE AND CONVEYANCE
---------------------------
KNOW ALL MEN BY THESE PRESENTS:
That pursuant to the terms of the Stock Purchase Agreement, dated as of
April 14, 2000 (the "Purchase Agreement"), by and among Raytheon Company, a
-------- ---------
Delaware corporation ("Raytheon"), Raytheon Engineers & Constructors
--------
International, Inc., a Delaware corporation ("RECI", and together with Raytheon,
----
the "Sellers"), and Morrison Knudsen Corporation, a Delaware corporation (the
-------
"Buyer"), for good and valuable consideration as recited in the Purchase
- ------
Agreement, the receipt and adequacy of which are hereby acknowledged, subject to
Section 8.3 of the Purchase Agreement, RECI does hereby sell, assign transfer
and deliver to the Buyer and subject to Section 16.6 of the Purchase Agreement
------------
its successors and assigns, effective as of the date hereof, all of RECI's
rights, title and interest in, to and under the Acquired RECI Assets.
Notwithstanding anything to the contrary contained herein, RECI does not hereby
sell, assign, transfer or deliver to the Buyer, or its successors or assigns,
any of RECI's right, title or interest in, to or under any of the Excluded RECI
Assets.
This Bill of Sale and Conveyance shall be subject to the terms and
conditions set forth in the Purchase Agreement and nothing contained in this
Bill of Sale and Conveyance shall be construed to limit, terminate, expand or
otherwise modify the terms and conditions set forth in the Purchase Agreement.
Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in the Purchase Agreement.
IN WITNESS WHEREOF, RECI has caused this Bill of Sale and Conveyance to be
duly executed by its officer thereunto duly authorized this ____ day of
_________, 2000.
RAYTHEON ENGINEERS &
CONSTRUCTORS INTERNATIONAL, INC.
By:__________________________________
Name:
Title:
<PAGE>
Exhibit B to
------- -
Stock and Asset Purchase Agreement
----------------------------------
ASSUMPTION AGREEMENT
--------------------
KNOW ALL MEN BY THESE PRESENTS:
That pursuant to the terms of the Stock Purchase Agreement, dated as of
April 14, 2000 (the "Purchase Agreement"), by and among Morrison Knudsen
-------- ---------
Corporation, a Delaware corporation (the "Buyer"), Raytheon Company, a Delaware
-----
corporation ("Raytheon"), and Raytheon Engineers & Constructors International,
--------
Inc., a Delaware corporation ("RECI", and together with Raytheon, the
----
"Sellers"), for good and valuable consideration as recited in the Purchase
-------
Agreement, the receipt and adequacy of which are hereby acknowledged, subject to
Article 2 and Section 8.3 of the Purchase Agreement, the Buyer does hereby
assume and agree to perform all of the Assumed RECI Liabilities but does not
hereby assume or agree to perform, and shall not be responsible for, any of the
Excluded RECI Liabilities.
This Assumption Agreement shall be subject to the terms and conditions set
forth in the Purchase Agreement and nothing in this Assumption Agreement shall
be construed to limit, terminate, expand or otherwise modify the terms and
conditions set forth in the Purchase Agreement.
Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in the Purchase Agreement.
IN WITNESS WHEREOF, the Buyer has caused this Assumption Agreement to be
duly executed by its officer thereunto duly authorized this ______ day of
________, 2000.
MORRISON KNUDSEN CORPORATION
By:_____________________________________
Name:
Title:
<PAGE>
Exhibit C to Stock
------- - -----
Purchase Agreement
------------------
RECEIVABLES TERMINATION AGREEMENT
Among
RAYTHEON COMPANY,
RE&C RECEIVABLES CORPORATION,
RAYTHEON ENGINEERS & CONSTRUCTORS, INC.,
UNITED ENGINEERS INTERNATIONAL, INC.,
CATALYTIC INDUSTRIAL MAINTENANCE CO., INC.,
RAYTHEON CONSTRUCTORS, INC.,
RAYTHEON-CATALYTIC INC.,
RAYTHEON INFRASTRUCTURE INC.,
RAYTHEON-EBASCO OVERSEAS LTD.,
RUST CONSTRUCTORS INC.,
RAYTHEON DEMILITARIZATION COMPANY,
21/ST/ CENTURY RAIL CORPORATION
and
MORRISON KNUDSEN CORPORATION
THIS RECEIVABLES TERMINATION AGREEMENT (this "Agreement") is made effective
---------
as of the close of business on ______ __, 2000 (the "Closing Date") by and
------- ----
between Raytheon Company, a Delaware corporation ("Raytheon"), RE&C Receivables
--------
Corporation, a Delaware corporation (the "Special Purpose Purchaser" or "SPP"),
------- ------- --------- ---
Raytheon Engineers & Constructors, Inc., a Delaware corporation, United
Engineers International, Inc., a Pennsylvania corporation, Catalytic Industrial
Maintenance Co., Inc., a Delaware corporation, Raytheon Constructors, Inc., a
Delaware corporation, Raytheon-Catalytic Inc., a Delaware corporation, Raytheon
Infrastructure Inc., a New York corporation, Raytheon-Ebasco Overseas Ltd., a
Delaware corporation, Rust Constructors Inc., a Delaware corporation, Raytheon
Demilitarization Company, a Delaware corporation, and 21/st/ Century Rail
Corporation, a Delaware corporation (collectively, the "REC Subsidiaries"), and
--- ------------
Morrison Knudsen Corporation, a Delaware corporation ("Buyer").
-----
WITNESSETH
----------
Raytheon Engineers & Constructors International, Inc., a Delaware
corporation and subsidiary of Raytheon ("REC"), Raytheon and Buyer have entered
---
into that certain Stock Purchase Agreement, dated as of April 14, 2000 (the
"Stock
-----
<PAGE>
-2-
Purchase Agreement"), pursuant to which REC has agreed to sell to Buyer certain
- -------- ---------
of the assets of REC and the capital stock of the REC Subsidiaries and Buyer has
agreed to purchase certain of the assets of REC and the capital stock of the REC
Subsidiaries.
Each of the REC Subsidiaries is currently a party to a First Amended and
Restated Receivables Sale Agreement, dated as of April 24, 1998 (as amended by
the First Amendment thereto dated as of December 29, 1998, and the Second
Amendment thereto dated as of April 28, 1999, the "Receivables Sale Agreement"),
----------- ---- ---------
among the REC Subsidiaries, Raytheon, and the Special Purpose Purchaser.
Pursuant to the Receivables Sale Agreement, the REC Subsidiaries and Raytheon
sell receivables to the Special Purpose Purchaser. The Special Purpose
Purchaser resells these receivables to Asset Securitization Cooperative
Corporation ("ASCC") pursuant to a Second Amended and Restated Receivables Sale
----
Agreement, dated as of April 24, 1998 (as amended by the First Amendment thereto
dated as of December 29, 1998, and the Second Amendment thereto dated as of
April 28, 1999, the "Receivables Resale Agreement"), among ASCC, Canadian
----------- ------ ---------
Imperial Bank of Commerce ("CIBC"), the Special Purpose Purchaser and Raytheon.
----
The REC Subsidiaries, Raytheon, the Special Purpose Purchaser and Buyer are
entering into this Agreement to provide for the orderly withdrawal of the REC
Subsidiaries from the receivables sale arrangements created by the Receivables
Sale Agreement and the Receivables Resale Agreement.
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein set forth, Raytheon, the Special Purpose Purchaser, the REC Subsidiaries
and Buyer, intending to be legally bound, hereby agree as follows:
ARTICLE 1
DEFINED TERMS
Defined terms used in this Agreement have the meanings specified for such
terms in Annex A.
----- -
ARTICLE 2
WITHDRAWAL FROM FACILITY
2.1. Withdrawal and Release.
---------- --- -------
(a) From and after the Closing, the REC Subsidiaries will not sell
and the Special Purpose Purchaser will not purchase any Receivables
pursuant to the Receivables Sale Agreement. REC will not transfer to Buyer
any rights, and Buyer will not assume any obligations of REC, under the
Receivables Sale Agreement pursuant to the Stock Purchase Agreement.
<PAGE>
-3-
(b) Simultaneously with the execution and delivery of this Agreement,
the Special Purpose Purchaser and the REC Subsidiaries will deliver UCC-3
partial releases substantially in the forms attached as Annex B hereto.
----- -
(c) Prior to or at the Closing the Special Purpose Purchaser and each
REC Subsidiary will cancel the subordinated note issued to such REC
Subsidiary pursuant to the Receivables Sale Agreement.
(d) Upon termination of this Agreement pursuant to Article 7, if
requested by Buyer or any REC Subsidiary the Special Purpose Purchaser will
deliver to each REC Subsidiary UCC-3 termination statements for any UCC-1s
previously delivered by such REC Subsidiary in connection with the
Receivables Sale Agreement.
(e) Simultaneously with the execution and delivery of this Agreement,
Raytheon will deliver to Buyer the release of the REC Subsidiaries from the
Receivables Sale Agreement substantially in the form included in the letter
agreement attached as Annex C hereto.
----- -
2.2. Treatment of Existing Receivables.
---------------------------------
(a) Notwithstanding the cessation of future sales by the REC
Subsidiaries under the Receivables Sale Agreement pursuant to Section 2.1,
all Receivables of the REC Subsidiaries that have been sold pursuant to the
Receivables Sale Agreement to the Special Purpose Purchaser and not
reconveyed to the REC Subsidiaries as of the Closing (the "Existing
--------
Receivables") will remain the property of the Special Purpose Purchaser and
-----------
will not be reconveyed to the REC Subsidiaries. Annex D hereto sets forth a
----- -
correct and complete list of the Existing Receivables. Raytheon will be
responsible for all amounts which under the Receivables Sale Agreement are
required to be paid by the REC Subsidiaries to the Special Purpose
Purchaser, ASCC or CIBC, including, without limitation, amounts payable in
respect of any Purchase Price Credit under Section 1.5(a) of the
Receivables Sale Agreement or in respect of the Purchased Receivables
specified in Section 1.5(b) of the Receivables Purchase Agreement. After
the Closing, Buyer will not be entitled to any collections or other
payments with respect to the Existing Receivables except for the servicing
fee referred to in Section 3.8 below.
(b) The REC Subsidiaries will from time to time, at the Special
Purpose Purchaser's expense, promptly execute and deliver all instruments
and documents, and take all actions, that may be reasonably necessary to
perfect, protect or more fully evidence the Special Purpose Purchaser's (or
its assignee's)
<PAGE>
-4-
ownership of the Existing Receivables, all as may be reasonably requested
by the Special Purpose Purchaser.
ARTICLE 3
ADMINISTRATION AND COLLECTION
OF EXISTING RECEIVABLES
3.1. Designation of Sub-Servicer.
----------- -- ------------
(a) The administration and collection of Existing Receivables shall
be conducted by the Collection Agent so designated from time to time in
accordance with Section 7.2 of the Receivables Resale Agreement. Buyer is
hereby designated as, and hereby agrees to act as, sub-servicer (the "Sub-
----
Servicer") for the Special Purpose Purchaser in the Special Purpose
--------
Purchaser's capacity as the Collection Agent designated pursuant to the
terms of the Receivables Resale Agreement, and Buyer agrees in such
capacity as Sub-Servicer to perform all of the duties and obligations of
the Collection Agent set forth herein and in the Receivables Resale
Agreement with respect to the Existing Receivables and Collections thereon.
(b) Without the prior written consent of the Special Purpose
Purchaser and its assignees, Buyer shall not be permitted to delegate any
of its duties or responsibilities as Sub-Servicer to any Person other than
Raytheon or any of its Affiliates. If at any time CIBC shall, as permitted
under Section 7.2.1 of the Receivables Resale Agreement, designate as
Collection Agent any Person other than the Special Purpose Purchaser, all
duties and responsibilities theretofore delegated by the Special Purpose
Purchaser to Buyer may, at the discretion of CIBC, be terminated forthwith
on written notice given by the Special Purpose Purchaser or CIBC (as
assignee of the Special Purpose Purchaser) to Buyer.
(c) All Collections and other payments or distributions upon or in
respect of the Existing Receivables shall be received by Buyer in trust for
the benefit of ASCC prior to remittance thereof in accordance herewith.
(d) The Special Purpose Purchaser hereby grants Buyer the authority
necessary to carry out the duties under this Agreement for so long as it is
acting as Sub-Servicer.
(e) The Special Purpose Purchaser hereby grants to Buyer, for so long
as it is acting in the capacity of Sub-Servicer, an irrevocable power of
attorney to endorse all drafts, checks and other forms of payment made out
in any REC Subsidiary's name. Upon any replacement of Buyer as Sub-
Servicer,
<PAGE>
-5-
such power of attorney in favor of Buyer will terminate and have no further
force or effect.
(f) Buyer shall exercise reasonable care in the performance of its
duties under this Agreement and shall use the same degree of care and skill
which it applies to its own property, subject to the restrictions imposed
on Buyer by the terms of this Agreement.
3.2. Replacement of Sub-Servicer; Overdue Receivables.
------------------------------------------------
(a) In the event of any payment default under this Agreement by Buyer
that is not cured within three (3) Business Days, or any other breach of
this Agreement in any material respect by Buyer that is not cured within
fifteen (15) Business Days, in either case, after the earlier of (i)
Buyer's actual knowledge thereof and (ii) receipt by Buyer of written
notice thereof by the Special Purpose Purchaser, ASCC or CIBC, the Special
Purpose Purchaser may, without obtaining the consent of any party, and
shall, at the request of ASCC or CIBC, remove Buyer as its Sub-Servicer and
appoint a new Sub-Servicer, and notify Obligors of ASCC's ownership of the
Existing Receivables. The Special Purpose Purchaser shall provide Buyer
with three (3) Business Days' notice of such removal. In addition, CIBC may
terminate Buyer's designation as Sub-Servicer as provided in Section
3.1(b). Upon any removal of Buyer as a Sub-Servicer, Buyer shall cooperate
with the Special Purpose Purchaser or CIBC, as applicable, in transferring
Collections and enabling the successor Sub-Servicer to perform its duties
under this Agreement. The Special Purpose Purchaser, ASCC and CIBC shall
have the right to remove any successor Sub-Servicer and to take the other
actions described above at any time in their sole discretion.
(b) If Buyer is removed as Sub-Servicer, Buyer shall provide and
cause the REC Subsidiaries to provide the Special Purpose Purchaser or any
successor Sub-Servicer designated by the Special Purpose Purchaser or CIBC,
as applicable, with access at reasonable times during normal business hours
to all records, correspondence and documents (including computer software
related to the collection, administration and monitoring of Existing
Receivables) reasonably requested by them and to permit such persons to
have access at reasonable times during normal business hours to, and to
copy, all software used by such Sub-Servicer in the collection,
administration or monitoring of the Existing Receivables, to the extent
permitted by existing software licenses of the REC Subsidiaries.
(c) In the event any Existing Receivable becomes more than sixty (60)
days overdue, any of the Special Purpose Purchaser, ASCC or CIBC may, after
delivery of written notice to Buyer, notify the related Obligor of
<PAGE>
-6-
ASCC's interest in such Existing Receivable and pursue collection of such
Existing Receivable directly against such Obligor.
3.3. Collection Account Agreement.
---------- ------- ---------
(a) Each REC Subsidiary has previously transferred to CIBC as agent
for ASCC, the exclusive ownership and control of the Collection Account of
such REC Subsidiary, as evidenced by the Collection Account Agreement to
which such REC Subsidiary is a party, and such REC Subsidiary shall claim
no further right, title and/or interest in and to such Collection Account
nor any rights to withdraw funds therefrom except as provided in Section
3.7. Each REC Subsidiary hereby authorizes the Special Purpose Purchaser
and CIBC, as agent for ASCC, and agrees that the Special Purpose Purchaser
and CIBC, as agent for ASCC, shall be entitled to, (i) endorse such REC
Subsidiary's name on checks and other instruments representing Collections
on Existing Receivables, (ii) enforce the Existing Receivables sold by such
REC Subsidiary, and (iii) take such action as shall be reasonably necessary
or desirable to cause all cash, checks and other instruments constituting
Collections of Existing Receivables to come into the possession of the
Special Purpose Purchaser (or its designees) rather than such REC
Subsidiary.
(b) Each REC Subsidiary acknowledges and agrees that (i) at the
Closing, such REC Subsidiary will deliver to the bank set forth opposite
its name on Annex E hereto (the "Collection Bank") a letter of direction
----- - ---------- ----
with respect to the Collection Account of such REC Subsidiary in the form
of Annex F hereto (the "Collection Account Letter") and (ii) from and after
----- - ---------- ------- ------
the Closing, such REC Subsidiary shall not revoke, or amend the terms of,
such Collection Account Letter, or otherwise issue any instructions or
directions to such Collection Bank with respect to the Collection Account
of such REC Subsidiary which are inconsistent with the terms of such
Collection Account Letter, without obtaining the prior written consent of
the Special Purpose Purchaser and CIBC.
3.4. Responsibilities of the REC Subsidiaries. Anything herein to the
---------------- -- --- --- ------------
contrary notwithstanding, the exercise by the Special Purpose Purchaser (or its
assignees) of its rights hereunder shall not release the REC Subsidiaries or
Buyer from any of their duties or obligations with respect to any Existing
Receivables under this Agreement. Except as may otherwise be provided in the
Receivables Resale Agreement, neither the Special Purpose Purchaser nor any of
its assignees (including any Collection Agent) shall have any obligation or
liability with respect to any Existing Receivables, nor shall any of them be
obligated to perform the obligations of the REC Subsidiaries.
<PAGE>
-7-
3.5. Application of Collections. The REC Subsidiaries shall not be
----------- -- -----------
entitled to any Collections on the Existing Receivables. The Special Purpose
Purchaser shall be entitled to Collections on the Existing Receivables only as
provided in the Receivables Resale Agreement.
3.6. Receivables Reports. So long as any Existing Receivables remain
----------- -------
outstanding, Buyer shall prepare a monthly information package for the Special
Purpose Purchaser and ASCC, showing Collections on the Existing Receivables and
Outstanding Balances and prepared generally in the form of Annex G hereto.
-------
3.7. Joint Account.
----- --------
(a) The Collection Account Letter of each REC Subsidiary will provide
that the Collection Bank of such REC Subsidiary will transfer daily all
amounts received into the Collection Account of the applicable REC
Subsidiary to a bank account jointly created and controlled by Buyer and
the Special Purpose Purchaser (the "Joint Account"), unless and until (i)
----- -------
such Collection Bank receives notice in the form of a letter from both the
Special Purpose Purchaser and Buyer instructing it to do otherwise or (ii)
CIBC takes control of the Collection Account of such REC Subsidiary as
provided in the Collection Account Agreement of such REC Subsidiary.
(b) Representatives of Buyer and the Special Purpose Purchaser will
meet (either in person or telephonically) every Business Day to review
collections received into the Collection Accounts and transferred to the
Joint Account and to determine whether such amounts either (i) relate to
Collections or other proceeds on Existing Receivables, and accordingly are
the property of the Special Purpose Purchaser or ASCC ("SPP Funds") or (ii)
--- -----
relate to collections or other proceeds on other receivables of Buyer or
any of its Subsidiaries or other amounts owed to Buyer or any of its
Subsidiaries, and accordingly, are the property of Buyer or any of its
Subsidiaries ("Buyer Funds"). The Special Purpose Purchaser and Buyer will
-----------
cause SPP Funds to be transferred to ASCC from the Joint Account, and Buyer
Funds to be transferred to Buyer from the Joint Account, on a daily basis
and as early in the day as practicable.
