ASSET PURCHASE AGREEMENT
DATED AS OF DECEMBER 22, 1996
BY AND BETWEEN
HUGHES AIRCRAFT COMPANY
AND
ALLIANT TECHSYSTEMS INC.
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of December 22, 1996, by and
between HUGHES AIRCRAFT COMPANY, a Delaware corporation ("Purchaser"), and
ALLIANT TECHSYSTEMS INC., a Delaware corporation ("Seller").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Seller is engaged in the business and related activities of
its Marine Systems Group, including the design, research, development,
manufacture and sale of torpedo systems, underseas acoustic surveillance
systems, naval sonar and mine countermeasure systems and naval contract
engineering services (the "Business"); and
WHEREAS, Purchaser desires to acquire from Seller and Seller desires
to sell to Purchaser substantially all of the assets and business of the
Business on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants, and agreements hereinafter set forth,
the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Each reference contained in this Agreement to:
"Adverse Environmental Condition" shall mean any of the matters
referred to in clauses (i), (ii) or (iii) of the definition of Environmental
Claim.
"Affiliate" shall mean, with respect to any given Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such Person.
The term "control" (including, with correlative meaning, the terms "controlled
by" and "under common control with"), as used with respect to any Person, means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agreement" shall refer to this Asset Purchase Agreement, as the same
may be amended from time to time.
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"Ancillary Agreements" shall refer to the Bill of Sale, the Transition
Agreement and the Assumption Agreement.
"Arbiter" shall have the meaning ascribed to such term in Section
4.1(c) hereof.
"Asset Acquisition Statement" shall have the meaning ascribed to such
term in Section 12.4(f) hereof.
"Assets" shall refer collectively to the Purchased Assets and the
Leased Assets.
"Assumed Liabilities" shall have the meaning ascribed to such term in
Section 2.3 hereof.
"Assumption Agreement" shall refer to the Assumption Agreement to be
executed at Closing by Purchaser.
"Audited Closing Date Balance Sheet" shall refer to the Adjusted
Closing Date Balance Sheet as certified by Seller's Auditors.
"Auditors' Report" shall have the meaning ascribed to such term in
Section 4.1(b) hereof.
"Authorization" shall refer to any federal, state, local or other
governmental consent, license, permit, grant or authorization.
"Backlog Contract" shall have the meaning ascribed to such term in
Section 5.7(a)(xiv).
"Best Efforts" shall mean the taking of all reasonable efforts to
effect a result, but shall not require the incurrence of unreasonable expenses.
"Bill of Sale" shall refer to the Bill of Sale to be executed at
Closing by Seller.
"Business" shall have the meaning ascribed to such term in the first
recital hereof.
"Business Day" shall refer to a day, other than a Saturday or a
Sunday, on which commercial banks are not required or authorized to close in the
City of New York.
"Closing" shall refer to the consummation of the several transactions
provided for in Article II, all upon the terms and subject to the conditions set
forth in this Agreement, which closing shall commence at 9:00 A.M., local time
at the location specified in Section 9.1 below.
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"Closing Date" and "day of the Closing" shall refer to the day upon
which the consummation of the several transactions provided for in Article II
occurs.
"Closing Date Balance Sheet" shall refer to the balance sheet of the
Business, prepared by Seller in accordance with the provisions of Section
4.1(a)(1) hereof.
"Closing Date Financial Information" shall have the meaning ascribed
to such term in Section 4.1(a)(1) hereof.
"Closing Date Net Assets" shall have the meaning ascribed thereto in
Section 4.1(a)(1) hereof.
"Closing Date Schedule of Net Assets" shall have the meaning ascribed
thereto in Section 4.1(a)(1) hereof.
"COBRA" shall refer to the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended.
"Code" shall refer to the Internal Revenue Code of 1986, as amended.
"Contaminant" shall mean, collectively, any (a) petroleum or petroleum
products, or derivative or fraction thereof, flammable material, explosives,
radioactive materials (including radon gas), asbestos in any form that is or
could become friable, urea formaldehyde foam insulation ("UFI"), and
polychlorinated biphenyls ("PCBs"), and (b) any chemical, material, substance or
waste, (i) which is defined on the date hereof as or included in the definition
of "hazardous substances", "hazardous wastes", "hazardous materials", "toxic
substances", "restricted hazardous wastes", "contaminants", "pollutants" or
words of similar import under any applicable Environmental Laws or (ii) the
emission, discharge, release, storage, transport, disposal, management, handling
or use of which is regulated under or subject to any applicable Environmental
Laws.
"Contracts" shall mean all written or oral bids, quotations,
proposals, contracts (including, without limitation, Government Contracts and
any Lease Contracts), agreements, commitments, understandings, licenses, teaming
arrangements, associate contractor agreements, advance agreements, Memoranda of
Understanding, Memoranda of Agreements and sales and purchase orders, of Seller
relating to the Business.
"Copyrights" shall mean all copyrights, whether or not registered, and
registrations and applications for registration thereof, and all rights therein
provided by law, multinational treaties or conventions.
"Damages" shall refer, in respect of any obligation to indemnify any
Person pursuant to the terms of this Agreement, to any losses, claims, damages,
liabilities (liquidated or unliquidated, accrued, contingent or otherwise),
obligations, judgments, settlements,
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reasonable out-of-pocket costs, expenses and attorneys' fees (including such
costs, expenses and attorneys' fees incurred in connection with any
investigation (if such investigation results in an enforcement action) or in
enforcing such right of indemnification against any Indemnitor), fines and
penalties, if any.
"Definitive Closing Date Net Assets" shall refer to the Closing Date
Net Assets as reflected in the Auditor's Report, unless Purchaser shall have
objected thereto, in which event "Definitive Closing Date Net Assets" shall
refer to the Closing Date Net Assets as reflected in the report of the Arbiter.
"Deloitte & Touche" shall refer to the public accounting firm of
Deloitte & Touche L.L.P. or any successor organization.
"Documents" shall refer to any books, records, files, papers, tapes,
microfilms and any other documents.
"Employee Benefit Plan" shall have the meaning ascribed to such term
by Section 3(3) of ERISA.
"Employee Pension Benefit Plan" shall have the meaning ascribed to
such term by Section 3(2) of ERISA.
"Employees" shall have the meaning ascribed to such term by Section
5.8 hereof.
"Environmental Claim" shall mean any accusation, allegation, notice of
violation, action, claim, demand, abatement or other order or directive
(conditional or otherwise), judgment, lien or other assessment by any Person
for personal injury (including sickness, disease or death), tangible or
intangible property damage, damage to the environment, pollution, contamination
or other adverse effects on the environment, or for fines, penalties or
restrictions, resulting from or based upon (i) the existence, or the
continuation of the existence, of a Release (including, without limitation,
sudden or non-sudden, accidental or non-accidental leaks or spills), of, or
exposure to, or Release of any Contaminant in, into or onto the environment,
including, without limitation, the air, groundwater, surface water or any
surface or subsurface strata, at, in, by, from, or related to the Facilities,
(ii) the transportation, storage, treatment or disposal of any Contaminant in
connection with the operation of the Facilities or (iii) the violation, or
alleged violation, of any applicable Environmental Laws or any Environmental
Permits.
"Environmental Costs and Liabilities" means any and all losses,
liabilities, obligations, damages, fines, penalties, judgments, actions, claims,
costs and expenses (including, without limitation, fees, disbursements and
expenses of legal counsel, experts, engineers and consultants and the costs of
investigation and feasibility studies and Remedial
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Action) arising from or under any Environmental Law or order or Contract with
any governmental authority or other Person.
"Environmental Laws" shall mean all applicable Laws, in each case as
amended or supplemented from time to time, and any judicial or administrative
interpretation thereof, including, without limitation, any applicable judicial
or administrative order, consent decree or judgment relating to the regulation
and protection of human health, safety, the environment and natural resources
(including, without limitation, ambient air, surface water, groundwater, wet
lands, land surface or subsurface strata, wildlife, aquatic species and
vegetation). Environmental Laws include, but are not limited to, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended (42 U.S.C. (S) 9601 et seq.) ("CERCLA"); the Hazardous Material
-- ---
Transportation Act, as amended (49 U.S.C. (S) 1801 et seq.); the Federal
-- ---
Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. (S) 136 et
--
seq.); the Resource Conservation and Recovery Act, as amended (42 U.S.C. (S)
---
6901 et seq.) ("RCRA"); the Toxic Substances Control Act, as amended (15 U.S.C.