(c) Buyer will not assert any claim with respect to, including any
right of offset or lien, any of SPP Funds, and will not otherwise interfere
with the regular and periodic transfer of SPP Funds to ASCC as provided in
paragraph (b) above, notwithstanding any claim Buyer may have against
Raytheon or any of its Subsidiaries. The Special Purpose Purchaser will not
assert any claim with respect to, including any rights of offset or lien,
any of Buyer Funds and will not otherwise interfere with the regular and
periodic transfer of Buyer Funds to Buyer as provided in paragraph (b)
above,
<PAGE>
-8-
notwithstanding any claim the Special Purpose Purchaser or Raytheon or any
of its other Subsidiaries may have against Buyer or any of its
Subsidiaries.
(d) In the event that Buyer and the Special Purpose Purchaser are
unable to determine within three (3) Business Days (or such longer period
as the representatives of Buyer and the Special Purpose Purchaser may
mutually agree) whether any particular funds constitute SPP Funds or Buyer
Funds, Buyer and the Special Purpose Purchaser will retain the ____________
office of Ernst & Young LLP (the "Account Reviewer") to determine whether
----------------
such funds constitute SPP Funds or Buyer Funds pursuant to the terms of
this Agreement, including the allocation provisions of Section 5.2. The
Account Reviewer shall be instructed to complete its review and render a
decision as soon as possible and in any event within fourteen (14) days
after receipt of such instructions. Buyer and Special Purpose Purchaser
will cooperate and provide the Account Reviewer with access to records and
personnel as it requests. Buyer and the Special Purpose Purchaser shall be
bound by the determination of the Account Reviewer. The fees and expenses
of the Account Reviewer shall be paid one-half by Buyer and one-half by the
Special Purpose Purchaser.
3.8. Sub-Servicer Fee. In consideration of the Sub-Servicer's agreement
------------ ---
to perform the duties and obligations of the Collection Agent under the
Receivables Resale Agreement, so long as Buyer has not been removed as Sub-
Servicer hereunder pursuant to Section 3.2 and Buyer shall continue to perform
as Sub-Servicer hereunder, the Special Purpose Purchaser shall pay over to Buyer
a fee in the amount of (i) 1.25% of all Collections received on Existing
Receivables received and remitted to ASCC or the Special Purpose Purchaser
between the date of this Agreement and sixty (60) days thereafter, (ii) 0.75% of
all Collections received on Existing Receivables received and remitted to ASCC
or the Special Purpose Purchaser after the 60th day after this Agreement and
before the one hundred and twentieth (120th) day after the date of this
Agreement and (iii) 0.50% of all Collections on Existing Receivables received
and remitted to ASCC or the Special Purpose Purchaser thereafter. The foregoing
fee will be paid on a monthly basis with respect to all Collections remitted to
ASCC or the Special Purpose Purchaser during the preceding month, with such
payment to be made not later than 10 business days after delivery of the related
monthly report pursuant to Section 3.6. The foregoing fee will constitute the
sole compensation payable to Buyer for acting as a Sub-Servicer hereunder.
ARTICLE 4
COVENANTS
<PAGE>
-9-
4.1. Affirmative Covenants of Buyer. Buyer hereby covenants, individually
----------- --------- -- -----
and in its capacity as a Sub-Servicer, that it will and will cause the REC
Subsidiaries to:
(a) Comply in all material respects with all applicable law, rules,
regulations and orders with respect to all Existing Receivables and
Collections thereof.
(b) Notify the Special Purpose Purchaser, promptly upon its knowledge
thereof, of the breach by Buyer of any covenant, term or agreement
contained in this Agreement.
(c) At any reasonable time during normal business hours, permit the
Special Purpose Purchaser, ASCC or CIBC or their respective agents or
representatives to visit and inspect any of its properties, to examine and
make copies of its books of account and other records and files relating to
Existing Receivables (including, without limitation, computer tapes and
disks) and to discuss the Existing Receivables and the performance by Buyer
of its obligations under this Agreement.
(d) Maintain and implement administrative and operating procedures
(including, without limitation, an ability to recreate records evidencing
Existing Receivables in the event of the destruction of the originals
thereof), and keep and maintain all records and other information,
reasonably necessary or advisable for the collection of Existing
Receivables (including, without limitation, records adequate to permit the
daily identification of Collections and any adjustments to Existing
Receivables).
(e) At its expense timely and fully perform and comply in all
material respects with all provisions and covenants required to be observed
by Buyer under any Transferred Risk E&C Contracts (as defined in the Stock
Purchase Agreement) relating to the Existing Receivables (provided that
this covenant shall not impair Buyer's ability to amend or modify such
contracts from time to time in accordance with Section 4.2(b)).
(f) Comply in all material respects with the credit and collection
policy currently in place with respect to each Existing Receivable and any
contract related to such Existing Receivable (provided that this covenant
shall not impair Buyer's ability to change such policies from time to time
in accordance with Section 4.2(c)).
(g) Upon request of the Special Purpose Purchaser, take all
reasonably necessary action to maintain in favor of the Special Purpose
Purchaser a valid and perfected first priority ownership interest in the
Existing
<PAGE>
-10-
Receivables and the related Collections and the Collection Account with
respect thereto, to the full extent contemplated herein, including, without
limitation, taking such action to perfect, protect or more fully evidence
the interest of the Special Purpose Purchaser hereunder as the Special
Purpose Purchaser or its assignees may reasonably request.
(h) Upon request of the Special Purpose Purchaser, instruct all
Obligors of each REC Subsidiary to pay all Collections on the Existing
Receivables directly to the applicable segregated Collection Account.
Pursuant to Section 3.3 hereof and the Collection Account Agreement, the
REC Subsidiaries have transferred and assigned to CIBC all of their right,
title and interest in and to, and exclusive ownership, dominion and control
(subject to the terms of this Agreement) of the Collection Account of such
REC Subsidiary. In the case of any Collections on the Existing Receivables
received by Buyer, Buyer shall remit such Collections to the applicable
Collection Account not later than the Business Day immediately following
the date of Buyer's knowledge of, but not later than five (5) Business Days
after, receipt of such Collections, and, at all times prior to such
remittance, Buyer shall itself hold such Collections in trust, for the
exclusive benefit of the Special Purpose Purchaser and its assigns.
4.2. Negative Covenants of Buyer. Buyer, individually and in its capacity
-------- --------- -- -----
as a Sub-Servicer, will not, and will cause the REC Subsidiaries not to, unless
the Special Purpose Purchaser and CIBC have otherwise consented in writing, such
consent not to be unreasonably withheld or delayed:
(a) Except as provided herein, sell, assign (by operation of law or
otherwise) or otherwise dispose of, or create or suffer to exist any
security interest, lien or encumbrance upon or with respect to, Existing
Receivables, Collections thereon, proceeds of Existing Receivables held in
any Collection Account, or any books or records (including computer
software) related to the Existing Receivables, or assign any right to
receive income in respect thereof.
(b) (i) Amend or otherwise modify any term of any Existing
Receivable, or (ii) amend, modify or waive any term or condition of any
contract related thereto, in the case of this clause (ii), so as to impair
in any material respect the collectibility of any Existing Receivable.
(c) Make any change in the character of the Purchased Business (as
defined in the Stock Purchase Agreement) relating to the REC Subsidiaries
or change in the credit and collection policy currently in place with
respect to Existing Receivables which could, in either case, impair in any
material respect the collectibility of any Existing Receivable.
<PAGE>
-11-
(d) Terminate any bank listed opposite any REC Subsidiary's name on
Annex C hereto as the Collection Bank of such REC Subsidiary, or make any
----- -
change in its instructions to Obligors regarding payments on Existing
Receivables to be made to the Special Purpose Purchaser or to the
Collection Bank of any REC Subsidiary.
(e) Deposit or otherwise credit, or cause to be so deposited or
credited, cash or cash proceeds of Existing Receivables to any account or
lock-box other than the Collection Account.
ARTICLE 5
ALLOCATION OF PAYMENT AND RELATED MATTERS
5.1. Certain Actions. After the date of this Agreement, except as
------- -------
contemplated by Section 4.2(b), Buyer will not and will cause the REC
Subsidiaries not to intentionally take any action or fail to take any such
action if as a result of such action or inaction an Obligor on an Existing
Receivable would no longer be required to pay such Existing Receivable, would be
entitled to pay less than the full amount of such Existing Receivable or would
be entitled to delay any payments on such Existing Receivables.
5.2. Allocation of Payment. Unless otherwise designated by the applicable
---------- -- -------
Obligor in writing, all payments received from any Obligor on an Existing
Receivable will be applied to Existing Receivables and other Receivables owed by
such Obligor (including other Receivables outstanding at the Closing) first to
the Existing Receivables, and shall be allocated among the Existing Receivables
based on aging, with the oldest outstanding Existing Receivable to be paid
first. Buyer will not and will cause the REC Subsidiaries not to, without the
prior consent of the Special Purpose Purchaser, and the Special Purpose
Purchaser will not, without the prior consent of Buyer, direct or request any
Obligor on an Existing Receivable to designate any particular payment in any
particular manner. In addition, Buyer will not and will cause the REC
Subsidiaries not to, without the prior written consent of the Special Purpose
Purchaser and CIBC, such consent not to be unreasonably withheld or delayed,
inform Obligors on Existing Receivables that the Existing Receivables have been
sold by the REC Subsidiaries or that someone other than the REC Subsidiaries or
Buyer will be the recipient of any payments made on Existing Receivables.
Notwithstanding anything to the contrary herein contained, at such time as an
Obligor is no longer an Obligor on an Existing Receivable, Buyer may send
notices to such Obligor as Buyer deems appropriate, including notices intended
to ensure that payments made on Receivables thereafter are not deposited into a
Collection Account.
5.3. Dispute Resolution. Notwithstanding the foregoing provisions of this
------- ----------
Article 5, in the event any Obligor disputes any Existing Receivable or asserts
a defense to payment on any Existing Receivable, Buyer will provide the Special
Purpose
<PAGE>
-12-
Purchaser with prompt notice thereof and will provide information to the Special
Purpose Purchaser as reasonably requested relating to such dispute or claim. The
Special Purpose Purchaser will control the settlement of any dispute or defense
to payment relating to an Existing Receivable.
ARTICLE 6
COMMUNICATION AND ADMINISTRATION
6.1. Notices. All notices, approvals, and other communications required
-------
or permitted by this Agreement to be given to Raytheon, the Special Purpose
Purchaser, any REC Subsidiary or Buyer shall be in writing and shall be
delivered (i) in person or by a reputable courier service that provides receipt
of delivery, (ii) by deposit in the U.S. mail, postage prepaid, by certified or
registered mail, return receipt requested, provided, however, the delivery of
payment of routine invoices shall not be required to be by certified or
registered mail; (iii) by a nationally recognized overnight courier service; or
(iv) by electronic mail or facsimile delivery confirmed by delivery in
accordance with subparagraphs (i) or (iii) above; in each case addressed to the
party concerned at its address or facsimile number as set forth below (or at
such other address as a party may specify by written notice pursuant to this
paragraph to the other party):
If to Raytheon: Raytheon Company
- --------------
141 Spring Street
Lexington, MA 02421
Attention: Treasurer
Facsimile No.: 781-860-2341
If to any REC
- -------------
Subsidiary:
- ---------- ___________________
___________________
___________________
Attention:
Facsimile No.:
If to the Special
- -----------------
Purpose Purchaser: RE&C Receivables Corporation
- -----------------
One Broadway
Cambridge, MA 02142
Attention: Treasurer
Facsimile No.: 617-494-7252
If to Buyer:
- ----------- ___________________
___________________
___________________
<PAGE>
-13-
Attention:
Facsimile No.:
In each case with copies of
notices to CIBC and ASCC: 425 Lexington Avenue
- ------------------------
New York, New York 10017
Attention: Asset Securitization Group
Facsimile No.: (212) 856-3643
6.2. Payments and Computations, Etc. All amounts to be paid or deposited
-------- --- ------------- ---
by any party hereunder shall be paid or deposited in accordance with the terms
hereof on the day when due in immediately available funds to the respective
account of the applicable party, designated from time to time by such party. In
the event that any payment owed by any Person hereunder becomes due on a day
which is not a Business Day, then such payment shall be made on the next
succeeding Business Day. Any amount due hereunder which is not paid when due
hereunder shall bear interest at the Prime Rate as in effect from time to time
until paid in full; provided, however, that such interest rate shall not at any
time exceed the maximum rate permitted by applicable law. All computations of
interest payable hereunder shall be made on the basis of a year of 360 days for
the actual number of days (including the first but excluding the last day)
elapsed.
6.3. Liaisons; Staffing.
--------- --------
(a) Buyer and the Special Purpose Purchaser have
designated one or more employees to serve as liaison (the
"Liaison") for them under this Agreement and have notified the
-------
other party of the identity and address of such Liaison. The
Liaisons will continue to be the primary interface for all issues
under this Agreement. However, no Liaison shall be authorized to
amend or waive any provision of this Agreement. Each of Buyer and
the Special Purpose Purchaser may change its Liaison at any time
and from time to time during the term of this Agreement with the
consent of the other party.
(b) So long as any Existing Receivables are outstanding,
Buyer (i) will not terminate the employment of Mr. Chris Ziino
without cause or cease to provide Mr. Ziino with any resources,
including personnel, reasonably necessary to the performance of
Buyer's obligations under this Agreement, including acting as Sub-
Servicer, and (ii) will continue to assign Mr. Ziino primarily to
the performance of Buyer's obligations under this Agreement,
including acting as Sub-Servicer. In addition, Buyer will cause
Mr. Ziino to provide reasonable assistance to the Special Purpose
Purchaser in connection with the performance by the Special
Purpose Purchaser of
<PAGE>
-14-
its obligations under the Receivables Termination Agreement,
dated as of August 26, 1999 between Raytheon Company, RE&C
Receivables Corporation, Cedarapids, Inc. and Terex Corporation.
<PAGE>
-15-
ARTICLE 7
TERM AND TERMINATION
7.1. Term. This Agreement shall commence as of the Closing Date and,
----
unless terminated earlier pursuant to Section 7.2, shall remain in effect until
the first anniversary of the Closing Date.
7.2. Early Termination.
----- -----------
(a) The parties may terminate their obligations hereunder by mutual
agreement. Any such termination will require the prior written consent of
ASCC and CIBC.
(b) Raytheon or the Special Purpose Purchaser may and, at the
request of ASCC or CIBC shall, terminate this Agreement (i) in the event
Buyer breaches any covenant or obligation in this Agreement in any material
respect and such breach continues uncured, in the case of any payment
default for three (3) Business Days or, in the case of any other breach or
default, for forty-five (45) days after the earlier of (x) Buyer's actual
knowledge thereof and (y) receipt by Buyer of written notice of such breach
by Raytheon, ASCC or CIBC specifying such breach or (ii) upon the
occurrence of any Bankruptcy (as defined below) of Buyer.
(c) For purposes of this Article 7, "Bankruptcy" means (i) the
filing of a voluntary petition seeking liquidation, reorganization,
arrangement or readjustment, in any form, of a party's debts under Title 11
of the United States Code or any successor bankruptcy or insolvency laws,
(ii) the filing of an answer consenting to or acquiescing in any such
petition, (iii) the making by a party of any assignment for the benefit of
its creditors or the admission by such party in writing of its inability to
pay its debts as they mature, (iv) the filing of an involuntary petition
against a party under Title 11 of the United States Code or any successor
bankruptcy or insolvency laws, an application for the appointment of a
receiver for the assets of such party, or an involuntary petition seeking
liquidation, reorganization, arrangement or readjustment of such party's
debts under any other federal or state bankruptcy or insolvency laws,
provided that the same shall not have been vacated, set aside or stayed
within a 60-day period after the occurrence of such event, or (v) the entry
against a party of a final non-appealable order for relief under any other
bankruptcy, insolvency or similar law now or hereafter in effect.
7.3. No Waiver. This Article 7 shall not be deemed to waive, prejudice or
-- ------
diminish any rights a party hereto may have at law or in equity for any breach
of this Agreement.
<PAGE>
-16-
7.4. Survival. The provisions of Article 2, the fourth sentence of
--------
Section 3.2(a), Section 3.2(b), Section 3.8 and Articles 7-11 shall survive any
termination of this Agreement. In addition, the termination of this Agreement
will not affect any party's rights with respect to any breach of this Agreement
arising prior to such termination.
ARTICLE 8
GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED AND THE
RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS (EXCLUDING
ANY CHOICE OF LAW RULES THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION) OF THE STATE OF NEW YORK.
ARTICLE 9
ASSIGNS
No assignment of this Agreement by any party hereto shall be permitted
without the prior written consent of the other parties. Notwithstanding the
foregoing, (i) Raytheon and the Special Purpose Purchaser may assign this
Agreement to ASSC and CIBC as collateral security and (ii) Buyer may assign this
Agreement as provided in Section 16.6 of the Stock Purchase Agreement. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, successors and permitted assigns.
ARTICLE 10
ADDITIONAL DOCUMENTS
Each party shall promptly execute and deliver or cause to be executed and
delivered such additional documents as are reasonably required by any other
party for the purpose of implementing this Agreement.
ARTICLE 11
INDEMNIFICATION
11.1 Indemnification of ASCC and CIBC. Without limiting any other rights
--------------------------------
which ASCC or CIBC may have hereunder or under applicable law, each party hereto
hereby agrees to indemnify ASCC or CIBC and their respective officers,
directors, agents and employees (each an "Indemnified Party") from and against
----------- -----
any and all damages, losses, claims, taxes, liabilities, costs, expenses and for
all other amounts payable, including reasonable attorneys' fees and
disbursements (all of the foregoing being collectively referred to as
"Indemnified Amounts") awarded against or incurred by any of them arising out of
----------- -------
a breach of this Agreement, excluding, however, the following:
<PAGE>
-17-
(a) Indemnified Amounts to the extent final judgment of a court
of competent jurisdiction holds such Indemnified Amounts resulted from
breach of the Receivables Resale Agreement by ASCC or CIBC, gross
negligence on the part of ASCC or CIBC or willful misconduct on the part of
ASCC or CIBC or the Indemnified Party seeking indemnification;
(b) Indemnified Amounts to the extent the same includes losses
in respect of Receivables that prove to be uncollectible on account of the
insolvency, bankruptcy or lack of creditworthiness of the related Obligor;
or
(c) Taxes imposed by the jurisdiction in which such Indemnified
Party's principal executive office is located, on or measured by the
overall net income of such Indemnified Party to the extent that the
computation of such taxes is consistent with (i) the characterization of
the purchases under the Receivables Resale Agreement as true sales or (ii)
the characterization of the transactions under the Receivable Resale
Agreement as creating indebtedness of ASCC for purposes of taxation.
If and to the extent that the foregoing undertaking may be unenforceable for any
reason, the parties hereto hereby agree to make the maximum contribution to the
payment of the amounts indemnified against in this Section 11.1 which is
permissible under applicable law.
ARTICLE 12
GENERAL PROVISIONS
12.1. Entire Agreement. This Agreement and the Annexes referred to herein
------ ---------
constitutes the entire Agreement between the parties with respect to the subject
matter hereof, and supersedes all previous communications, representations,
understandings and agreements, either written or oral, between the parties.
12.2. Validity. If any provision of this Agreement or the application
--------
thereof to any party or circumstance shall be held to be invalid and
unenforceable to any extent, the remainder of this Agreement or the application
thereof to any other party or circumstance shall not be affected thereby and
each provision shall be valid and shall be enforced to the fullest extent
permitted by law.
12.3. Independent Contractors. The parties hereto shall act in all
----------- -----------
matters pertaining to this Agreement as independent contractors and nothing
contained herein and, except for the designation of Buyer as Sub-Servicer
pursuant to this Agreement, no action taken with respect to the provision of
this Agreement shall constitute one
<PAGE>
-18-
party to be the agent, partner or joint venturer of any other party for any
purpose whatsoever.