-- ---
(S) 2601 et seq.); the Clean Air Act, as amended (42 U.S.C. (S) 740 et seq.);
-- --- -- ---
the Federal Water Pollution Control Act, as amended (33 U.S.C. (S) 1251 et
--
seq.); the Occupational Safety and Health Act, as amended (29 U.S.C. (S) 651 et
--- --
seq.) ("OSHA"); and the Safe Drinking Water Act, as amended (42 U.S.C. (S) 300f
---
et seq.), the Atomic Energy Act of 1954, as amended (42 U.S.C. (S)(S) 2014, 2021
-- ---
to 2021d, 2022, 2111, 2113 and 2114), and any and all regulations promulgated
thereunder, and all applicable analogous state and local counterparts,
equivalents, or similar statutes or ordinances, rules or regulations.
"Environmental Investigation" shall mean environmental testing,
assessment and investigation.
"Environmental Lien" means any lien in favor of any governmental
authority pursuant to Environmental Laws.
"Environmental Permit" shall mean any permit, approval, authorization,
license, variance, or permission required under any applicable Environmental
Laws.
"ERISA" shall refer to the Employee Retirement Income Security Act of
1974, as amended.
"Excluded Assets" shall have the meaning ascribed to such term in
Section 2.2 hereof.
"Excluded Liabilities" shall have the meaning ascribed to such term in
Section 2.4 hereof.
"Export Control Laws" shall mean all Laws, now or hereafter in effect,
and in each case as amended or supplemented from time to time, and any judicial
or administrative
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interpretations thereof, relating to the export or reexport of commodities and
technologies. Export Control Laws include, but are not limited to, the Export
Administration Act of 1979, 24 U.S.C. (S)(S) 2401-2420; the International
Emergency Economic Powers Act, 50 U.S.C. (S)(S) 1701-1706; the Trading with the
Enemy Act, 50 U.S.C. (S)(S) 1 et seq.; the Arms Export Control Act, 22 U.S.C.
-- ---
(S)(S) 2778, 2779; and the International Boycott Provisions of Section 999 of
the Code.
"Exhibit" shall refer to the written Exhibit to this Agreement which
is hereby incorporated into and made a part of this Agreement for all purposes.
"Facilities" shall mean real property owned, leased or used by Seller
and related to the Business, other than any such property which is an Excluded
Asset.
"Financial Statements" shall have the meaning ascribed to such term in
Section 5.5(a) hereof.
"GAAP" shall refer to generally accepted accounting principles in the
United States as of the date of the Interim Date Balance Sheet, without
reference to changes therein as might otherwise be applicable to subsequent
periods, consistently applied.
"Government Contract" shall refer to any bid, quotation, proposal,
contract, agreement, commitment or sale or purchase order that is with the
United States Government, a foreign government or a department or agency of the
United States Government or a foreign government, including, among other things,
all contracts to supply goods and services, and subcontracts issued by or
awarded to the Business.
"HSR Act" shall refer to the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Indemnification Event" shall refer to any action, proceeding or claim
for which a Person is entitled to indemnification under this Agreement.
"Indemnitor" shall refer to the indemnifying Person in the case of any
obligation to indemnify established pursuant to the terms of this Agreement.
"Intellectual Property" shall refer to all Patents, Trademarks,
Copyrights, mask work registrations, Software and (a) trade secrets and
proprietary technical information (including ideas, formulas, compositions,
inventions, and conceptions of inventions whether patentable or unpatentable and
whether or not reduced to practice); (b) technology (including know-how and
show-how), manufacturing and production processes and techniques, research and
development information, drawings, specifications, designs, plans, proposals,
technical data and copyrightable works, whether secret or proprietary or not;
(c) copies and all tangible embodiments of all of the foregoing, in whatever
form or medium; (d) all rights to obtain and rights to apply for patents, and to
register trademarks and copyrights; and (e) all rights to sue
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for and recover and retain damages, costs or attorneys' fees for present and
past infringement of any of the intellectual property rights hereinabove set
out.
"Intellectual Property Licenses" shall have the meaning ascribed to
such term in Section 5.20(c)(2).
"Interests" shall have the meaning ascribed to such term in Section
3.1(a) hereof.
"Interim Date Balance Sheet" shall have the meaning ascribed to such
term in Section 5.5(a)(1) hereof.
"Interim Date Net Assets" shall have the meaning ascribed thereto in
Section 5.5(a)(2) hereof.
"Interim Financial Statements" shall have the meaning ascribed to such
term in Section 5.5(a)(1)(B) hereof.
"Law" shall mean any federal, state, local, or foreign law (including
common law), constitution, statute, code, ordinance, rule, regulation, executive
order, or other requirement.
"Lease Contract" shall refer to any Contract which is a lease of or
rental agreement with respect to Property (other than the facility Leases and
other Leases) or an installment sale contract arising out of the sale of
Property.
"Leased Assets" shall refer to those assets leased to Seller which, if
owned by Seller, would be Purchased Assets (excluding any Leased Property), all
of which are listed on Schedule 1(b).
"Leased Property" shall have the meaning ascribed to such term in
Section 5.19(a) hereof.
"Leases" shall have the meaning ascribed to such term in Section
5.19(a) hereof.
"Licensed Intellectual Property" shall have the meaning ascribed to
such term in Section 5.20(c)(2).
"Liens" shall have the meaning ascribed to such term in Section 5.16
hereof.
"Loss" shall mean any loss, cost, damage, liability, deficiency, fine,
penalty or expense (including, without limitation, reasonable attorney's and
other professional fees),
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investigation, removal, cleanup and remedial costs (voluntarily or involuntarily
incurred) and modification costs incurred to permit continued or resumed normal
operation of the Facilities.
"Material Adverse Effect" shall mean any material and adverse effect
on the business, condition (financial or otherwise), revenues, earnings, assets,
prospects or results of operations of the specified Person.
"Mukilteo Facility" shall mean the facility located at 6500 Harbour
Heights Parkway, Mukilteo, Washington 98275.
"Multiemployer Plan" shall have the meaning ascribed to such term by
Section 4001(a)(3) of ERISA.
"Multiple Employer Plan" shall have the meaning ascribed thereto in
Section 5.8(a) hereof.
"Occupants" shall have the meaning ascribed to such term in Section
5.19(a) hereof.
"Owned Property" shall have the meaning ascribed to such term in
Section 5.19(a) hereof.
"PBGC" shall refer to the Pension Benefit Guaranty Corporation.
"Patents" shall refer to all (a) inventions, whether or not
patentable, whether or not reduced to practice, or whether or not yet made the
subject of a pending patent application or applications; (b) ideas and
conceptions of potentially patentable subject matter, including without
limitation, any patent disclosures, whether or not reduced to practice and
whether or not yet made the subject of a pending patent application or
applications; (c) all national (including the U.S.) and multinational statutory
invention registrations, patents, patent registrations and patent applications
(in the U.S. or any foreign country, and including all reissues, divisions,
continuations, continuations-in-part, extension and reexaminations) and all
rights therein provided by law, multinational treaties or conventions and all
improvements to the inventions disclosed in each such registration, patent or
application.
"Permitted Encumbrances" shall have the meaning ascribed to such term
in Section 5.19(a) hereof.
"Person" shall include an individual, a partnership, a corporation, or
a division or business unit thereof, a trust, an unincorporated organization, a
federal, state, local or foreign government or any department or agency thereof
and any other entity.
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"Program Performance Reserve Ratio" shall be the percentage ratio
derived by dividing the program performance reserve amount at any date by the
related remaining program revenue at such date.
"Property" shall include all property and all other assets of
whatsoever nature including, without limitation, real and personal property,
whether tangible or intangible, and claims, rights and choses in action, other
than Intellectual Property.
"Prospective Employees" shall have the meaning ascribed to such term
in Section 11.1(c) hereof.
"Purchased Assets" shall have the meaning ascribed to such term in
Section 2.1 hereof.
"Purchased Intellectual Property" shall refer to the Intellectual
Property which is owned by or licensed by Seller, and which is used in, related
to or necessary to the operation of, the Business as it is currently operated or
reasonably contemplated to be operated in the future, provided that this
definition shall not imply that Seller is obligated to acquire or convey
Intellectual Property which it does not currently own or have rights to use.
"Purchaser" shall refer to Hughes Aircraft Company, a Delaware
corporation, having its principal executive office at 7200 Hughes Terrace, Los
Angeles, California 90045.
"Registered Intellectual Property" shall have the meaning ascribed to
such term in Section 5.20(c)(2).
"Release" shall mean any release, spill, emission, abandonment of any
container or receptacle containing any Contaminant, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching, or migration of any
Contaminant into the environment, or into or out of any property, including the
movement or migration, gradual or otherwise, of any Contaminant through or in
the air, soil, surface water, groundwater, or land surface or subsurface strata
or formation.