12.4. Confidentiality. Raytheon, the Special Purpose Purchaser and Buyer
---------------
agree to maintain the confidentiality of any information regarding the REC
Subsidiaries and the Purchased Business (as defined in the Stock Purchase
Agreement) obtained in accordance with the terms of this Agreement which is not
publicly available, but Raytheon, the Special Purchase Purchaser (and their
assignees) and Buyer may reveal such information (i) on a confidential basis to
applicable rating agencies, liquidity providers and credit enhancers, (ii) as
necessary or appropriate in connection with the administration or enforcement of
this Agreement, (iii) as required by law, government regulation or court
proceeding, (iv) to bank regulatory agencies and examiners, (v) to ASCC and CIBC
pursuant to Sections 9.1(n) and 9.3 of the Receivables Resale Agreement, or (vi)
on a confidential basis to financing sources and legal and accounting advisors.
12.5. Amendments. This Agreement shall be modified only by an instrument
----------
in writing executed by duly authorized representatives of the parties thereto.
No such modification shall be effective without the prior written consent of
ASCC and CIBC.
12.6. Waivers. A waiver of breach, delay or failure to take action with
-------
respect to any previous default or failure by a party to fulfill its obligations
under this Agreement shall not be deemed to constitute a waiver of any other or
subsequent default or failure by such party to fulfill such obligations and
shall not constitute or be construed as a continuing waiver and/or as a waiver
of other subsequent defaults or breaches of the same or other (similar or
otherwise) obligations or as a waiver of any remedy available.
12.7. Gender. Words of any gender used in this Agreement shall be held
------
and construed to include any other gender, and words in the singular number
shall be held to include the plural, and vice versa, unless the context requires
otherwise.
12.8. Headings. The article headings and section captions of this
--------
Agreement are inserted for convenience only, and shall not be deemed to
constitute part thereof or to affect the construction thereof.
12.9. Construction. The language used in this Agreement will be deemed to
------------
be the language chosen by the parties to express their mutual intent, and no
rule of strict construction will be applied against either party.
12.10. Waiver of Jury Trial. EACH PARTY HERETO WAIVES ITS RIGHTS TO A
------ -- ---- -----
JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN
CONNECTION WITH THIS
<PAGE>
-19-
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
12.11. Consents. Where any matter is subject to obtaining the consent of
--------
Raytheon or the Special Purpose Purchaser, such consent shall not be deemed to
have been unreasonably withheld or delayed if Raytheon or the Special Purpose
Purchaser has requested and pursued diligently any required consent of CIBC or
ASCC but has not yet obtained such consent.
12.12. Third Party Beneficiaries; Assignment. ASCC and CIBC are intended
-------------------------------------
to be third party beneficiaries of this Agreement. Raytheon and the Special
Purpose Purchaser shall be entitled to assign their rights under this Agreement
to CIBC and ASCC.
<PAGE>
-20-
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the Closing Date indicated above.
RAYTHEON COMPANY
By:
_______________________________
Name:
_____________________________
Title:
____________________________
RE&C RECEIVABLES
CORPORATION
By:
_______________________________
Name:
_____________________________
Title:
____________________________
RAYTHEON ENGINEERS &
CONSTRUCTORS, INC.
By:
_______________________________
Name:
_____________________________
Title:
____________________________
UNITED ENGINEERS
INTERNATIONAL, INC.
By:
_______________________________
Name:
_____________________________
Title:
____________________________
<PAGE>
-21-
CATALYTIC INDUSTRIAL
MAINTENANCE CO., INC.
By:
_______________________________
Name:
_____________________________
Title:
____________________________
RAYTHEON CONSTRUCTORS, INC.
By:
_______________________________
Name:
_____________________________
Title:
____________________________
RAYTHEON-CATALYTIC INC.
By:
_______________________________
Name:
_____________________________
Title:
____________________________
RAYTHEON INFRASTRUCTURE
INC.
By:
_______________________________
Name:
_____________________________
Title:
____________________________
<PAGE>
-22-
RAYTHEON-EBASCO OVERSEAS
LTD.
By:
_______________________________
Name:
_____________________________
Title:
____________________________
RUST CONSTRUCTORS INC.
By:
_______________________________
Name:
_____________________________
Title:
____________________________
RAYTHEON DEMILITARIZATION
COMPANY
By:
_______________________________
Name:
_____________________________
Title:
____________________________
21/ST/ CENTURY RAIL
CORPORATION
By:
_______________________________
Name:
_____________________________
Title:
____________________________
<PAGE>
-23-
RE&C RECEIVABLES
CORPORATION
By:
_______________________________
Name:
_____________________________
Title:
____________________________
MORRISON KNUDSEN CORPORATION
By:
_______________________________
Name:
_____________________________
Title:
______________________________
<PAGE>
Annex A
-------
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
"Agreement" means this Receivables Termination Agreement as it may be
amended and modified and in effect from time to time.
"ASCC" has the meaning set forth in the third paragraph of this Agreement.
"Bankruptcy" has the meaning set forth in Section 7.2(d).
"Business Day" means a day on which the Special Purpose Purchaser, Buyer,
the REC Subsidiaries, CIBC, ASCC and the Collection Agent are open for business.
"Buyer" has the meaning set forth in the first paragraph of this Agreement.
"Buyer Funds" has the meaning set forth in Section 3.7(b) of this
Agreement.
"CIBC" has the meaning set forth in the third paragraph of this Agreement.
"Closing" has the meaning given such term in the Stock Purchase Agreement.
"Closing Date" has the meaning set forth in the first paragraph of this
Agreement.
"Collection Account" means, with respect to each REC Subsidiary, the
collection account set forth opposite such REC Subsidiary's name on Annex E
-------
hereto.
"Collection Account Agreement" means, with respect to each REC Subsidiary,
the agreement between such REC Subsidiary, CIBC and the bank set forth opposite
its name of Annex E hereto.
-------
"Collection Account Letter" has the meaning set forth in Section 3.3(b) of
this Agreement.
"Collection Agent" means the Collection Agent appointed from time to time
pursuant to Section 7.2 of the Receivable Resale Agreement.
<PAGE>
-2-
"Collection Bank" means, with respect to each REC Subsidiary, at any time,
any of the banks or other financial institutions holding the Collection Account
of such REC Subsidiary.
"Collections" means, with respect to any Existing Receivable, all cash
collections and other cash proceeds in respect of such Existing Receivable,
including, without limitation, all cash proceeds of any security with respect to
such Existing Receivable.
"Existing Receivables" has the meaning set forth in Section 2.2 of this
Agreement.
"Indemnified Amounts" has the meaning set forth in Section 11.1 of this
Agreement.
"Indemnified Party" has the meaning set forth in Section 11.1 of this
Agreement.
"Joint Account" has the meaning set forth in Section 3.7(a) of this
Agreement.
"Obligor" means a Person obligated to make payments pursuant to a
Receivable.
"Outstanding Balance" of any Existing Receivable at any time means the then
outstanding principal balance thereof.
"Person" means an individual, partnership, corporation, association, trust,
or any other entity, or organization, including a government or political
subdivision or agency or instrumentality thereof.
"Prime Rate" means the "Prime Rate" as in effect from time to time and
published in The Wall Street Journal in its "Money Rates" column.
-----------------------
"Raytheon" has the meaning set forth in the first paragraph of this
Agreement.
"Receivable" means the obligation of an Obligor to pay for merchandise sold
or services rendered by any REC Subsidiary and includes any REC Subsidiary's
rights to payment of any interest or finance charges and in the merchandise
(including returned goods) and contracts relating to such Receivable, all
security interests, guaranties and property securing or supporting payment of
such Receivable and all proceeds of the foregoing.
"REC" has the meaning set forth in the second paragraph of this Agreement.
"Receivables Sale Agreement" has the meaning set forth in the third
paragraph of this Agreement.
<PAGE>
-3-
"Receivables Resale Agreement" has the meaning set forth in the third
paragraph of this Agreement.
"Records" means, with respect to any Receivable, all contracts and other
documents, books, records and other information (including, without limitation,
computer programs, tapes, disks, punch cards, data processing software and
related property and rights) relating to such Receivable, any security therefor
and the related Obligor.
"REC Subsidiaries" has the meaning set forth in the first paragraph of this
Agreement.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Special Purpose Purchaser" has the meaning set forth in the first
paragraph of this Agreement.
"SPP" has the meaning set forth in the first paragraph of this Agreement.
"SPP Funds" has the meaning set forth in Section 3.7(b) of this Agreement.
"Stock Purchase Agreement" has the meaning set forth in the second
paragraph of this Agreement.
"Sub-Servicer" means Buyer in its capacity as sub-servicer for the Special
Purpose Purchaser as described in Section 3.1 hereof.
"Subsidiary" means, with respect to any person or entity, any corporation a
majority (by number of votes) of the outstanding shares of any class or classes
of which shall at the time be owned by such person or entity or by a Subsidiary
of such persons or entity, if the holders of the shares of such class or classes
(a) are ordinarily, in the absence of contingencies, entitled to vote for the
election of a majority of the directors (or persons performing similar
functions) of the issuer thereof, even though the right so to vote has been
suspended by the happening of such a contingency, or (b) are at the time
entitled, as such holders, to vote for the election of a majority of the
directors (or persons performing similar functions) of the issuer thereof,
whether or not the right so to vote exists by reason of the happening of any
contingency.
"UCC" means the Uniform Commercial Code as from time to time in effect in
the specified jurisdiction.
<PAGE>
-4-
All accounting terms not specifically defined herein shall be
construed in accordance with generally accepted accounting principles. All
terms used in Article 9 of the UCC in the State of New York, and not
specifically defined herein, are used herein as defined in such Article 9.
<PAGE>
-0-
Annex B
-------
Form of UCC-3 Amendment
-----------------------
See attached.
[The registrant agrees to provide the Securities and Exchange Commission,
upon request, with copies of the attachment hereto.]
<PAGE>
Annex C
-------
Form of Letter Agreement Including Release
------------------------------------------
RE&C Receivables Corporation
and Raytheon Company
c/o Raytheon Company
141 Spring Street
Lexington, Massachusetts 02173
_______ __, 2000
Canadian Imperial Bank of Commerce
Asset Securitization Cooperative Corporation
425 Lexington Avenue
New York, New York 10017
The Originators listed below
c/o ________________
___________________
___________________
Re: Receivables Termination Agreement
---------------------------------
Ladies and Gentlemen:
Reference is made to the Stock Purchase Agreement, dated as of April 14,
2000 (the "Stock Purchase Agreement"), by and among Raytheon Company, a Delaware
------------------------
corporation ("Raytheon"), Raytheon Engineers & Constructors International,
--------
Inc., a Delaware corporation ("REC"), and Morrison Knudsen Corporation, a
---
Delaware corporation (the "Buyer"), pursuant to which REC will sell certain of
-----
its assets and all of the outstanding capital stock of the Direct Transfer RECI
Subsidiaries (as defined in the Stock Purchase Agreement), to the Buyer (the
"Sale").
----
Reference is also made to the (i) the First Amended and Restated
Receivables Sale Agreement, dated as of April 24, 1998 (as amended by the First
Amendment thereto dated December 29, 1998 and the Second Amendment thereto dated
April 28, 1999, the "Receivables Sale Agreement"), among Raytheon Engineers &
--------------------------
Constructors, Inc., a Delaware corporation, United Engineers International,
Inc., a Pennsylvania corporation, Catalytic Industrial Maintenance Co., Inc., a
Delaware corporation, Raytheon Constructors Inc., a Delaware corporation,
Raytheon-Catalytic
<PAGE>
2
Inc., a Delaware corporation, Raytheon Infrastructure Inc., a New York
corporation, Raytheon-Ebasco Overseas Ltd., a Delaware corporation, Rust
Constructors Inc., a Delaware corporation, Raytheon Demilitarization Company, a
Delaware corporation, 21st Century Rail Corporation, a Delaware corporation
(collectively, the "Originators"), Raytheon, and RE&C Receivables Corporation,
-----------
a Delaware corporation (the "Special Purpose Purchaser"), and (ii) the Second
-------------------------
Amended and Restated Receivables Sale Agreement, dated as of April 24, 1998 (as
amended by the First Amendment thereto dated December 29, 1998 and the Second
Amendment thereto dated April 28, 1999, the "Receivables Resale Agreement"),
----------------------------
among Canadian Imperial Bank of Commerce ("CIBC"), Asset Securitization
----
Cooperative Corporation ("ASCC"), the Special Purpose Purchaser and Raytheon.
----
Pursuant to Sections 10.6 and 11.4 of the Stock Purchase Agreement, the
Originators, Raytheon, the Special Purpose Purchaser and the Buyer are entering
into a Receivables Termination Agreement (the "Receivables Termination
-----------------------
Agreement") to provide for the orderly withdrawal of the Originators from the
- ---------
receivables sale arrangements created by the Receivables Sale Agreement and the
Receivables Resale Agreement. Capitalized terms used herein and not defined
have the meanings given them in the Receivables Termination Agreement.
In connection with the Receivables Termination Agreement, the parties
hereto agree as follows:
1. Release. Each of Raytheon and the Special Purpose Purchaser hereby
-------
releases each Originator from its obligations under the Receivables Sale
Agreement; provided, that, such release does not extend to, and each Originator
-------- ----
shall remain subject to, the provisions of, (a) Section 1.7 ("Transfer of
-----------
Records"), Section 1.8 ("Characterization"), Section 2.3 ("Collection Account
- ------- ---------------- ------------------
Agreements"), Section 2.4 ("Responsibilities of the Originators"), Article 7
- ---------- -----------------------------------
("Indemnification"), Section 8.3 ("Protection of Buyer's Interests"), Section
- ----------------- -------------------------------
8.4 ("Bankruptcy Petition"), Section 8.7 ("Consent to Jurisdiction") and Section
------------------- -----------------------
8.11 ("Confidentiality") of the Receivables Sale Agreement and (b) the
---------------
provisions of Article 7 ("Indemnification") insofar as it relates to any breach
by such Originator after the Closing of any of the provisions referred to in
clause (a) of this sentence.
2. Certain Obligations of the Originators. Raytheon will be responsible
--------------------------------------
for all amounts which under the Receivables Sale Agreement are required to be
paid by any Originator to the Special Purpose Purchaser, ASCC or CIBC if such
Originator had not been released from such obligations pursuant to Section 1
above, including, without limitation, amounts payable in respect of any Purchase
Price Credit under Section 1.5(a) of the Receivables Sale Agreement or in
respect of the Purchased Receivables specified in Section 1.5(b) of the
Receivables Purchase Agreement.
<PAGE>
3
3. Consent. Each of CIBC and ASCC hereby consents to (i) the Sale, (ii)
-------
the execution and delivery by each of Raytheon, the Originators and the Special
Purpose Purchaser of the Receivables Termination Agreement and (iii) the release
described in Section 1 above.
4. Guaranty. Notwithstanding anything contained in the Receivables
--------
Termination Agreement to the contrary, Raytheon hereby confirms and agrees that
Guaranty No. 2281-A dated December 29, 1998 and all of Raytheon's obligations
thereunder shall remain in full force and effect.
Please sign where indicated below to acknowledge your agreement with the
foregoing.
Very truly yours,
RAYTHEON COMPANY
By:____________________________________
Name:
Title:
RE&C RECEIVABLES
CORPORATION
By:____________________________________
Name:
Title:
<PAGE>
4
Acknowledged and agreed to
this ___ day of ______, 2000.
CANADIAN IMPERIAL BANK
OF COMMERCE
By:____________________________________
Name:
Title:
<PAGE>
ASSET SECURITIZATION COOPERATION
CORPORATION
By:____________________________________
Name:
Title:
Acknowledged and agreed to
this ___ day of ______, 2000.
RAYTHEON ENGINEERS &
CONSTRUCTORS INC.
By:____________________________________
Name:
Title:
UNITED ENGINEERS INTERNATIONAL, INC.
By:____________________________________
Name:
Title:
<PAGE>
2
RAYTHEON CONSTRUCTORS INC.
By:____________________________________
Name:
Title:
CATALYTIC INDUSTRIAL
MAINTENANCE CO., INC.
By:____________________________________
Name:
Title:
RAYTHEON-CATALYTIC INC.
By:____________________________________
Name:
Title:
RAYTHEON INFRASTRUCTURE INC.
By:____________________________________
Name:
Title:
RAYTHEON-EBASCO OVERSEAS LTD.
By:____________________________________
Name:
Title:
<PAGE>
3
RUST CONSTRUCTORS INC.
By:____________________________________
Name:
Title:
RAYTHEON DEMILITARIZATION
COMPANY
By:____________________________________
Name:
Title:
21/st/ CENTURY RAIL CORPORATION
By:____________________________________
Name:
Title:
<PAGE>
Annex D
-------
List of Existing Receivables
----------------------------
[The registrant agrees to provide the Securities and Exchange Commission,
upon request, with copies of the attachment hereto.]
<PAGE>
Annex E
-------
See attached.
[The registrant agrees to provide the Securities and Exchange Commission,
upon request, with copies of the attachment hereto.]
<PAGE>
Annex F
-------
[Name and Address of REC Subsidiary]
----------------------------------
__________, 2000
[Name and Address of Bank]
Ladies and Gentlemen:
Reference is hereby made to lock-box account no. ________ maintained with
you (the "Lock-Box Account") by ____________, a __________ corporation (the "REC
---------------- ---
Subsidiary"), and that certain Lock Box Agreement among you, the REC Subsidiary
- ----------
and Canadian Imperial Bank of Commerce ("CIBC") as agent for Asset
----
Securitization Cooperative Corporation (the "Lock Box Agreement").
------------------
This letter constitutes our direction to you to transfer all receipts from
the Lock-Box Agreement on a daily basis, by wire transfer or otherwise, to the
following account (the "Joint Account"):
-------------
RE&C Receivables Corporation and Morrison Knudsen Corporation
Account No. 274-01178
BankBoston
100 Federal Street
Boston, MA 02110
ABA # 011000390
Such transfers to the Joint Account shall continue until you receive (i)
notice in the form of a letter signed by both Morrison Knudsen Corporation, a
Delaware corporation, and RE&C Receivables Corporation, a Delaware corporation
("REC"), instructing you to do otherwise or (ii) a letter from CIBC in the form
---
of Attachment A to the Lock Box Agreement. REC is intended to be a third-party
beneficiary of this letter.
<PAGE>
-2-
Please acknowledge your receipt of this letter by signing and returning a
copy of this letter to the REC Subsidiary at the address specified above, to the
attention of the Treasurer.
Very truly yours,
[NAME OF REC SUBSIDIARY]
By:___________________
Name:
Title:
Receipt acknowledged
this ___ day of ____, 2000
[NAME OF BANK]
By:___________________________
Title: _______________________
<PAGE>
Annex G
-------
Form of Monthly Report
----------------------
See attached.
[The registrant agrees to provide the Securities and Exchange Commission,
upon request, with copies of the attachment hereto.]
<PAGE>
EXHIBIT D TO
------- - --
STOCK AND ASSET
----- --- -----
PURCHASE AGREEMENT
-------- ---------
DISAFFILIATION TAX SHARING AGREEMENT
------------------------------------
The parties to this Disaffiliation Tax Sharing Agreement, dated as of April
14, 2000 (this "Agreement"), are Raytheon Company, a Delaware corporation
("Raytheon"), Raytheon Engineers & Constructors International, Inc., a Delaware
corporation ("RECI"), and Morrison Knudsen Corporation, a Delaware corporation
(the "Buyer").
RECI, a wholly-owned subsidiary of Raytheon, Raytheon, and the Buyer have
entered into a Stock Purchase Agreement, dated as of April 14, 2000 (the
"Purchase Agreement"), pursuant to which (i) RECI will sell to the Buyer certain
of its assets, including all of the issued and outstanding capital stock of the
RECI Subsidiaries set forth in the Purchase Agreement (the "RECI Subsidiaries"),
(ii) the Buyer will assume certain liabilities, and (iii) thereafter the Buyer
will operate the Purchased Business (as defined in the Purchase Agreement)
subject to the terms and conditions set forth in the Purchase Agreement. The
parties desire to enter into this Agreement pursuant to the Purchase Agreement
in order to address certain matters relating to their respective Tax liabilities
and the Tax liabilities of the RECI Companies (as defined in the Purchase
Agreement).
Article 1. Defined Terms
------------------------
(a) Capitalized terms used in this Agreement and not otherwise
defined herein have the respective meanings given those terms in the Purchase
Agreement.
(b) "Adjustment" means any change in an item of income, gain, loss,
deduction or credit, including, but not limited to, changes attributable to any
amended Tax Returns, deficiencies asserted by any taxing authority,
overpayments, claims for refund, audit, examination, proceedings or litigation
resulting from any of the foregoing events.
(c) "Affiliated Group" means an affiliated group as defined in
Section 1504 of the Code (or any analogous combined, consolidated or unitary
group defined under state, local or foreign Income Tax law).
(d) "Closing Date Balance Sheet" means an unaudited consolidated
balance sheet of the RECI Companies as of the close of business on the Closing
Date, prepared in accordance with GAAP as applied on a basis consistent with the
preparation of the Financial Statements as of and for the year ended December
31, 1999 and, as applicable, the final Cut-Off Date Balance Sheet.
<PAGE>
-2-
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Consolidated State Tax Return" means any consolidated, combined
or unitary U.S. state or local Income Tax Return of which any member of the
Raytheon Affiliated Group is the parent corporation which includes any RECI
Company for the relevant period.
(g) "Income Tax Return" means a Tax Return with respect to an Income
Tax.
(h) "Income Tax" means any Tax based upon or relating to income,
including without limitation any Tax calculated in whole or in part with
reference to net revenues.
(i) "Long-Term Contract" has the meaning set forth in Code Section
460(f) or Internal Revenue Service Notice 89-15.
(j) "Non-Income Tax" means any Tax other than an Income Tax.
(k) "Raytheon Affiliated Group" means an Affiliated Group of which
both Raytheon and any RECI Company are members.
(l) "Tax" or "Taxes" means any federal, state, local, or foreign
income, gross receipts, franchise, estimated, alternative minimum, add-on
minimum, sales, use, transfer, registration, value added, excise, natural
resources, severance, stamp, occupation, premium, windfall profit,
environmental, customs, duties, real property, personal property, capital stock,
intangibles, social security, unemployment, disability, payroll, license,
employee, or other tax or levy, of any kind whatsoever, including any interest,
penalties, or additions to tax in respect of the foregoing.
(m) "Tax Return" means any return, declaration, report, claim for
refund, information return, or other document (including any attached or related
or supporting estimates, elections, schedules, statements, or information) filed
or required to be filed in connection with the determination, assessment, or
collection of any Tax or the administration of any laws, regulations, or
administrative requirements relating to any Tax.
Article 2. Responsibility for Taxes
-----------------------------------
2.1 Income Taxes and Income Tax Returns.
-----------------------------------
(a) Raytheon shall be responsible for and shall hold the Buyer
harmless from and against
(i) all U.S. federal Income Taxes of the Raytheon Affiliated
Group and all Taxes with respect to Consolidated State Tax Returns
attributable to any Tax period (but not limited to the Taxes) of a RECI
Subsidiary ending on or prior to the Closing Date (including any Taxes
attributable to a Section 338(h)(10) Election referred to in Article 4),
and
<PAGE>
-3-
(ii) all Income Taxes with respect to RECI.
Subject to the provisions of Article 3, Raytheon shall prepare (or cause to be
prepared) and file (or cause to be filed) on a timely basis any Raytheon
Affiliated Group U.S. federal Income Tax Returns or Consolidated State Tax
Returns for Tax periods ending on or prior to the Closing Date that are due
(including all applicable extensions) or may be filed after the Closing Date.
Raytheon shall pay (or cause to be paid) all Taxes shown or required to be shown
to be due on such Tax Returns. Such Tax Returns shall not, without Buyer's
prior written consent, contain any new elections that would have a material
adverse effect on the financial condition or tax position of the RECI
Subsidiaries after the Closing Date.
(b) With respect to any U.S. state or U.S. local Income Taxes (other
than those referred to in paragraph (a) above) and foreign national, state and
local Income Taxes of the RECI Subsidiaries (or any Affiliated Group which
includes any of the RECI Subsidiaries) attributable to any Tax period that
either ends on or prior to the Closing Date or includes but does not end on the
Closing Date:
(i) with respect to any such Tax periods that end on or prior
to the Closing Date, Raytheon shall be responsible for (and shall hold the
Buyer harmless against) all such Income Taxes;
(ii) with respect to any such Tax periods of a RECI Subsidiary
that include but do not end on the Closing Date, Raytheon shall be
responsible for (and shall hold the Buyer harmless against) all such Income
Taxes attributable to the period ending on the Closing Date, such portion
to be that amount that bears the same ratio (but not less than zero or
greater than one) to the total Tax liability for the Tax period that the
taxable income of the applicable RECI Subsidiary during that portion of the
Tax period ending on the Closing Date bears to its taxable income for the
entire applicable Tax period; and
(iii) with respect to any such Tax periods that include but do
not end on the Closing Date, the Buyer shall be responsible for (and shall
hold Raytheon harmless against) all such Income Taxes attributable to the
period after the Closing Date, such portion to equal the excess of the
total Tax liability for the Tax period for the applicable RECI Subsidiary
over the amount of the Tax liability for the applicable RECI Subsidiary and
Tax period as computed under clause (ii) above.
For purposes of this Section 2.1(b), all Income Taxes attributable to a
Section 338(h)(10) Election referred to in Article 4 shall be deemed to arise on
the Closing Date. Raytheon's obligations under clauses (i) and (ii) above shall
be net of any reserve on the final Cut-Off Date Balance Sheet, as described
below. Subject to the provisions of Article 3, the Buyer shall prepare (or
cause to be prepared) and file (or cause to be filed) on a timely basis any Tax
Returns of the RECI Subsidiaries for Income Taxes described in this Section
2.1(b) for applicable Income Tax periods that are due (including all applicable
extensions) or that may be filed after the Closing Date. Raytheon's liability
for any Income Tax under this Section 2.1(b) shall not exceed what its liability
therefor would have been had the applicable Tax Return been prepared on a basis
consistent with the RECI Subsidiaries' respective prior Tax Returns to the
extent permitted
<PAGE>
-4-
under all applicable Income Tax laws, rules and regulations. The Buyer shall pay
(or cause to be paid) all Taxes shown to be due on such Tax Returns. To the
extent that Raytheon is responsible for any portion of such Income Taxes
pursuant to this Section 2.1(b), Raytheon shall be liable for and reimburse the
Buyer for that portion of such Income Taxes (excluding any penalties caused by
acts or failures to act of the Buyer, including without limitation Buyer's
preparation (or causing to be prepared) of the applicable Tax Return) in excess
of any aggregate reserve for such U.S. state or local or foreign national, state
or local Income Taxes set forth on the Cut-Off Date Balance Sheet (as finally
adjusted pursuant to the Purchase Agreement). Any such reimbursement shall occur
within ten (10) business days of Raytheon's receipt of notice of payment by the
Buyer.
(c) Raytheon shall be entitled to all refunds of Income Taxes of
the type and for all Tax periods referred to in paragraph (a) above or paragraph
(b) above, except with respect to any Tax Return for which the Buyer has paid a
portion of the relevant Income Taxes as provided in paragraph (b) above, in
which case the Buyer shall be entitled to a pro rata portion of such refund
--- ----
based on the proportion of applicable Income Taxes paid by the Buyer.
(d) All computations required by this Section 2.1 shall be made on
the basis of a closing of the books as of the close of business on the Closing
Date, consistent with the computation of the final Closing Date Balance Sheet.
2.2 Non-Income Taxes.
-----------------
(a) Raytheon shall be responsible for and shall hold the Buyer
harmless against all Non-Income Taxes of the RECI Subsidiaries attributable to
any Tax period ending on or prior to the Closing Date. With respect to any Non-
Income Taxes of the RECI Subsidiaries attributable to any Tax period that
includes but ends after the Closing Date, (i) Raytheon shall be responsible for
and shall hold the Buyer harmless against the Non-Income Taxes of the RECI
Subsidiaries attributable to the period prior to and including the Closing Date
and (ii) the Buyer shall be responsible for and shall hold Raytheon harmless
against the Non-Income Taxes of the RECI Subsidiaries attributable to the period
after the Closing Date.
(b) Notwithstanding the foregoing, the Buyer and Raytheon shall each
bear and be responsible for paying half of any sales, use, transfer, stamp,
documentary, registration, business and occupation or similar Tax (including
related interest and penalties) ("Transaction Taxes") imposed by any
Governmental Entity with respect to the sale of the Purchased Shares and the
Acquired RECI Assets to the Buyer, regardless of whether the applicable Taxing
authority seeks to collect such Tax from Raytheon or the Buyer. The Buyer shall
also be responsible for (i) administering the payment of such Transaction Taxes,
(ii) defending or pursuing any proceedings relating thereto, and (iii) paying
any expenses related thereto; provided, that Raytheon will reimburse Buyer for
--------
half of any reasonable out-of-pocket expenses related thereto that are
authorized in advance by Raytheon within thirty (30) days of its receipt of
written notice of payment by Buyer. The Buyer shall also give prompt notice to
Raytheon of any proceeding relating to Transaction Taxes, shall keep Raytheon
reasonably informed of the progress thereof, shall consult Raytheon regarding
such proceeding and shall not settle any such
<PAGE>
-5-
proceeding without the written consent of Raytheon, which shall not be
unreasonably withheld. Raytheon shall give prompt written notice to the Buyer of
any proposed adjustment or assessment of any Transaction Tax with respect to the
transaction, or of any examination of said transaction in a sales, use, transfer
or similar Tax audit.
(c) Buyer shall be responsible for and shall hold the Raytheon
harmless against all Non-Income Taxes of the RECI Subsidiaries attributable to
any period after the Closing Date.
(d) The Buyer shall prepare (or cause to be prepared) and (except
with respect to RECI) file (or cause to be filed) on a timely basis any Tax
Returns for Non-Income Taxes of the RECI Companies that are due (including all
applicable extensions) or may be filed after the Closing Date, it being
understood that Raytheon shall be responsible for filing (or causing to be
filed) such Tax Returns due (including all applicable extensions) through the
Closing Date. In the case of returns prepared (or caused to be prepared) by the
Buyer for RECI, the Buyer will deliver completed Tax Returns to Raytheon along
with the Buyer's share of the Tax payment, if any, shown to be due thereon, no
later than five (5) business days before such Tax Returns are due, and Raytheon
hereby agrees to file such Tax Returns no later than five (5) business days
after its receipt thereof from Buyer and to pay the Tax payment shown to be due
thereon (or the amount received in respect thereof from Buyer, if less). Such
Tax Returns shall be prepared on a basis consistent with the RECI Companies'
prior Tax Returns to the extent permitted under all applicable Tax laws, rules
and regulations. The Buyer shall pay (or cause to be paid) all Non-Income Taxes
shown or required to be shown to be due on such Tax Returns. To the extent that
Raytheon is responsible for any portion of such Non-Income Taxes pursuant to
this Article 2, Raytheon shall be liable for and reimburse the Buyer for that
portion of such Non-Income Taxes (excluding any penalties caused by acts or
failures to act of the Buyer, including without limitation Buyer's preparation
(or causing to be prepared) of the applicable Tax Return) in excess of any
aggregate reserve for such Non-Income Taxes set forth on the Cut-Off Date
Balance Sheet (as finally adjusted pursuant to the Purchase Agreement). Any such
reimbursement shall occur within ten (10) business days of Raytheon's receipt of
notice of payment by the Buyer.
(e) Buyer shall be entitled to all refunds of Non-Income Taxes for
which it is liable under this Section 2.2, and Raytheon shall be entitled to all
refunds of Non-Income Taxes for which it is liable under this Section 2.2.
(f) For any Non-Income Taxes of a RECI Subsidiary based on sales or
revenue (other than Transaction Taxes), the allocation of responsibility between
Raytheon and the Buyer shall be based on the sales or revenues, as applicable,
taken into account in the final Closing Date Balance Sheet. For any real estate
Taxes or other property or asset-based Taxes of a RECI Subsidiary (other than
Transfer Taxes), the allocation of responsibility between Raytheon and the Buyer
shall be based on the number of days the applicable asset was held by the RECI
Subsidiary in the applicable Tax period through the Closing Date as compared to
the number of days the applicable asset was held by the RECI Subsidiary in the
applicable Tax period after the Closing Date. For all other Non-Income Taxes of
a RECI Subsidiary, the allocation of responsibility to the Buyer or Raytheon
shall be made by reference to the specific
<PAGE>
-6-
asset, activity or payment producing such Tax liability, and if the Tax
liability cannot practically be so allocated, then pro rata based on the number
--------
of days in the applicable Tax period prior to and including the Closing Date as
compared to the number of days in the Tax period after the Closing Date, or
based on some other method determined jointly by the Buyer and Raytheon to be
more appropriate.
Article 3. Cooperation on Tax Matters; Conduct of Proceedings
-------------------------------------------------------------
(a) The Buyer and Raytheon shall cooperate fully and in good faith,
as and to the extent reasonably requested by the other party, in connection with
the preparation and filing of Tax Returns pursuant to Article 2 and any audit,
litigation or other proceeding with respect to Taxes, it being understood that a
party's failure to so cooperate, or to perform its obligations under this
Article 3, shall excuse the other party from its indemnification obligations
hereunder with respect to the affected Taxes if and to the extent the failure
has an adverse effect on the indemnifying party. Such cooperation shall include,
subject to the following sentence, the retention and (upon the other party's
request) the provision of records and information which are reasonably relevant
to such preparation and filing and to any audit, litigation or other proceeding
relating thereto and making employees reasonably available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. The Buyer agrees to retain (and to cause the RECI
Subsidiaries to retain) all books and records with respect to Taxes pertinent to
the RECI Subsidiaries relating to any Tax period for which Raytheon may have an
indemnity obligation hereunder for not less than ten (10) years after the
Closing Date (and, to the extent notified by Raytheon, until the expiration of
any extensions of the applicable statutes of limitations), and shall not destroy
or otherwise dispose of any such books and records without first providing
Raytheon with a reasonable opportunity to review and copy the same. In addition,
with respect to any Tax Returns that Raytheon is responsible for filing under
this Agreement, the Buyer agrees that it will cause its employees and employees
of the RECI Subsidiaries, to the extent they have done so in the past, to
prepare tax reporting packages and initial drafts of Tax Returns for the RECI
Companies prepared on a basis consistent with past practice to the extent
permitted under all applicable Tax laws, rules and regulations. Prior to filing
any Income Tax Returns of any RECI Subsidiary for which Raytheon has agreed to
indemnify the Buyer (in whole or in part) pursuant to Article 2, the Buyer shall
provide Raytheon with a reasonable opportunity to review the applicable Tax
Returns and any necessary or appropriate applicable supporting workpapers and
schedules, and shall obtain the prior written consent of Raytheon to the filing
thereof, such consent not to be unreasonably withheld, conditioned, or delayed;
provided, that without limiting the provisions of the first sentence of this
paragraph, the failure to provide a reasonable opportunity to review or a lack
of consent, or the failure to make any changes to the Tax Returns requested by
Raytheon, shall excuse Raytheon from its indemnification obligations to the
extent Raytheon can demonstrate that it was prejudiced thereby. The Buyer shall
provide Raytheon with a copy of all Non-Income Tax Returns for which Raytheon
has agreed to indemnify the Buyer (in whole or in part) pursuant to Article 2,
along with any necessary or appropriate applicable supporting workpapers and
schedules, within thirty (30) days of the filing thereof, and not later than at
the time the Buyer provides Raytheon with notice of payment and a request for
reimbursement hereunder.
<PAGE>
-7-
(b) Except as set forth in Section 2.2(b), each party shall be solely
responsible for defending any audit, litigation or other proceeding with respect
to Taxes for which it is liable hereunder, and shall have the authority to
negotiate, compromise and settle any such audit, litigation or other proceeding.
In the case of any Tax for which Raytheon is liable hereunder, Raytheon shall
keep the Buyer reasonably informed as to the progress of any such audit,
litigation or other proceeding to the extent it relates to such Taxes, and
shall, if the Buyer so requests in writing, permit the Buyer at its expense to
participate in any such audit, litigation or other proceeding insofar as it
relates to any RECI Subsidiary; provided that Raytheon shall not settle any such
-------- ----
audit, litigation, or other proceeding without the Buyer's consent (not to be
unreasonably withheld, conditioned or delayed) if such settlement would or could
reasonably be expected to increase the Tax liabilities of Buyer or any of its
Affiliates (including any RECI Subsidiary) for any period after the Closing
Date. In the alternative, Raytheon may, by written and revocable notice to the
Buyer, at any time request the Buyer to control any audit, litigation, or other
proceeding (as and to the extent set forth in the notice) that Raytheon would
otherwise be entitled to control hereunder, in which case the Buyer shall
diligently proceed with the defense of that audit, litigation, or other
proceeding, shall keep Raytheon reasonably informed as to the progress of any
such audit, litigation or other proceeding, shall, if Raytheon so requests in
writing, permit Raytheon at its expense to participate in any such audit,
litigation or other proceeding, and shall not settle any such audit, litigation,
or other proceeding without Raytheon's consent, which shall not be unreasonably
withheld. If Raytheon requests that Buyer control an audit that Raytheon would
otherwise have been entitled to control hereunder, Raytheon will reimburse Buyer
for all reasonable out-of-pocket (but not internal or overhead) expenses
incurred by the Buyer in connection therewith and authorized in advance by
Raytheon. If, as a result of any audit, litigation or proceeding Raytheon,
Buyer, or any RECI Company is required to pay any additional Taxes hereunder,
each party shall (without duplication of the other provisions of this agreement)
reimburse the other party for any portion of such Taxes paid by that other party
(or its Affiliates) for which the reimbursing party is liable hereunder within
ten (10) business days after receipt of notice of payment.
Article 4. Section 338(h)(10) Election
--------------------------------------
(a) Raytheon shall join with the Buyer in making elections under
Section 338(h)(10) of the Code, and the regulations promulgated thereunder, and
any applicable analogous provision of state or local law, with respect to the
sale and acquisition of the stock of the RECI Subsidiaries hereunder (the
"Section 338(h)(10) Elections").
(b) In the case of any Section 338(h)(10) Elections that are made in
accordance with Section 4(a) hereof, the Buyer will be responsible for preparing
and filing all documents and materials necessary in connection with making any
such Section 338(h)(10) Election. Each of Raytheon and the Buyer agree to
cooperate with each other in connection therewith (including, without
limitation, signing and returning any documents sent to such party for its
signature in connection therewith within fifteen (15) days of its receipt of
such documents). The Buyer and Raytheon agree that for purposes of any Section
338(h)(10) Election they will agree to the valuation, or the method of
valuation, of the assets of the RECI
<PAGE>
-8-
Subsidiaries within three (3) months after the Closing Date, and will reflect
such agreement in a written supplement to this Agreement. In preparing such
allocation both the Buyer and Raytheon will act in a reasonable manner
consistent with the principles set forth in Annex A hereto. The Buyer and
----- -
Raytheon will file all Tax Returns in a manner consistent with such a Section
338(h)(10) Election and the valuation of the assets determined as provided
above.