"Remedial Action" shall mean all actions required under Environmental
Laws to (a) clean up, remove, treat, monitor or in any other way address the
Release of any Contaminant in the environment; (b) prevent the further Release
or threat of further Release, or minimize the further Release of any Contaminant
so it does not migrate or endanger or threaten to endanger public health or
welfare of the environment; or (c) perform pre-remedial studies and
investigations and post-remedial monitoring and care with respect to any Release
or any threatened Release; or (d) bring the Facilities and the operations
conducted thereon into compliance with all applicable Environmental Laws and
Environmental Permits.
"Revised Statements" shall have the meaning ascribed to such term in
Section 12.4(f)(1) hereof.
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"Schedule" shall refer to one of several written Schedules to this
Agreement, each of which is hereby incorporated into and made a part of this
Agreement for all purposes.
"Seller's Auditors" shall mean Deloitte & Touche.
"Seller" shall refer to Alliant Techsystems Inc., a Delaware
corporation, having its principal executive office at 600 Second Street, N.E.,
Hopkins, Minnesota 55343-8384.
"Seller Employee Benefit Plans" and "Seller Employee Pension Plans"
shall have the meaning ascribed thereto in Section 5.8(a) hereof.
"Seller Property" shall have the meaning ascribed to such term in
Section 5.19(a) hereof.
"Software" shall mean all computer software, (including, without
limitation, source code, object code, flow charts, operating systems and
specifications, data, data bases, files, documentation, and other materials
related thereto), and all Patent, Copyright, mask work registrations trade
secret or other proprietary rights associated therewith.
"SQQ-89 REA" shall have the meaning ascribed to such term in Section
2.1(m) hereof.
"Subsidiary" shall refer to a corporation (or equivalent legal entity
under foreign law) of which another Person owns directly or indirectly more than
50% of the stock, the holders of which are ordinarily and generally, in the
absence of contingencies or understandings, entitled to vote for the election of
directors and any partnership (or equivalent legal entity under foreign law) in
which such other Person owns directly or indirectly more than a 50% interest.
"substantially-performed" shall mean, with respect to a Government
Contract, that all contract deliverables under all options which have previously
been exercised have been provided to the customer.
"Taxes" shall mean (A) all federal, state, local and foreign taxes,
charges, fees, levies, imposts, duties or other assessments, including, without
limitation, income, gross receipts, excise, employment, sales, use, transfer,
license, payroll, franchise, severance, stamp, occupation, windfall profits,
environmental (including taxes under Code section 59A), premium, federal highway
use, commercial rent, customs duties, capital stock, paid up capital, profits,
withholding, Social Security, single business and unemployment, disability, real
property, personal property, registration, ad valorem, value added, alternative
or add-on minimum, estimated, or other tax or governmental fee of any kind
whatsoever, imposed or required to be withheld by the United States or any
state, local, foreign government or subdivision or agency thereof, including any
interest, fines, assessments, penalties or additions thereto, whether disputed
or not, and (B) any Taxes for which Seller is liable as a transferee,
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indemnitor, guarantor, surety or in a similar capacity under any contract,
arrangement, understanding or commitment, whether oral or written.
"Tax Return" shall mean any report, return, information return or
other information required to be supplied to a taxing authority in connection
with Taxes.
"Third Party Assets" shall mean all government, customer or other
third party-owned Property, equipment and information.
"Trademarks" shall mean all trademarks, service marks, trade dress,
logos, trade names and corporate names, whether or not registered, including all
common law rights, and registrations and applications for registration thereof,
including all of the goodwill associated with or represented by any of the
foregoing, and including, but not limited to, all marks registered in the United
States Patent and Trademark Office, the Trademark Offices of the States and
Territories of the United States of America, and the trademark offices of other
nations throughout the world, and all rights therein provided by multinational
treaties or conventions.
"Transferred Employees" shall have the meaning ascribed to such term
in Section 11.1(c) hereof.
"Transition Agreement" shall refer to the Transition Services
Agreement to be executed at Closing by Purchaser, Seller and Parent,
substantially on the terms set forth in Schedule 12.5.
"Year-End Financial Statements" shall have the meaning ascribed to
such term in Section 5.5(a)(1)(a) hereof.