Article 5. Carrybacks; Adjustments Affecting Timing
---------------------------------------------------
(a) If there is an Adjustment to any item reported on a Tax Return
filed with respect to Raytheon or any Affiliate of Raytheon (including any RECI
Company) for a period ending on or before the Closing Date (a "Prior Period")
that results in an increase in the Tax liabilities of Raytheon or an Affiliate
of Raytheon (including any RECI Company to the extent Raytheon is liable for
such Tax liabilities under this Agreement) and such Adjustment results in a
corresponding Adjustment to items reported on a Tax Return filed by or with
respect to the Buyer or any RECI Subsidiary or any Affiliate for a period
beginning after the Closing Date, with the result that the Tax liabilities of
the Buyer, such RECI Subsidiary, or such Affiliate with respect to such period
are reduced, then the Buyer shall pay to Raytheon an amount equal to such
reduction in Taxes of such RECI Subsidiary or Affiliate, such payment being
limited to the increase in the Tax liabilities of the Raytheon and its
Affiliates (including the RECI Companies) (as reduced by any prior payments by
Buyer to Raytheon under this sentence).
(b) If there is an Adjustment to any item reported on a Tax Return
filed with respect to Raytheon or any Affiliate of Raytheon (including any RECI
Company) for a Prior Period that results in an aggregate decrease in the Tax
liabilities of Raytheon and its Affiliates (including any RECI Company to the
extent Raytheon is liable for such Tax liabilities under this Agreement) and
such Adjustment results in a corresponding Adjustment to items reported on a Tax
Return filed by or with respect to the Buyer or any RECI Subsidiary or any
Affiliate for a period beginning after the Closing Date, with the result that
the Tax liabilities of the Buyer, such RECI Subsidiary, or such Affiliate with
respect to such period are increased, then Raytheon shall pay to the Buyer an
amount equal to such increase in Taxes of such RECI Subsidiary or Affiliate,
such payment being limited to the aggregate decrease in the Tax liabilities of
the Raytheon and its Affiliates (including the RECI Companies) (as reduced by
any prior payments by Raytheon to the Buyer under this sentence).
(c) Any payment by a party under this Article 5 shall be due within
thirty (30) days after the later of the realization of the Tax decrease or the
incurring of the increase in Taxes. Any Tax reduction will be deemed to have
been received when cash payments are received from the applicable Tax authority
with respect to a claim for refund or when a Tax Return reflecting the benefit
of the Adjustment is filed, and any Tax increase will be deemed to have been
incurred when a Tax Return reflecting the increase is filed.
<PAGE>
-9-
Article 6. Long-Term Contracts
------------------------------
(a) In the case of any Transferred Risk E&C Contract that is a Long-
Term Contract, the Buyer and Raytheon shall for all federal and state Income Tax
purposes (including without limitation the application of the lookback method
described in Code Section 460(b)(2)) take into account all amounts paid by the
customer and all contract costs incurred attributable thereto on the basis of a
constructive completion of such Long-Term Contract by the applicable Selling
Group member on the Closing Date.
(b) Raytheon shall be responsible for reporting all taxable income
properly accruing under each Transferred Risk E&C Contract that is a Long-Term
Contract through the Closing Date and paying all Taxes (including, when due, any
lookback interest when payable) payable with respect to that period (taking into
account all amounts paid by the customer, all contract costs incurred through
the Closing Date and all other amounts required to be included by reason of the
constructive termination of such Long-Term Contract on the Closing Date), while
the Buyer shall be responsible for reporting all taxable income properly
accruing under each Transferred Risk E&C Contract that is a Long-Term Contract
after the Closing Date and paying all Taxes (including lookback interest)
payable with respect to that period (taking into account all amounts paid by the
customer (other than collection of amounts taken into account by the Selling
Group), and all contract costs incurred after the Closing Date). Any lookback
interest refunds for periods through the Closing Date shall accrue to Raytheon,
while any lookback interest refunds for periods after the Closing Date shall
accrue to the Buyer.
(c) For purposes of this Article 6:
(i) there shall be treated as amounts paid by the customer to
the Selling Group member party thereto prior to the Closing Date and
attributable to an Transferred Risk E&C Contract that is a Long-Term
Contract (A) all amounts received with respect thereto on or prior to the
Closing Date and (B) any then unpaid accounts receivable, unbilled work in
progress, claims, disputes and retentions, to the extent (but only to the
extent) those items are reflected in the final Cut-Off Date Balance Sheet;
and
(ii) there shall be treated as contract costs incurred prior to
the Closing Date attributable to an Transferred Risk E&C Contract that is a
Long-Term Contract all costs properly accrued as of the Closing Date,
determined on a basis consistent with the final Cut-Off Date Balance Sheet.
(d) Raytheon and the Buyer agree to provide the other party any
assistance reasonably necessary or appropriate to carry out the computations
required by, and to file Tax Returns (including refund claims) necessary or
appropriate to give effect to, this Article 6.
<PAGE>
-10-
Article 7. Certain Post-Closing Events Relating to Foreign Taxes
----------------------------------------------------------------
Buyer agrees not to take or cause to be taken prior to January 1 of the
year following the year in which the Closing Date occurs any of the following
actions in respect of any RECI Subsidiary that is not a United States entity if
that action would reduce the earnings and profits of that RECI Subsidiary for
its United States federal taxable year including the Closing Date attributable
to the shares of that RECI Subsidiary under Section 1248 of the Code below the
amount that would be so attributable to such shares if such taxable year had
ended on the Closing Date: (i) the payment of an actual or constructive
-
dividend; (ii) the triggering of a deemed dividend under Section 956 of the
--
Code; (iii) a sale of stock subject to Section 304 of the Code; (iv) a
--- --
reorganization involving or liquidation or (except as specifically contemplated
hereby) deemed liquidation of the RECI Subsidiary; and (v) a change in
-
accounting method. Buyer agrees not to take, or cause to be taken, any action
(other than an action in the ordinary course of business), if the effect of that
action would be to increase the amounts included in any of Raytheon's gross
income under Section 951 of the Code for Raytheon's taxable year that includes
the Closing Date. Notwithstanding the foregoing, the parties agree to discuss
in good faith any actions proposed by the Buyer that would be inconsistent with
the agreements set forth in this Article 7, and further agree that Raytheon may,
in its good faith discretion, agree to permit Buyer to undertake any such action
if the Buyer is able to provide an indemnity, satisfactory to Raytheon, against
any adverse Tax effects resulting from the action.
Article 8. Miscellaneous
------------------------
8.1 Payment
-------
Any payment due hereunder shall, if not timely made, bear interest at a
rate equal to the Applicable Rate from the date due until the date of payment.
8.2 Expenses
--------
Each party shall pay its own expenses and costs incidental to the
preparation of this Agreement and to the consummation of the transactions
contemplated hereby.
8.3 Assigns
-------
This Agreement may be assigned only as and to the extent permitted by
Section 16.6 of the Purchase Agreement. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns.
8.4 Entire Agreement, Etc.
----------------------
Except for the Fire Wall Letter and the Ancillary Letter Agreement, this
Agreement and the Purchase Agreement (including the Schedules and Exhibits
thereto) contain the entire understanding of the parties, supersedes all prior
agreements and understandings relating to the
<PAGE>
-11-
subject matter hereof and shall not be amended except by a written instrument
hereafter signed by each of the parties hereto.
8.5 Waiver of Certain Damages
-------------------------
EACH OF RAYTHEON AND THE BUYER TO THE FULLEST EXTENT PERMITTED BY LAW,
IRREVOCABLY WAIVES ANY RIGHTS THAT THEY MAY HAVE TO INCIDENTAL, CONSEQUENTIAL OR
SPECIAL (INCLUDING PUNITIVE OR MULTIPLE) DAMAGES BASED UPON, OR ARISING OUT OF,
THIS AGREEMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS OR
ACTIONS OF ANY OF THEM RELATING THERETO.
8.6 Construction
------------
The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rule of strict
construction will be applied against any party.
8.7 Governing Law
-------------
The validity and construction of this Agreement shall be governed by the
internal laws (and not the choice-of-law rules which would require the
application of the laws of another jurisdiction) of the Commonwealth of
Massachusetts.
8.8 Notices
-------
All notices, requests, payments, instructions or other documents to be
given hereunder shall be in writing or by written telecommunication, and shall
be deemed to have been duly given if delivered personally or if mailed by
certified mail, return receipt requested, postage prepaid, or sent by written
telecommunication, as follows:
If to Raytheon, to:
141 Spring Street
Lexington, MA 02421
Attention: General Counsel
with a copy sent contemporaneously to:
John R. Utzschneider, Esq.
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
Facsimile: (617) 951-8736
<PAGE>
-12-
If to the Buyer, to:
Morrison Knudsen Corporation
720 Park Boulevard
Boise, ID 83712
Attention: Thomas Foote
Telephone: 208-386-6045
Facsimile: 208-386-5077
with a copy sent contemporaneously to:
Jones, Day, Reavis & Pogue
2727 North Harwood Street
Dallas, Texas 75201
Attention: Mark E. Betzen, Esq.
Telephone: (214) 969-3704
Facsimile: (214) 969-5100
8.9 Counterparts
------------
This Agreement may be executed by the parties in separate counterparts,
each of which when so executed and delivered shall be an original, but all such
counterparts shall together constitute but one and the same instrument.
8.10 Section Headings
----------------
The headings of articles, sections or subsections are for reference only
and shall not limit or control the meaning thereof.
8.11 Waiver of Jury Trial
--------------------
EACH PARTY HERETO WAIVES ITS RIGHTS TO A JURY TRIAL WITH RESPECT TO ANY
ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT,
ANY AGREEMENT, CONTRACT OR OTHER DOCUMENT OR INSTRUMENT EXECUTED IN CONNECTION
HEREWITH, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
<PAGE>
-13-
IN WITNESS WHEREOF, the parties hereto have duly executed this agreement as
an instrument under seal as of the day and year first written above.
RAYTHEON COMPANY
By:____________________________________
Name: _________________________________
Title: ________________________________
RAYTHEON ENGINEERS & CONSTRUCTORS
INTERNATIONAL, INC.
By:____________________________________
Name: _________________________________
Title: ________________________________
MORRISON KNUDSEN CORPORATION
By:____________________________________
Name: _________________________________
Title: ________________________________
<PAGE>
Annex A
-------
This Annex A represents the types of assets, by category, and underlying
-------
valuation principles which each party covenants to report gain or loss or cost
basis, as the case may be, by reason of the making of a Section 338(h)(10)
election as called for in Article 4 of the Disaffiliation Tax Sharing Agreement
dated as of April 14, 2000.
<TABLE>
<CAPTION>
Valuation Principle of
Asset (By Category) Allocation to Assets
------------------- --------------------------
<S> <C> <C>
Class I: Cash, demand deposits and similar bank
- ------- --------------------------------------
accounts
--------
Cash, Segregated Funds, Margin Deposits and
Deposits with Clearing Organizations (Cash) NBV
Class II: U.S. government and readily marketable
- -------- --------------------------------------
stocks and securities and foreign currency
------------------------------------------
Temporary Investments, including U.S.
government securities (utilized as margin
deposits, deposits with clearing
organizations and held on behalf of
customers) NBV
Class III: All other assets, excepting Class IV assets
- --------- -------------------------------------------
Accounts receivable (from customers and
employees), net of the allowance for
doubtful accounts NBV
Accrued interest receivable NBV
Furniture and office equipment FMV
Prepaid expenses NBV
Land FMV
</TABLE>
<PAGE>
-2-
<TABLE>
<CAPTION>
Valuation Principle of
Asset (By Category) Allocation to Assets
------------------- --------------------------
<S> <C> <C>
Real estate improvements FMV
Machinery and equipment FMV
Inventories FMV
Leasehold Interests FMV
Stock of each RECI Subsidiary as to which no FMV
Section 338(h)(10) Election is being made
All other intangible assets (other than
Class IV assets) FMV
Class IV: Certain Section 197 Intangibles
- --------- -------------------------------
All Section 197 Intangibles (as defined in
Section 197) except those in the nature of FMV
goodwill and going concern value
Class V: Certain Section 197 Intangibles
- ------- -------------------------------
Section 197 Intangibles in the nature of P
goodwill and going concern value
</TABLE>
______________
NBV = Net Book Value, as reflected on the final Closing Date Balance
Sheet.
FMV = Gross Fair Market Value (i.e., fair market value without regard
to mortgages, liens, pledges or other liabilities).
The parties agree to use all reasonable good faith efforts to
reach mutual agreement as to such Gross Fair Market Values on an
entity by entity basis. If the parties cannot reach agreement
thereon as to any asset or assets, such disagreement shall be
referred for resolution to a nationally recognized independent
appraisal or certified public accounting firm mutually
acceptable to Raytheon and the Buyer (a "Tax Referee"). If the
parties cannot agree on such a Tax Referee, the Tax Referee
shall be selected by two nationally recognized
<PAGE>
-3-
certified public accounting firms, one picked by the Buyer and one
picked by Raytheon; provided, however, that the Tax Referee so
selected may not then represent (other than in connection with the
provisions of this Section) the Buyer, Raytheon, or any Affiliate of
either. The decision of the Tax Referee shall be final and binding on
the parties. The fees of the Tax Referee shall be shared equally by
Raytheon and the Buyer.
P = The deemed sale price, determined applying Section 336(h)(10) and
Treasury Regulation Section 1.338(h)(10)-1(f), in excess of the sum of
the allocations to Class I, II, III assets, as reflected above, if
any.
<PAGE>
Exhibit E-1 to Stock Purchase Agreement
---------------------------------------
Subcontract - Jindal Project/1/
----------------------------
Agreed upon assets and liabilities relating to the Indemnified Projects will be
transferred to and assumed by RECI. Raytheon, RECI and the Subcontractor will
enter into a subcontract having the following terms:
Parties: Raytheon and RECI ("Prime Contractor") and
- ------- ----------------
Subcontractor/2/ ("Subcontractor").
-------------
Project: The Jindal Project described on Annex A.
- ------- -------
Prime Contract: See Annex A.
- -------------- -------
Project
- --------
Agreements: The Prime Contract and all other contracts,
- ----------
subcontracts, purchase orders, labor agreements, and
other agreements for the provision of E&C Services in
connection with the Jindal Project, described in Annex
-----
A, together with all related purchase orders, job
-
orders, change orders, extra work orders, amendments,
modifications, subcontracts and similar agreements and
any ancillary contracts entered into in connection with
such contracts, subcontracts and agreements, such as
project-specific hedging or currency swap agreements
and any services agreements.
Term of Subcontract: Coterminous with Prime Contract.
- -------------------
General Provision: In general, the Subcontract will track the terms of the
- -----------------
Prime Contract, except as noted below.
____________________
/1/ Defined terms used in this Exhibit without definition have the meanings
given them in the Stock Purchase Agreement.
/2/ Subcontractor will be either MK or one or more RECI Subsidiaries
performing the work with a guarantee from MK. The parties will structure this
subcontract in a manner that minimizes tiering of costs and preserves to the
extent possible the existing relationships.
<PAGE>
-2-
Subcontractor
- -------------
Performance: As set forth in greater detail below, the Prime
- -----------
Contractor and the Subcontractor intend that the
Subcontractor cause the applicable RECI Companies to
perform, on a cost-reimbursed basis, all obligations
under the Prime Contract. The Subcontractor will
perform the Subcontract at the direction of the Prime
Contractor. This will include attending and
participating in all regularly scheduled meetings with
the owner, consortium members, vendors, specialty
contractors and others.
Seller Access: The Prime Contractor and its representatives,
- --------------
including any third party consultant retained by the
Prime Contractor, will be permitted to have access to
and examine and take copies of the books and records of
the Subcontractor and the RECI Companies relating to
the Project. The Subcontractor will provide the Prime
Contractor with copies of all internal and external
project reports and correspondence as generated or
received. In addition, the Prime Contractor will be
entitled to place one or more employees or consultants
on-site at the Indemnified Projects to observe the
performance of the Indemnified Projects and the
performance by the Subcontractor of its obligations
under the Subcontract. In addition, the Prime
Contractor and the Subcontractor have appointed
liaisons, as indicated in Annex A, to meet and discuss
-------
the Project on an ongoing basis (the "Project
-------
Liaisons"). These ongoing meetings will include monthly
--------
project reviews and weekly progress meetings. The
Subcontractor may not designate a replacement Project
Liaison without the consent of the Prime Contractor,
which consent will not be unreasonably withheld or
delayed.
Staffing: The Subcontractor will, until the earlier of September
- --------
30, 2000 and termination of the Subcontract (the
"Performance Period"), not terminate (otherwise than
------------------
for cause, as reasonably determined by the
Subcontractor) and not permit any RECI Subsidiary to
terminate (otherwise than for cause, as reasonably
determined by the Subcontractor) the employment of the
individuals identified in Annex A as "Key Persons" with
-------
respect to such Project and will continue to assign
such personnel to the performance of the Project to a
degree consistent with the degree to which such
personnel were so assigned at April 13, 2000 (taking
into account changes in project status over time). In
addition, for the life of the Subcontract the
Subcontractor will not terminate (otherwise than for
cause, as reasonably determined by the Subcontractor)
and will not permit any RECI Subsidiary to terminate
(otherwise than for
<PAGE>
-3-
cause, as reasonably determined by the Subcontractor)
the employment of any other individuals (other than
craft labor and local field hires) working on such
Project and will continue to assign them to work on
such Project until their particular responsibilities
are fulfilled or they are no longer necessary due to
changes in the work mix for such Project. If any such
individual referred to in this paragraph is terminated
for cause or voluntarily terminates his or her
employment, then neither the Buyer nor any of its
Affiliates will hire that individual for the life of
the Subcontract. If any individuals referred to in the
preceding sentence voluntarily terminate their
employment or die or become disabled prior to the time
that they are no longer required for the appropriate
Project as provided in the preceding sentence, the
Subcontractor will or will cause the RECI Subsidiaries
to use commercially reasonable efforts to promptly
replace such individuals with appropriately qualified
individuals. Any replacements for the Key Persons
referred to above during the Performance Period will be
subject to the Prime Contractor's prior approval, not
to be unreasonably withheld or delayed. The
Subcontractor will also use commercially reasonable
efforts to maintain staffing levels, including the
labor forces of subcontractors and vendors, consistent
with the current and projected staffing levels for the
Specified Projects set forth on Annex A (taking into
-------
account changes in project status over time). The
Subcontractor will also provide all necessary project
resources (tools, equipment, scaffolding, etc.) as
required. In addition, the Subcontractor will not
change (otherwise than in connection with the
termination of a vendor or subcontractor for default,
as reasonably determined by the Subcontractor and
subject to approval of the Prime Contractor, not to be
unreasonably withheld) any of the vendors or
subcontractors listed in Annex A as "Key Vendors and
-------
Subcontractors" without the prior consent of the Prime
Contractor.
Project Statement: The Subcontractor will deliver for the Project from
- -----------------
time to time, but not less often than weekly, a
statement (the "Project Statement") prepared in
-----------------
accordance with the Subcontract showing (i) the
personnel working on the Project during the period
since the last Project Statement (or, in the case of
the first Project Statement, since the Closing Date),
(ii) the Labor Costs (as defined below) incurred in
accordance with the terms of the Subcontract by the
Subcontractor and the RECI Subsidiaries during such
period in connection with the performance of their
obligations under the Subcontract, and (iii) the out-
of-pocket costs, including payments to suppliers and
vendors and any Taxes, excluding any Income Taxes
payable with respect to any amounts paid to
Subcontractor
<PAGE>
-4-
as provided below under "Cost Savings" and any Taxes
payable as a result of the amounts paid to
Subcontractor pursuant to this paragraph being
determined to be greater than Subcontractor's actual
costs ("Other Reimbursable Costs"), incurred by the
------------------------
Subcontractor and the RECI Subsidiaries during such
period in accordance with the terms of the Subcontract
(with such Labor Costs and Reimbursable Costs referred
to collectively as the "Allowable Costs"). This Project
---------------
Statement will also include supporting documentation in
reasonable detail for all Labor Costs and Other
Reimbursable Costs and weekly certified payroll reports
and status reports on all progress in the field,
minutes of weekly meetings, issues of concern, vendor
and subcontractor updates (including manloading,
progress, scheduled deliveries, problems) and progress
photos. Within two (2) business days after receipt of
the Project Statement for any period the Prime
Contractor will pay to the Subcontractor the total
amount of Labor Costs and Other Reimbursable Costs set
forth in the Project Statement for such month. The
payment or receipt by the Prime Contractor of any such
amounts as provided above shall not prejudice their
rights to subsequently contest the amounts set forth in
the applicable Project Statement.
Labor Costs: For purposes of the Subcontract, Labor Costs will mean
- -----------
________./3/
ASCC Receivables;
- -----------------
Retained Claims: Any collections on any ASCC Receivables related to the
- ---------------
Project will be handled as provided in the Receivables
Termination Agreement. Any collections on any Retained
Claims related to the Project will be paid to the Prime
Contractor as provided in Section 8.7 of the Stock
Purchase Agreement.
Subcontractor
- --------------
Responsibilities: In performing its obligations under the Subcontract:
- ----------------
(i) The Subcontractor will be responsible for, and
hold the Prime Contractor harmless against, any claims
arising from the gross negligence or willful misconduct of
the Subcontractor or any RECI
____________________
/3/ If the parties are unable to agree on the definition for the Sub-
- ---
contractor's labor costs (which is intended to define Subcontractor's fully
burdened labor costs, excluding any fee component) the parties will base Labor
Costs on the RECI Companies forward pricing rates for U.S. government purposes,
as defined in the Federal Acquisition Regulations, Subpart 31.2, Contracts with
Organizations.
<PAGE>
-5-
Subsidiary in the performance or nonperformance of the
Subcontractor's obligations under the Subcontract in
addition to any claims under Section 13.2(ii) of the Stock
Purchase Agreement for breach of its obligations under the
Subcontract; provided, however, that in any case in which
the Subcontractor uses commercially reasonable efforts to
perform and comply with its obligations under the
Subcontract and takes all reasonable steps to abide by the
directions of the Prime Contractor and the terms of the
Subcontract, it will be deemed not to have breached such
obligations. Except as provided or referred to in the
preceding sentence, notwithstanding anything to the contrary
herein contained, the Prime Contractor will be responsible
for, and will release and hold the Subcontractor and the
RECI Subsidiaries harmless from and against, any and all
Losses (as defined in Section 13.1 of the Stock Purchase
Agreement) related to or arising out of the Subcontract or
the Project Agreements (including without limitation all
obligations and liabilities, including obligations and
liabilities to non-contract parties, under or arising in
connection with the performance prior to and after the
Closing, of the Subcontract or the Project Agreements),
except for any obligations for which the Buyer is
responsible under the Ancillary Letter Agreement.
(ii) The Subcontractor will and will cause the RECI
Subsidiaries to use commercially reasonable efforts to
assist the Prime Contractor in pursuing change orders and
claims for equitable adjustment and other claims relating to
the Project against the customers, consortium members,
suppliers, subcontractors, vendors and non-contact parties.
Any cash received by the Subcontractor or the RECI
Subsidiaries from any such change orders or claims or from
the customer under the Prime Contract or any other party
under any other Project Agreement or to non-contract
parties, to the extent not related to ASCC Receivables or
Retained Claims (the treatment of which is addressed in the
Stock Purchase Agreement or Receivables Termination
Agreement), will be remitted to the Prime Contractor within
two (2) business days after receipt and until then will be
held in trust.
(iii) The Subcontractor will not be authorized to, and
will not permit any RECI Subsidiary to, waive, modify or
amend any term of the Project Agreements.
(iv) In performing its obligations under the
Subcontract, the Subcontractor will act and will cause the
RECI Subsidiaries to act in good faith and use commercially
reasonable efforts to perform the work remaining to be
performed under the Project Agreements within the time
periods required under the Project Agreements and within the
ECACs for the Project Agreements as in effect on the Closing
Date and referred to in (j) below.
<PAGE>
-6-
(i) Insurance. During the performance of the Projects the
---------
Subcontractor will and will cause the RECI Subsidiaries to maintain the
insurance required under the terms of the Project Agreements consistent
with the limits of coverage in place as of the Closing and, with respect to
project-specific insurance relating to the Projects, will name the Prime
Contractor as a named insured and/or loss payee as their interest may
appear. The allocable cost of maintaining this insurance will constitute an
Other Reimbursable Cost.
(j) Cost Savings. At Closing the Prime Contractor shall provide the
-------------
Subcontractor with an ESR as of the Cut-Off Date with respect to the
Project. Such ESR shall be prepared consistent with past practices. In
the event the Subcontractor completes the Project and achieves final
acceptance at a cost less than the ECAC reflected on this ESR, excluding
any forecasted liquidated damages or back charge recoveries and excluding
any overhead and business development cost (the "Adjusted ECAC") as
-------------
evidenced by documentation satisfactory to the Prime Contractor, the Prime
Contractor and the Subcontractor will share such cost savings equally and
accordingly, the Prime Contractor shall remit an amount equal to one-half
of such cost savings to the Subcontractor within thirty (30) days after the
Prime Contractor and the Subcontractor determine the final amount, if any,
of the cost savings. Any increase in revenue as compared to the revenue
forecast in the ESR described above will increase the target Adjusted ECAC
for purposes of determining cost underruns.
Taxes: The parties will structure the arrangements
- -----
contemplated by the Subcontract in a manner that will
minimize Taxes, to the extent permitted by law.
Assignment: The parties will work to obtain prior to Closing all
- ----------
consents or novations required to implement the
Subcontract. If any such consent or novations is not
received by Closing, the parties will enter into
arrangements comparable to those described in the
Section 8.3 of the Stock Purchase Agreement, with the
intent of implementing, as closely as practicable, the
contractual relationships between Prime Contractor and
Subcontractor contemplated by this Exhibit.
Termination: In addition to any termination provisions in the
- -----------
Prime Contract (which will be incorporated into the
Subcontract), the Prime Contractor may terminate the
Subcontractor's engagement at any time Appropriate
provisions of the Subcontract, including provisions
relating to exculpation and indemnification, will
survive any such termination.
<PAGE>
-7-
Dispute
- -------
Resolution: Internal mediation between Project Liaisons and then
- ----------
senior management, and then arbitration consistent with
Section 16.13 of the Stock Purchase Agreement except
that AAA Construction Industry rules shall apply.
Asset Transfers: With respect to Section 1.4(l) of the Stock Purchase
- ---------------
Agreement, the parties will determine which assets
relating to the Project will be transferred to RECI.
The parties expect that all contracts and working
capital will be transferred to RECI, but that tangible
assets including leases covering the same, but
excluding any tools, equipment and materials originally
costed to the project ("Project Specific Assets"),
-----------------------
Intellectual Property and computer software (including
licenses covering the same), collective bargaining and
employment agreements and other agreements with
employees or their representatives, governmental
licenses and permits, and books and records (including
site plans, surveys, soil and substratus studies,
architectural drawings, plans and specifications,
engineering, electrical and mechanical plans and
studies, feasibility studies, environmental studies,
audits and assessments and other plans and studies of
any kind relating to the Project) will not be
transferred. The parties may also choose not to
transfer certain subcontracts or other ancillary
agreements (whether because of consents, requirements
for contractors, engineers or other licenses, tax
planning or other reasons) and will enter into
alternative arrangements that achieve to the maximum
extent possible the economic intent of the parties.
With respect to any Project Specific Assets, the Prime
Contractor will be entitled to retain such assets upon
completion of the Project or cause the Subcontractor,
pursuant to the Subcontract, to dispose of such Project
Specific Assets and remit the proceeds to Prime
Contractor. The Prime Contractor and Subcontractor will
separately inventory and identify (by stickers, etc.)
the Project Specific Assets upon commencement of the
Subcontract.
RECI Company: The Subcontractor will maintain the existence and good
standing of the RECI Companies party to the Project
Agreements until performance is completed.
<PAGE>
-8-
Exhibit E-1 to Stock Purchase Agreement
---------------------------------------
Annex A
-------
Jindal
- ------
Description of
Project: Engineer, procure and construct a 2 x 130 MW thermal power
plant at Toranagallu India.
Key Persons: R. Zaist
T. Delakiris, P.M.
S. Gray, PEM
J. Beach, Site Mgr.
J. Thomas, S/U Mgr.
J. Derochia, Res. Engr.
S. Henebry, Acct. Mgr.
P. Namburi
Kevin Colby
Project Liaisons: Seller: To be designated Buyer: Robert Zaist
Projected Staffing Levels: See attached.
Key Vendors and Subcontractors: See attached.
<PAGE>
Exhibit E-2 to Stock Purchase Agreement
---------------------------------------
Subcontract - Ratchaburi Project/1/
--------------------------------
Agreed upon assets and liabilities relating to the Indemnified Projects will be
transferred to and assumed by RECI. Raytheon, RECI and the Subcontractor will
enter into a subcontract having the following terms:
Parties: Raytheon and RECI ("Prime Contractor") and
- ------- ----------------
Subcontractor/2/ ("Subcontractor").
-------------
Project: The Ratchaburi Project described on Annex A.
- ------- -------
Prime Contract: See Annex A.
- -------------- -------
Project
- --------
Agreements: The Prime Contract and all other contracts,
- ----------
subcontracts, purchase orders, labor agreements, and
other agreements for the provision of E&C Services in
connection with the Ratchaburi Project, described in
Annex A, together with all related purchase orders, job
-------
orders, change orders, extra work orders, amendments,
modifications, subcontracts and similar agreements and
any ancillary contracts entered into in connection with
such contracts, subcontracts and agreements, such as
project-specific hedging or currency swap agreements
and any services agreements.
Term of Subcontract: Coterminous with Prime Contract.
- -------------------
General Provision: In general, the Subcontract will track the terms of the
- -----------------
Prime Contract, except as noted below.
___________________
/1/ Defined terms used in this Exhibit without definition have the meanings
given them in the Stock Purchase Agreement.
/2/ Subcontractor will be either MK or one or more RECI Subsidiaries performing
the work with a guarantee from MK. The parties will structure this subcontract
in a manner that minimizes tiering of costs and preserves to the extent possible
the existing relationships.
<PAGE>
-2-
Subcontractor
- -------------
Performance: As set forth in greater detail below, the Prime
- -----------
Contractor and the Subcontractor intend that the
Subcontractor cause the applicable RECI Companies to
perform, on a cost-reimbursed basis, all obligations
under the Prime Contract. The Subcontractor will
perform the Subcontract at the direction of the Prime
Contractor. This will include attending and
participating in all regularly scheduled meetings with
the owner, consortium members, vendors, specialty
contractors and others.
Seller Access: The Prime Contractor and its representatives,
- --------------
including any third party consultant retained by the
Prime Contractor, will be permitted to have access to
and examine and take copies of the books and records of
the Subcontractor and the RECI Companies relating to
the Project. The Subcontractor will provide the Prime
Contractor with copies of all internal and external
project reports and correspondence as generated or
received. In addition, the Prime Contractor will be
entitled to place one or more employees or consultants
on-site at the Indemnified Projects to observe the
performance of the Indemnified Projects and the
performance by the Subcontractor of its obligations
under the Subcontract. In addition, the Prime
Contractor and the Subcontractor have appointed
liaisons, as indicated in Annex A, to meet and discuss
-------
the Project on an ongoing basis (the "Project
-------
Liaisons")These ongoing meetings will include monthly
--------
project reviews and weekly progress meetings. The
Subcontractor may not designate a replacement Project
Liaison without the consent of the Prime Contractor,
which consent will not be unreasonably withheld or
delayed.
Staffing: The Subcontractor will, until the earlier of December
- --------
31, 2001 and termination of the Subcontract (the
"Performance Period"), not terminate (otherwise than
------------------
for cause, as reasonably determined by the
Subcontractor) and not permit any RECI Subsidiary to
terminate (otherwise than for cause, as reasonably
determined by the Subcontractor) the employment of the
individuals identified in Annex A as "Key Persons" with
-------
respect to such Project and will continue to assign
such personnel to the performance of the Project to a
degree consistent with the degree to which such
personnel were so assigned at April 13, 2000 (taking
into account changes in project status over time). In
addition, for the life of the Subcontract the
Subcontractor will not terminate (otherwise than for
<PAGE>
-3-
cause, as reasonably determined by the Subcontractor)
and will not permit any RECI Subsidiary to terminate
(otherwise than for cause, as reasonably determined by
the Subcontractor) the employment of any other
individuals (other than craft labor and local field
hires) working on such Project and will continue to
assign them to work on such Project until their
particular responsibilities are fulfilled or they are
no longer necessary due to changes in the work mix for
such Project. If any such individual referred to in
this paragraph is terminated for cause or voluntarily
terminates his or her employment, then neither the
Buyer nor any of its Affiliates will hire that
individual for the life of the Subcontract. If any
individuals referred to in the preceding sentence
voluntarily terminate their employment or die or become
disabled prior to the time that they are no longer
required for the appropriate Project as provided in the
preceding sentence, the Subcontractor will or will
cause the RECI Subsidiaries to use commercially
reasonable efforts to promptly replace such individuals
with appropriately qualified individuals. Any
replacements for the Key Persons referred to above
during the Performance Period will be subject to the
Prime Contractor's prior approval, not to be
unreasonably withheld or delayed. The Subcontractor
will also use commercially reasonable efforts to
maintain staffing levels, including the labor forces of
subcontractors and vendors, consistent with the current
and projected staffing levels for the Specified
Projects set forth on Annex A (taking into account
-------
changes in project status over time). The Subcontractor
will also provide all necessary project resources
(tools, equipment, scaffolding, etc.) as required. In
addition, the Subcontractor will not change (otherwise
than in connection with the termination of a vendor or
subcontractor for default, as reasonably determined by
the Subcontractor and subject to approval of the Prime
Contractor, not to be unreasonably withheld) any of the
vendors or subcontractors listed in Annex A as "Key
-------
Vendors and Subcontractors" without the prior consent
of the Prime Contractor.
Project Statement: The Subcontractor will deliver for the Project from
- -----------------
time to time, but not less often than weekly, a
statement (the "Project Statement") prepared in
-----------------
accordance with the Subcontract showing (i) the
personnel working on the Project during the period
since the last Project Statement (or, in the case of
the first Project Statement, since the Closing Date),
(ii) the Labor Costs (as defined below) incurred in
accordance with the terms of the Subcontract by the
Subcontractor and the RECI Subsidiaries during such
period in connection with the performance of their
obligations under the Subcontract, and (iii) the out-
of-pocket costs, including payments to suppliers and
vendors and any Taxes, excluding any Income Taxes
payable with respect to any amounts paid to
Subcontractor
<PAGE>
-4-
as provided below under "Cost Savings" and any Taxes
payable as a result of the amounts paid to
Subcontractor pursuant to this paragraph being
determined to be greater than Subcontractor's actual
costs ("Other Reimbursable Costs"), incurred by the
------------------------
Subcontractor and the RECI Subsidiaries during such
period in accordance with the terms of the Subcontract
(with such Labor Costs and Reimbursable Costs referred
to collectively as the "Allowable Costs"). This Project
---------------
Statement will also include supporting documentation in
reasonable detail for all Labor Costs and Other
Reimbursable Costs and weekly certified payroll reports
and status reports on all progress in the field,
minutes of weekly meetings, issues of concern, vendor
and subcontractor updates (including manloading,
progress, scheduled deliveries, problems) and progress
photos. Within two (2) business days after receipt of
the Project Statement for any period the Prime
Contractor will pay to the Subcontractor the total
amount of Labor Costs and Other Reimbursable Costs set
forth in the Project Statement for such month. The
payment or receipt by the Prime Contractor of any such
amounts as provided above shall not prejudice their
rights to subsequently contest the amounts set forth in
the applicable Project Statement.
Labor Costs: For purposes of the Subcontract, Labor Costs will mean
- -----------
________./3/
ASCC Receivables;
- -----------------
Retained Claims: Any collections on any ASCC Receivables related to
- ---------------
the Project will be handled as provided in the
Receivables Termination Agreement. Any collections on
any Retained Claims related to the Project will be paid
to the Prime Contractor as provided in Section 8.7 of
the Stock Purchase Agreement.
Subcontractor
- --------------
Responsibilities: In performing its obligations under the Subcontract:
- ----------------
(i) The Subcontractor will be responsible for, and
hold the Prime Contractor harmless against, any claims
arising from the gross negligence or willful misconduct of
the Subcontractor or any RECI
______________________
/3/ If the parties are unable to agree on the definition for the
Subcontractor's labor costs (which is intended to define Subcontractor's fully
burdened labor costs, excluding any fee component) the parties will base Labor
Costs on the RECI Companies forward pricing rates for U.S. government purposes,
as defined in the Federal Acquisition Regulations, Subpart 31.2, Contracts with
Organizations.
<PAGE>
-5-
Subsidiary in the performance or nonperformance of the
Subcontractor's obligations under the Subcontract in
addition to any claims under Section 13.2(ii) of the Stock
Purchase Agreement for breach of its obligations under the
Subcontract; provided, however, that in any case in which
the Subcontractor uses commercially reasonable efforts to
perform and comply with its obligations under the
Subcontract and takes all reasonable steps to abide by the
directions of the Prime Contractor and the terms of the
Subcontract, it will be deemed not to have breached such
obligations. Except as provided or referred to in the
preceding sentence, notwithstanding anything to the contrary
herein contained, the Prime Contractor will be responsible
for, and will release and hold the Subcontractor and the
RECI Subsidiaries harmless from and against, any and all
Losses (as defined in Section 13.1 of the Stock Purchase
Agreement) related to or arising out of the Subcontract or
the Project Agreements (including without limitation all
obligations and liabilities, including obligations and
liabilities to non-contract parties, under or arising in
connection with the performance prior to and after the
Closing, of the Subcontract or the Project Agreements),
except for any obligations for which the Buyer is
responsible under the Ancillary Letter Agreement.
(ii) The Subcontractor will and will cause the RECI
Subsidiaries to use commercially reasonable efforts to
assist the Prime Contractor in pursuing change orders and
claims for equitable adjustment and other claims relating to
the Project against the customers, consortium members,
suppliers, subcontractors, vendors and non-contract parties.
Any cash received by the Subcontractor or the RECI
Subsidiaries from any such change orders or claims or from
the customer under the Prime Contract or any other party
under any other Project Agreement or to non-contract
parties, to the extent not related to ASCC Receivables or
Retained Claims (the treatment of which is addressed in the
Stock Purchase Agreement or Receivables Termination
Agreement), will be remitted to the Prime Contractor within
two (2) business days after receipt and until then will be
held in trust.
(iii) The Subcontractor will not be authorized to, and
will not permit any RECI Subsidiary to, waive, modify or
amend any term of the Project Agreements.
(iv) In performing its obligations under the
Subcontract, the Subcontractor will act and will cause the
RECI Subsidiaries to act in good faith and use commercially
reasonable efforts to perform the work remaining to be
performed under the Project Agreements within the time
periods required under the Project Agreements and within the
ECACs for the Project Agreements as in effect on the Closing
Date and referred to in (j) below.
<PAGE>
-6-
(i) Insurance. During the performance of the Projects the
---------
Subcontractor will and will cause the RECI Subsidiaries to maintain the
insurance required under the terms of the Project Agreements consistent
with the limits of coverage in place as of the Closing and, with respect to
project-specific insurance relating to the Projects, will name the Prime
Contractor as a named insured and/or loss payee as their interest may
appear. The allocable cost of maintaining this insurance will constitute an
Other Reimbursable Cost.
(j) Cost Savings. At Closing the Prime Contractor shall provide the
-------------
Subcontractor with an ESR as of the Cut-Off Date with respect to the
Project. Such ESR shall be prepared consistent with past practices. In
the event the Subcontractor completes the Project and achieves final
acceptance at a cost less than the ECAC reflected on this ESR, excluding
any forecasted liquidated damages or back charge recoveries and excluding
any overhead and business development cost (the "Adjusted ECAC") as
-------------
evidenced by documentation satisfactory to the Prime Contractor, the Prime
Contractor and the Subcontractor will share such cost savings equally and
accordingly, the Prime Contractor shall remit an amount equal to one-half
of such cost savings to the Subcontractor within thirty (30) days after the
Prime Contractor and the Subcontractor determine the final amount, if any,
of the cost savings. Any increase in revenue as compared to the revenue
forecast in the ESR described above will increase the target Adjusted ECAC
for purposes of determining cost underruns.
Taxes: The parties will structure the arrangements
- -----
contemplated by the Subcontract in a manner that will
minimize Taxes, to the extent permitted by law.
Assignment: The parties will work to obtain prior to Closing all
- ----------
consents or novations required to implement the
Subcontract. If any such consent or novations is not
received by Closing, the parties will enter into
arrangements comparable to those described in the
Section 8.3 of the Stock Purchase Agreement, with the
intent of implementing, as closely as practicable, the
contractual relationships between Prime Contractor and
Subcontractor contemplated by this Exhibit.
Termination: In addition to any termination provisions in the Prime
- -----------
Contract (which will be incorporated into the
Subcontract), the Prime Contractor may terminate the
Subcontractor's engagement at any time Appropriate
provisions of the Subcontract, including provisions
relating to exculpation and indemnification, will
survive any such termination.
<PAGE>
-7-
Dispute
- -------
Resolution: Internal mediation between Project Liaisons and then
- ----------
senior management, and then arbitration consistent with
Section 16.13 of the Stock Purchase Agreement except
that AAA Construction Industry rules shall apply.
Asset Transfers: With respect to Section 1.4(l) of the Stock Purchase
- ---------------
Agreement, the parties will determine which assets
relating to the Project will be transferred to RECI.
The parties expect that all contracts and working
capital will be transferred to RECI, but that tangible
assets including leases covering the same, but
excluding any tools, equipment and materials originally
costed to the project ("Project Specific Assets"),
-----------------------
Intellectual Property and computer software (including
licenses covering the same), collective bargaining and
employment agreements and other agreements with
employees or their representatives, governmental
licenses and permits, and books and records (including
site plans, surveys, soil and substratus studies,
architectural drawings, plans and specifications,
engineering, electrical and mechanical plans and
studies, feasibility studies, environmental studies,
audits and assessments and other plans and studies of
any kind relating to the Project) will not be
transferred. The parties may also choose not to
transfer certain subcontracts or other ancillary
agreements (whether because of consents, requirements
for contractors, engineers or other licenses, tax
planning or other reasons) and will enter into
alternative arrangements that achieve to the maximum
extent possible the economic intent of the parties.
With respect to any Project Specific Assets, the Prime
Contractor will be entitled to retain such assets upon
completion of the Project or cause the Subcontractor,
pursuant to the Subcontract, to dispose of such Project
Specific Assets and remit the proceeds to Prime
Contractor. The Prime Contractor and Subcontractor will
separately inventory and identify (by stickers, etc.)
the Project Specific Assets upon commencement of the
Subcontract.
RECI Company: The Subcontractor will maintain the existence and good
standing of the RECI Companies party to the Project
Agreements until performance is completed.
<PAGE>
-8-
Exhibit E-2 Stock Purchase Agreement
------------------------------------
Annex A
-------
Ratchaburi
- ----------
Description of
Project: Engineering and procurement of balance of plant
equipment for 2100 MW combined cycle power plant in
Thailand.
Key Persons: R. Zaist
K. Dunn
R. Bold
S. Carrol
S. Gammai
D. Orpin
Kevin Colby
New Hire
Project Liaisons: Seller: To be designated Buyer: Robert Zaist
Projected Staffing Levels: See attached.
Key Vendors and Subcontractors: See attached.
<PAGE>
Exhibit E-3 to Stock Purchase Agreement
--------------------------------------
Subcontract - Saltend Project/1/
-----------------------------
Agreed upon assets and liabilities relating to the Indemnified Projects will be
transferred to and assumed by RECI. Raytheon, RECI and the Subcontractor will
enter into a subcontract having the following terms:
Parties: Raytheon and RECI ("Prime Contractor") and
- ------- ----------------
Subcontractor/2/ ("Subcontractor").
-------------
Project: The Saltend Project described on Annex A.
- ------- -------
Prime Contract: See Annex A.
- -------------- -------
Project
- -------
Agreements: The Prime Contract and all other contracts,
- ----------
subcontracts, purchase orders, labor agreements, and
other agreements for the provision of E&C Services in
connection with the Saltend Project, described in Annex
-----
A, together with all related purchase orders, job
-
orders, change orders, extra work orders, amendments,
modifications, subcontracts and similar agreements and
any ancillary contracts entered into in connection with
such contracts, subcontracts and agreements, such as
project-specific hedging or currency swap agreements
and any services agreements.
Term of Subcontract: Coterminous with Prime Contract.
- -------------------
General Provision: In general, the Subcontract will track the terms of the
- -----------------
Prime Contract, except as noted below.
___________________
/1/ Defined terms used in this Exhibit without definition have the meanings
given them in the Stock Purchase Agreement.
/2/ Subcontractor will be either MK or one or more RECI Subsidiaries performing
the work with a guarantee from MK. The parties will structure this subcontract
in a manner that minimizes tiering of costs and preserves to the extent possible
the existing relationships.
<PAGE>
-2-
Subcontractor
- -------------
Performance: As set forth in greater detail below, the Prime
- -----------
Contractor and the Subcontractor intend that the
Subcontractor cause the applicable RECI Companies to
perform, on a cost-reimbursed basis, all obligations
under the Prime Contract. The Subcontractor will
perform the Subcontract at the direction of the Prime
Contractor. This will include attending and
participating in all regularly scheduled meetings with
the owner, consortium members, vendors, specialty
contractors and others.
Seller Access: The Prime Contractor and its representatives,
- --------------
including any third party consultant retained by the
Prime Contractor, will be permitted to have access to
and examine and take copies of the books and records of
the Subcontractor and the RECI Companies relating to
the Project. The Subcontractor will provide the Prime
Contractor with copies of all internal and external
project reports and correspondence as generated or
received. In addition, the Prime Contractor will be
entitled to place one or more employees or consultants
on-site at the Indemnified Projects to observe the
performance of the Indemnified Projects and the
performance by the Subcontractor of its obligations
under the Subcontract. In addition, the Prime
Contractor and the Subcontractor have appointed
liaisons, as indicated in Annex A, to meet and discuss
-------
the Project on an ongoing basis (the "Project
-------
Liaisons"). These ongoing meetings will include monthly
--------
project reviews and weekly progress meetings. The
Subcontractor may not designate a replacement Project
Liaison without the consent of the Prime Contractor,
which consent will not be unreasonably withheld or
delayed.
Staffing: The Subcontractor will, until the earlier of October
- --------
31, 2000 and termination of the Subcontract (the
"Performance Period"), not terminate (otherwise than
------------------
for cause, as reasonably determined by the
Subcontractor) and not permit any RECI Subsidiary to
terminate (otherwise than for cause, as reasonably
determined by the Subcontractor) the employment of the
individuals identified in Annex A as "Key Persons" with
-------
respect to such Project and will continue to assign
such personnel to the performance of the Project to a
degree consistent with the degree to which such
personnel were so assigned at April 13, 2000 (taking
into account changes in project status over time). In
addition, for the life of the Subcontract the
Subcontractor will not terminate (otherwise than for
<PAGE>
-3-
cause, as reasonably determined by the Subcontractor)
and will not permit any RECI Subsidiary to terminate
(otherwise than for cause, as reasonably determined by
the Subcontractor) the employment of any other
individuals (other than craft labor and local field
hires) working on such Project and will continue to
assign them to work on such Project until their
particular responsibilities are fulfilled or they are
no longer necessary due to changes in the work mix for
such Project. If any such individual referred to in
this paragraph is terminated for cause or voluntarily
terminates his or her employment, then neither the
Buyer nor any of its Affiliates will hire that
individual for the life of the Subcontract. If any
individuals referred to in the preceding sentence
voluntarily terminate their employment or die or become
disabled prior to the time that they are no longer
required for the appropriate Project as provided in the
preceding sentence, the Subcontractor will or will
cause the RECI Subsidiaries to use commercially
reasonable efforts to promptly replace such individuals
with appropriately qualified individuals. Any
replacements for the Key Persons referred to above
during the Performance Period will be subject to the
Prime Contractor's prior approval, not to be
unreasonably withheld or delayed. The Subcontractor
will also use commercially reasonable efforts to
maintain staffing levels, including the labor forces of
subcontractors and vendors, consistent with the current
and projected staffing levels for the Specified
Projects set forth on Annex A (taking into account
-------
changes in project status over time). The Subcontractor
will also provide all necessary project resources
(tools, equipment, scaffolding, etc.) as required. In
addition, the Subcontractor will not change (otherwise
than in connection with the termination of a vendor or
subcontractor for default, as reasonably determined by
the Subcontractor and subject to approval of the Prime
Contractor, not to be unreasonably withheld) any of the
vendors or subcontractors listed in Annex A as "Key
-------
Vendors and Subcontractors" without the prior consent
of the Prime Contractor.
Project Statement: The Subcontractor will deliver for the Project from
- -----------------
time to time, but not less often than weekly, a
statement (the "Project Statement") prepared in
-----------------
accordance with the Subcontract showing (i) the
personnel working on the Project during the period
since the last Project Statement (or, in the case of
the first Project Statement, since the Closing Date),
(ii) the Labor Costs (as defined below) incurred in
accordance with the terms of the Subcontract by the
Subcontractor and the RECI Subsidiaries during such
period in connection with the performance of their
obligations under the Subcontract, and (iii) the out-
of-pocket costs, including payments to suppliers and
vendors and any Taxes, excluding any Income Taxes
payable with respect to any amounts paid to
Subcontractor
<PAGE>
-4-
as provided below under "Cost Savings" and any Taxes
payable as a result of the amounts paid to
Subcontractor pursuant to this paragraph being
determined to be greater than Subcontractor's actual
costs ("Other Reimbursable Costs"), incurred by the
------------------------
Subcontractor and the RECI Subsidiaries during such
period in accordance with the terms of the Subcontract
(with such Labor Costs and Reimbursable Costs referred
to collectively as the "Allowable Costs"). This Project
---------------
Statement will also include supporting documentation in
reasonable detail for all Labor Costs and Other
Reimbursable Costs and weekly certified payroll reports
and status reports on all progress in the field,
minutes of weekly meetings, issues of concern, vendor
and subcontractor updates (including manloading,
progress, scheduled deliveries, problems) and progress
photos. Within two (2) business days after receipt of
the Project Statement for any period the Prime
Contractor will pay to the Subcontractor the total
amount of Labor Costs and Other Reimbursable Costs set
forth in the Project Statement for such month. The
payment or receipt by the Prime Contractor of any such
amounts as provided above shall not prejudice their
rights to subsequently contest the amounts set forth in
the applicable Project Statement.
Labor Costs: For purposes of the Subcontract, Labor Costs will mean
- -----------
________./3/
ASCC Receivables;
- -----------------
Retained Claims: Any collections on any ASCC Receivables related to
- ---------------
the Project will be handled as provided in the
Receivables Termination Agreement. Any collections on
any Retained Claims related to the Project will be paid
to the Prime Contractor as provided in Section 8.7 of
the Stock Purchase Agreement.
Subcontractor
- --------------
Responsibilities: In performing its obligations under the Subcontract:
- ----------------
(i) The Subcontractor will be responsible for, and
hold the Prime Contractor harmless against, any claims
arising from the gross negligence or willful misconduct of
the Subcontractor or any RECI Subsidiary in the performance
or nonperformance of the Subcontractor's
________________________
/3/ If the parties are unable to agree on the definition for the
Subcontractor's labor costs (which is intended to define Subcontractor's fully
burdened labor costs, excluding any fee component) the parties will base Labor
Costs on the RECI Companies forward pricing rates for U.S. government purposes,
as defined in the Federal Acquisition Regulations, Subpart 31.2, Contracts with
Organizations.
<PAGE>
-5-
obligations under the Subcontract in addition to any claims
under Section 13.2(ii) of the Stock Purchase Agreement for
breach of its obligations under the Subcontract; provided,
however, that in any case in which the Subcontractor uses
commercially reasonable efforts to perform and comply with
its obligations under the Subcontract and takes all
reasonable steps to abide by the directions of the Prime
Contractor and the terms of the Subcontract, it will be
deemed not to have breached such obligations. Except as
provided or referred to in the preceding sentence,
notwithstanding anything to the contrary herein contained,
the Prime Contractor will be responsible for, and will
release and hold the Subcontractor and the RECI Subsidiaries
harmless from and against, any and all Losses (as defined in
Section 13.1 of the Stock Purchase Agreement) related to or
arising out of the Subcontract or the Project Agreements
(including without limitation all obligations and
liabilities, including obligations and liabilities to non-
contract parties, under or arising in connection with the
performance prior to and after the Closing, of the
Subcontract or the Project Agreements), except for any
obligations for which the Buyer is responsible under the
Ancillary Letter Agreement.
(ii) The Subcontractor will and will cause the RECI
Subsidiaries to use commercially reasonable efforts to
assist the Prime Contractor in pursuing change orders and
claims for equitable adjustment and other claims relating to
the Project against the customers, consortium members,
suppliers, subcontractors, vendors and non-contract parties.
Any cash received by the Subcontractor or the RECI
Subsidiaries from any such change orders or claims or from
the customer under the Prime Contract or any other party
under any other Project Agreement or to non-contract
parties, to the extent not related to ASCC Receivables or
Retained Claims (the treatment of which is addressed in the
Stock Purchase Agreement or Receivables Termination
Agreement), will be remitted to the Prime Contractor within
two (2) business days after receipt and until then will be
held in trust.
(iii) The Subcontractor will not be authorized to, and
will not permit any RECI Subsidiary to, waive, modify or
amend any term of the Project Agreements.
(iv) In performing its obligations under the
Subcontract, the Subcontractor will act and will cause the
RECI Subsidiaries to act in good faith and use commercially
reasonable efforts to perform the work remaining to be
performed under the Project Agreements within the time
periods required under the Project Agreements and within the
ECACs for the Project Agreements as in effect on the Closing
Date and referred to in (j) below.
<PAGE>
-6-
(i) Insurance. During the performance of the Projects the
---------
Subcontractor will and will cause the RECI Subsidiaries to maintain the
insurance required under the terms of the Project Agreements consistent
with the limits of coverage in place as of the Closing and, with respect to
project-specific insurance relating to the Projects, will name the Prime
Contractor as a named insured and/or loss payee as their interest may
appear. The allocable cost of maintaining this insurance will constitute an
Other Reimbursable Cost.
(j) Cost Savings. At Closing the Prime Contractor shall provide the
-------------
Subcontractor with an ESR as of the Cut-Off Date with respect to the
Project. Such ESR shall be prepared consistent with past practices. In
the event the Subcontractor completes the Project and achieves final
acceptance at a cost less than the ECAC reflected on this ESR, excluding
any forecasted liquidated damages or back charge recoveries and excluding
any overhead and business development cost (the "Adjusted ECAC") as
-------------
evidenced by documentation satisfactory to the Prime Contractor, the Prime
Contractor and the Subcontractor will share such cost savings equally and
accordingly, the Prime Contractor shall remit an amount equal to one-half
of such cost savings to the Subcontractor within thirty (30) days after the
Prime Contractor and the Subcontractor determine the final amount, if any,
of the cost savings. Any increase in revenue as compared to the revenue
forecast in the ESR described above will increase the target Adjusted ECAC
for purposes of determining cost underruns.
Taxes: The parties will structure the arrangements
- -----
contemplated by the Subcontract in a manner that will
minimize Taxes, to the extent permitted by law.
Assignment: The parties will work to obtain prior to Closing all
- ----------
consents or novations required to implement the
Subcontract. If any such consent or novations is not
received by Closing, the parties will enter into
arrangements comparable to those described in the
Section 8.3 of the Stock Purchase Agreement, with the
intent of implementing, as closely as practicable, the
contractual relationships between Prime Contractor and
Subcontractor contemplated by this Exhibit.
Termination: In addition to any termination provisions in the
- -----------
Prime Contract (which will be incorporated into the
Subcontract), the Prime Contractor may terminate the
Subcontractor's engagement at any time Appropriate
provisions of the Subcontract, including provisions
relating to exculpation and indemnification, will
survive any such termination.
<PAGE>
-7-
Dispute
- -------
Resolution: Internal mediation between Project Liaisons and then
- ----------
senior management, and then arbitration consistent with
Section 16.13 of the Stock Purchase Agreement except
that AAA Construction Industry rules shall apply.
Asset Transfers: With respect to Section 1.4(l) of the Stock Purchase
- ---------------
Agreement, the parties will determine which assets
relating to the Project will be transferred to RECI.
The parties expect that all contracts and working
capital will be transferred to RECI, but that tangible
assets including leases covering the same, but
excluding any tools, equipment and materials originally
costed to the project ("Project Specific Assets"),
-----------------------
Intellectual Property and computer software (including
licenses covering the same), collective bargaining and
employment agreements and other agreements with
employees or their representatives, governmental
licenses and permits, and books and records (including
site plans, surveys, soil and substratus studies,
architectural drawings, plans and specifications,
engineering, electrical and mechanical plans and
studies, feasibility studies, environmental studies,
audits and assessments and other plans and studies of
any kind relating to the Project) will not be
transferred. The parties may also choose not to
transfer certain subcontracts or other ancillary
agreements (whether because of consents, requirements
for contractors, engineers or other licenses, tax
planning or other reasons) and will enter into
alternative arrangements that achieve to the maximum
extent possible the economic intent of the parties.
With respect to any Project Specific Assets, the Prime
Contractor will be entitled to retain such assets upon
completion of the Project or cause the Subcontractor,
pursuant to the Subcontract, to dispose of such Project
Specific Assets and remit the proceeds to Prime
Contractor. The Prime Contractor and Subcontractor will
separately inventory and identify (by stickers, etc.)
the Project Specific Assets upon commencement of the
Subcontract.
RECI Company: The Subcontractor will maintain the existence and good
standing of the RECI Companies party to the Project
Agreements until performance is completed.
<PAGE>
Exhibit E-3 Stock Purchase Agreement
------------------------------------
Annex A
-------
Saltend
- -------
Description of
Project: Engineer, procure and construct a 1200 MW cogeneration power
plant located in Hull England.
Key Persons: S. Assad - Exec. Sponsor
D. Myers
R. Zaist
J. LaFemina, PM
W. Ritterhaus, Site Mgr.
R. Trachimowicz, Res. Engr.
J. Tanner, PEM
T. Beale, Controls
J. Black, Contracts
J. Wilkinson, Supt.
D. Gibbs
C. Farley, S/U Mgr.
R. Knoblock, Contracts
A. Heywood, Cost Engr.
C. Taylor
W. Pierce
C.E. Roach
J.R. Martin
D.Mueller
Colon Adams
H. Henderson
N. Jewett
K.Hamilton
R. Kearton
G. Thorpe
D. Skinn
R. Reader
B.J. Kennedy
Kevin Colby
Project Liaisons: Seller: To be designated Buyer: Dave Myers
Projected Staffing Levels: See attached.
Key Vendors and Subcontractors: See attached.
<PAGE>
Exhibit E-4 to Stock Purchase Agreement
---------------------------------------
Subcontract - Posven Project/1/
----------------------------
Agreed upon assets and liabilities relating to the Indemnified Projects will be
transferred to and assumed by RECI. Raytheon, RECI and the Subcontractor will
enter into a subcontract having the following terms:
Parties: Raytheon and RECI ("Prime Contractor") and
- ------- ----------------
Subcontractor/2/ ("Subcontractor").
-------------
Project: The Posven Project described on Annex A.
- ------- -------
Prime Contract: See Annex A.
- -------------- -------
Project
- -------
Agreements: The Prime Contract and all other contracts, subcontracts,
- ---------- purchase orders, labor agreements, and other agreements
for the provision of E&C Services in connection with the
Posven Project, described in Annex A, together with all
-------
related purchase orders, job orders, change orders, extra
work orders, amendments, modifications, subcontracts and
similar agreements and any ancillary contracts entered
into in connection with such contracts, subcontracts and
agreements, such as project-specific hedging or currency
swap agreements and any services agreements.
Term of Subcontract: Coterminous with Prime Contract.
- -------------------
General Provision: In general, the Subcontract will track the terms of the
- ----------------- Prime Contract, except as noted below.
__________________________
/1/ Defined terms used in this Exhibit without definition have the meanings
given them in the Stock Purchase Agreement.
/2/ Subcontractor will be either MK or one or more RECI Subsidiaries performing
the work with a guarantee from MK. The parties will structure this subcontract
in a manner that minimizes tiering of costs and preserves to the extent possible
the existing relationships.
<PAGE>
-2-
Subcontractor
- -------------
Performance: As set forth in greater detail below, the Prime Contractor
- ----------- and the Subcontractor intend that the Subcontractor cause
the applicable RECI Companies to perform, on a cost-
reimbursed basis, all obligations under the Prime
Contract. The Subcontractor will perform the Subcontract
at the direction of the Prime Contractor. This will
include attending and participating in all regularly
scheduled meetings with the owner, consortium members,
vendors, specialty contractors and others.
Seller Access: The Prime Contractor and its representatives, including
- ------------- any third party consultant retained by the Prime
Contractor, will be permitted to have access to and
examine and take copies of the books and records of the
Subcontractor and the RECI Companies relating to the
Project. The Subcontractor will provide the Prime
Contractor with copies of all internal and external
project reports and correspondence as generated or
received. In addition, the Prime Contractor will be
entitled to place one or more employees or consultants on-
site at the Indemnified Projects to observe the
performance of the Indemnified Projects and the
performance by the Subcontractor of its obligations under
the Subcontract. In addition, the Prime Contractor and the
Subcontractor have appointed liaisons, as indicated in
Annex A, to meet and discuss the Project on an ongoing
-------
basis (the "Project Liaisons"). These ongoing meetings
----------------
will include monthly project reviews and weekly progress
meetings. The Subcontractor may not designate a
replacement Project Liaison without the consent of the
Prime Contractor, which consent will not be unreasonably
withheld or delayed.
Staffing: The Subcontractor will, until the earlier of March 31,
- -------- 2001 and termination of the Subcontract (the "Performance
-----------
Period"), not terminate (otherwise than for cause, as
------
reasonably determined by the Subcontractor) and not permit
any RECI Subsidiary to terminate (otherwise than for
cause, as reasonably determined by the Subcontractor) the
employment of the individuals identified in Annex A as
-------
"Key Persons" with respect to such Project and will
continue to assign such personnel to the performance of
the Project to a degree consistent with the degree to
which such personnel were so assigned at April 13, 2000
(taking into account changes in project status over time).
In addition, for the life of the Subcontract the
Subcontractor will not terminate (otherwise than for
cause, as reasonably determined by the Subcontractor) and
will not permit any RECI Subsidiary to terminate
(otherwise than for
<PAGE>
-3-
cause, as reasonably determined by the Subcontractor) the
employment of any other individuals (other than craft
labor and local field hires) working on such Project and
will continue to assign them to work on such Project until
their particular responsibilities are fulfilled or they
are no longer necessary due to changes in the work mix for
such Project. If any such individual referred to in this
paragraph is terminated for cause or voluntarily
terminates his or her employment, then neither the Buyer
nor any of its Affiliates will hire that individual for
the life of the Subcontract. If any individuals referred
to in the preceding sentence voluntarily terminate their
employment or die or become disabled prior to the time
that they are no longer required for the appropriate
Project as provided in the preceding sentence, the
Subcontractor will or will cause the RECI Subsidiaries to
use commercially reasonable efforts to promptly replace
such individuals with appropriately qualified individuals.
Any replacements for the Key Persons referred to above
during the Performance Period will be subject to the Prime
Contractor's prior approval, not to be unreasonably
withheld or delayed. The Subcontractor will also use
commercially reasonable efforts to maintain staffing
levels, including the labor forces of subcontractors and
vendors, consistent with the current and projected
staffing levels for the Specified Projects set forth on
Annex A (taking into account changes in project status
-------
over time). The Subcontractor will also provide all
necessary project resources (tools, equipment,
scaffolding, etc.) as required. In addition, the
Subcontractor will not change (otherwise than in
connection with the termination of a vendor or
subcontractor for default, as reasonably determined by the
Subcontractor and subject to approval of the Prime
Contractor, not to be unreasonably withheld) any of the
vendors or subcontractors listed in Annex A as "Key
-------
Vendors and Subcontractors" without the prior consent of
the Prime Contractor.
Project Statement: The Subcontractor will deliver for the Project from time
- ----------------- to time, but not less often than weekly, a statement (the
"Project Statement") prepared in accordance with the
-----------------
Subcontract showing (i) the personnel working on the
Project during the period since the last Project Statement
(or, in the case of the first Project Statement, since the
Closing Date), (ii) the Labor Costs (as defined below)
incurred in accordance with the terms of the Subcontract
by the Subcontractor and the RECI Subsidiaries during such
period in connection with the performance of their
obligations under the Subcontract, and (iii) the out-of-
pocket costs, including payments to suppliers and vendors
and any Taxes, excluding any Income Taxes payable with
respect to any amounts paid to Subcontractor
<PAGE>
-4-
as provided below under "Cost Savings" and any Taxes
payable as a result of the amounts paid to Subcontractor
pursuant to this paragraph being determined to be greater
than Subcontractor's actual costs ("Other Reimbursable
------------------
Costs"), incurred by the Subcontractor and the RECI
-----
Subsidiaries during such period in accordance with the
terms of the Subcontract (with such Labor Costs and
Reimbursable Costs referred to collectively as the
"Allowable Costs"). This Project Statement will also
---------------
include supporting documentation in reasonable detail for
all Labor Costs and Other Reimbursable Costs and weekly
certified payroll reports and status reports on all
progress in the field, minutes of weekly meetings, issues
of concern, vendor and subcontractor updates (including
manloading, progress, scheduled deliveries, problems) and
progress photos. Within two (2) business days after
receipt of the Project Statement for any period the Prime
Contractor will pay to the Subcontractor the total amount
of Labor Costs and Other Reimbursable Costs set forth in
the Project Statement for such month. The payment or
receipt by the Prime Contractor of any such amounts as
provided above shall not prejudice their rights to
subsequently contest the amounts set forth in the
applicable Project Statement.
Labor Costs: For purposes of the Subcontract, Labor Costs will mean
- ----------- ________./3/
ASCC Receivables;
- -----------------
Retained Claims: Any collections on any ASCC Receivables related to the
- --------------- Project will be handled as provided in the Receivables
Termination Agreement. Any collections on any Retained
Claims related to the Project will be paid to the Prime
Contractor as provided in Section 8.7 of the Stock
Purchase Agreement.
Subcontractor
- -------------
Responsibilities: In performing its obligations under the Subcontract:
- ----------------
(i) The Subcontractor will be responsible for, and
hold the Prime Contractor harmless against, any claims arising
from the gross negligence or willful misconduct of the
Subcontractor or any RECI
___________________________
/3/ If the parties are unable to agree on the definition for the Subcontractor's
labor costs (which is intended to define Subcontractor's fully burdened labor
costs, excluding any fee component) the parties will base Labor Costs on the
RECI Companies forward pricing rates for U.S. government purposes, as defined
in the Federal Acquisition Regulations, Subpart 31.2, Contracts with
Organizations.
<PAGE>
-5-
Subsidiary in the performance or nonperformance of the
Subcontractor's obligations under the Subcontract in addition to
any claims under Section 13.2(ii) of the Stock Purchase Agreement
for breach of its obligations under the Subcontract; provided,
however, that in any case in which the Subcontractor uses
commercially reasonable efforts to perform and comply with its
obligations under the Subcontracts and takes all reasonable steps
to abide by the directions of the Prime Contractor and the terms
of the Subcontract, it will be deemed not to have breached such
obligations. Except as provided or referred to in the preceding
sentence, notwithstanding anything to the contrary herein
contained, the Prime Contractor will be responsible for, and will
release and hold the Subcontractor and the RECI Subsidiaries
harmless from and against, any and all Losses (as defined in
Section 13.1 of the Stock Purchase Agreement) related to or
arising out of the Subcontract or the Project Agreements
(including without limitation all obligations and liabilities,
including obligations and liabilities to non-contract parties,
under or arising in connection with the performance prior to and
after the Closing, of the Subcontract or the Project Agreements),
except for any obligations for which the Buyer is responsible
under the Ancillary Letter Agreement.
(ii) The Subcontractor will and will cause the RECI
Subsidiaries to use commercially reasonable efforts to assist the
Prime Contractor in pursuing change orders and claims for
equitable adjustment and other claims relating to the Project
against the customers, consortium members, suppliers,
subcontractors, vendors and non-contract parties. Any cash
received by the Subcontractor or the RECI Subsidiaries from any
such change orders or claims or from the customer under the Prime
Contract or any other party under any other Project Agreement or
to non-contract parties, to the extent not related to ASCC
Receivables or Retained Claims (the treatment of which is
addressed in the Stock Purchase Agreement or Receivables
Termination Agreement), will be remitted to the Prime Contractor
within two (2) business days after receipt and until then will be
held in trust.
(iii) The Subcontractor will not be authorized to, and will
not permit any RECI Subsidiary to, waive, modify or amend any
term of the Project Agreements.
(iv) In performing its obligations under the Subcontract,
the Subcontractor will act and will cause the RECI Subsidiaries
to act in good faith and use commercially reasonable efforts to
perform the work remaining to be performed under the Project
Agreements within the time periods required under the Project
Agreements and within the ECACs for the Project Agreements as in
effect on the Closing Date and referred to in (j) below.
<PAGE>
-6-
(i) Insurance. During the performance of the Projects the
---------
Subcontractor will and will cause the RECI Subsidiaries to
maintain the insurance required under the terms of the Project
Agreements consistent with the limits of coverage in place as of
the Closing and, with respect to project-specific insurance
relating to the Projects, will name the Prime Contractor as a
named insured and/or loss payee as their interest may appear. The
allocable cost of maintaining this insurance will constitute an
Other Reimbursable Cost.
(j) Cost Savings. At Closing the Prime Contractor shall
------------
provide the Subcontractor with an ESR as of the Cut-Off Date with
respect to the Project. Such ESR shall be prepared consistent
with past practices. In the event the Subcontractor completes the
Project and achieves final acceptance at a cost less than the
ECAC reflected on this ESR, excluding any forecasted liquidated
damages or back charge recoveries and excluding any overhead and
business development cost (the "Adjusted ECAC") as evidenced by
-------------
documentation satisfactory to the Prime Contractor, the Prime
Contractor and the Subcontractor will share such cost savings
equally and accordingly, the Prime Contractor shall remit an
amount equal to one-half of such cost savings to the
Subcontractor within thirty (30) days after the Prime Contractor
and the Subcontractor determine the final amount, if any, of the
cost savings. Any increase in revenue as compared to the revenue
forecast in the ESR described above will increase the target
Adjusted ECAC for purposes of determining cost underruns.
Taxes: The parties will structure the arrangements contemplated
- ----- by the Subcontract in a manner that will minimize Taxes,
to the extent permitted by law.
Assignment: The parties will work to obtain prior to Closing all
- ---------- consents or novations required to implement the
Subcontract. If any such consent or novations is not
received by Closing, the parties will enter into
arrangements comparable to those described in the Section
8.3 of the Stock Purchase Agreement, with the intent of
implementing, as closely as practicable, the contractual
relationships between Prime Contractor and Subcontractor
contemplated by this Exhibit.
Termination: In addition to any termination provisions in the Prime
- ----------- Contract (which will be incorporated into the
Subcontract), the Prime Contractor may terminate the
Subcontractor's engagement at any time Appropriate
provisions of the Subcontract, including provisions
relating to exculpation and indemnification, will survive
any such termination.
<PAGE>
-7-
Dispute
- -------
Resolution: Internal mediation between Project Liaisons and then
- ---------- senior management, and then arbitration consistent with
Section 16.13 of the Stock Purchase Agreement except that
AAA Construction Industry rules shall apply.
Asset Transfers: With respect to Section 1.4(l) of the Stock Purchase
- --------------- Agreement, the parties will determine which assets
relating to the Project will be transferred to RECI. The
parties expect that all contracts and working capital will
be transferred to RECI, but that tangible assets including
leases covering the same, but excluding any tools,
equipment and materials originally costed to the project
("Project Specific Assets"), Intellectual Property and
-----------------------
computer software (including licenses covering the same),
collective bargaining and employment agreements and other
agreements with employees or their representatives,
governmental licenses and permits, and books and records
(including site plans, surveys, soil and substratus
studies, architectural drawings, plans and specifications,
engineering, electrical and mechanical plans and studies,
feasibility studies, environmental studies, audits and
assessments and other plans and studies of any kind
relating to the Project) will not be transferred. The
parties may also choose not to transfer certain
subcontracts or other ancillary agreements (whether
because of consents, requirements for contractors,
engineers or other licenses, tax planning or other
reasons) and will enter into alternative arrangements that
achieve to the maximum extent possible the economic intent
of the parties. With respect to any Project Specific
Assets, the Prime Contractor will be entitled to retain
such assets upon completion of the Project or cause the
Subcontractor, pursuant to the Subcontract, to dispose of
such Project Specific Assets and remit the proceeds to
Prime Contractor. The Prime Contractor and Subcontractor
will separately inventory and identify (by stickers, etc.)
the Project Specific Assets upon commencement of the
Subcontract.
RECI Company: The Subcontractor will maintain the existence and good
- ------------ standing of the RECI Companies party to the Project
Agreements until performance is completed.
<PAGE>
Exhibit E-4 to Stock Purchase Agreement
---------------------------------------
Annex A
-------
Posven
- ------
Description of
Project: 1.5 million metric ton hot briquetted iron facility located
in Venezuela.
Key Persons: Nick Modigliani
C. Kinsel
Pete Kopyscianski
Cheryl Singletary
J. Sanderlin
D. Broussard
D. Turso
Bob Marrone
Jack Greene
Project Liaisons: Seller: To be designated Buyer: Nick Modigliani
Projected Staffing Levels: See attached.
Key Vendors and Subcontractors: See attached.
<PAGE>
Exhibit F to
Stock Purchase Agreement
RELEASE
-------
Pursuant to Section 4.2(g) of the Stock Purchase Agreement, dated as of
April 14, 2000 (the "Stock Purchase Agreement"), among Morrison Knudsen
------------------------
Corporation, a Delaware corporation ("Buyer"), Raytheon Engineers & Constructors
International, Inc., a Delaware corporation ("REC"), and Raytheon Company, a
---
Delaware corporation ("Raytheon"), this Release is being delivered by REC and
--------
the RECI Subsidiaries.
For the mutual covenants set forth below and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
(1) Subject to paragraph (3) below, the RECI Subsidiaries hereby release
and forever discharge REC, Raytheon and their Affiliates, Subsidiaries,
predecessors, successors, officers, directors and employees (the "REC Related
-----------
Parties") of and from any and all manner of claims, actions, causes of action,
- -------
suits, obligations, debts, demands, agreements, promises, liabilities,
controversies, costs, expenses and attorneys' fees whatsoever (whether class,
derivative or individual in nature), whether based on any federal or state law
or right of action, at law or in equity or otherwise, foreseen or unforeseen,
matured or unmatured, known or unknown, accrued or not accrued, which any RECI
Subsidiary had, now has or can have, or shall or may hereafter have in
connection with, arising out of, or which in any way relate to any acts,
failures to act, omissions, misrepresentations, facts, events, transactions,
occurrences or other matters occurring on or prior to the date hereof.
(2) Subject to paragraph (3) below, Raytheon and REC, both on their own
behalf and on behalf of their Subsidiaries (the "REC Companies"), hereby release
--- ---------
and forever discharge the RECI Subsidiaries and their Affiliates, Subsidiaries,
predecessors, successors, officers, directors and employees (the "RECI
----
Subsidiary Related Parties"), of and from any and all manner of claims, actions,
- ---------- ------- -------
causes of action, suits, obligations, debts, demands, agreements, promises,
liabilities, controversies, costs, expenses and attorneys' fees whatsoever
(whether class, derivative or individual in nature), whether based on any
federal or state law or right of action, at law or in equity or otherwise,
foreseen or unforeseen, matured or unmatured, known or unknown, accrued or not
accrued, which Raytheon, REC or any REC Company had, now has or can have, or
shall or may hereafter have in connection with, arising out of, or which in any
way relate to any acts, failures to act, omissions, misrepresentations, facts,
events, transactions, occurrences or other matters occurring on or prior to the
date hereof.
<PAGE>
-2-
(3) Nothing herein shall operate to release the rights or obligations of
any person or entity under (i) the Stock Purchase Agreement, Tax Sharing
Agreement, Receivables Termination Agreement, the Indemnified Project
Subcontracts or any other agreements entered into pursuant to the foregoing
agreements or (ii) the Intercompany Obligations set forth on Schedule 7.12 of
the Stock Purchase Agreement.
Defined terms used herein without definition have the meanings given them
in the Stock Purchase Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Release as of the
14th day of April, 2000.
[INSERT RECI SUBSIDIARIES]
By:____________________________________
Title:
By:____________________________________
Title:
By:____________________________________
Title:
<PAGE>
-3-
By:____________________________________
Title:
RAYTHEON ENGINEERS & CONSTRUCTORS
INTERNATIONAL, INC.
By:____________________________________
Title:
RAYTHEON COMPANY
By:____________________________________
Title:
<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 FOR THE THREE MONTHS ENDED MARCH 3, 2000, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT FOOTNOTES:
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-01-2000
<PERIOD-START> DEC-04-1999
<PERIOD-END> MAR-03-2000
<CASH> 25,061
<SECURITIES> 0
<RECEIVABLES> 209,872
<ALLOWANCES> 0
<INVENTORY> 24,996
<CURRENT-ASSETS> 499,680
<PP&E> 296,721
<DEPRECIATION> (163,906)
<TOTAL-ASSETS> 1,157,835
<CURRENT-LIABILITIES> 354,442
<BONDS> 85,000
0
0
<COMMON> 544
<OTHER-SE> 407,810
<TOTAL-LIABILITY-AND-EQUITY> 1,157,835
<SALES> 0
<TOTAL-REVENUES> 572,845
<CGS> 0
<TOTAL-COSTS> (548,100)
<OTHER-EXPENSES> 43
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,330)
<INCOME-PRETAX> 13,666
<INCOME-TAX> (5,319)
<INCOME-CONTINUING> 9,046
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,046
<EPS-BASIC> .17
<EPS-DILUTED> .17
</TABLE>