ARTICLE II
BASIC TRANSACTION
Upon the terms and subject to the conditions set forth in this
Agreement, at the Closing the following transactions shall occur:
2.1 Purchase and Sale of Assets. On the terms and subject to the
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conditions set forth in this Agreement, at the Closing, Purchaser shall purchase
from Seller, and Seller shall sell, transfer, assign, convey and deliver to
Purchaser, all of Seller's right, title and interest in and to the Business,
including, without limitation, in and to all of the assets, properties, rights,
goodwill, contracts and claims of the Business (except as otherwise set forth in
Section 2.2 hereof), wherever located, whether tangible or intangible, real or
personal, known or unknown, actual or contingent, as the same shall exist as of
the Closing, subject to subsection (o) below (such rights, title and interest in
and to all such assets, properties, rights,
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contracts and claims, being collectively referred to herein as, the "Purchased
Assets"). The Purchased Assets shall include, without limitation, the following
assets:
(a) all fee owned real property, leasehold and other interests in
real property listed on Schedule 2.1(a), together with all improvements,
fixtures and all other appurtenances thereto and rights in respect thereof;
(b) all inventory (including work in process, raw materials and
finished goods), goods in transit, unbilled revenues and other properties
and rights associated with the performance of Contracts and the operation
of the Business, supplies, machinery, equipment, test equipment,
demonstration equipment, computers, tools, dies, spare parts, vehicles,
furniture, office materials and other tangible personal property, whether
or not such assets are located at the properties referred to in clause (a)
above;
(c) all accounts receivable and notes receivable and other claims for
money or other obligations due (or which hereafter will become due) to
Seller arising out of the Business together with any unpaid interest
accrued thereon from the respective obligors and any security or collateral
therefor, but excluding any sums owed by any Affiliate of Seller as
intercompany advances or accounts, other than any thereof arising from the
purchase and sale of goods or services in the ordinary performance of the
Contracts of the Business;
(d) all of Seller's interest in the Purchased Intellectual Property,
including, without limitation, all results of the Business' research and
development activities and other Intellectual Property developed or
acquired for the Business, or related to, or of use or potential use in
connection with any current or contemplated potential future products of
the Business or parts, components or subassemblies used or purchased by the
Business;
(e) all proceeds under any insurance contract or arrangement relating
to the Business in respect of Assumed Liabilities or damage to Assets;
(f) all right, title and interest in, to and under all Contracts,
subject in each case to the terms of such Contracts;
(g) all books and records (including such books and records as are
contained in computerized storage media) of the Business, including all
inventory, purchasing, accounting, sales, export, import, research,
engineering, manufacturing, maintenance, repairs, marketing, banking,
documents and records constituting Purchased Intellectual Property,
shipping records, personnel files for Transferred Employees and all files,
customer and supplier lists, records, literature and correspondence,
whether or not physically located on any of the premises referred to in
clause (a) above, but excluding personnel files for employees of Seller who
are not Transferred Employees, provided
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Seller may retain copies of all books and records related to Excluded
Liabilities, Excluded Assets and Employees;
(h) any other tangible assets of Seller which are used in the
Business and which are of a nature not customarily reflected in the books
and records of a business, such as assets which have been written off for
accounting purposes but which are still used by or of value to the
Business;
(i) all Authorizations which are transferable and which are used in
the Business, as presently conducted;
(j) all goodwill associated with the Business;
(k) all rights under non-disclosure agreements with employees and
agents of Seller and under confidentiality agreements with prospective
purchasers of the Business or with other third parties to the extent
relating to the Business;
(l) all deposits, prepaid charges, insurance, sums and fees, offset
credit balances in any country, refunds, and causes of action;
(m) the SQQ-89 Request for Equitable Adjustment ("SQQ-89 REA"), the
Hydroscience Receivable described in Section 7.20, the NT37 Inventory
described in Section 7.21, and the Ocean Bottom Cable Royalty described in
Section 7.22;
(n) any other asset of Seller, other than Excluded Assets, in respect
of which there is an Assumed Liability; and
(o) other than to the extent related to a liability asserted against
Seller, all rights of recovery, rights of set-off and rights of recoupment
of Seller in connection with the Business.
2.2 Excluded Assets. Notwithstanding anything herein to the
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contrary, the Purchased Assets shall not include any of the following assets
related to the Business (collectively, the "Excluded Assets"):
(a) Cash and cash equivalents, including petty cash accounts or cash
on hand or in bank accounts, certificates of deposit, commercial paper and other
similar securities related to the Business;
(b) Any books or records relating to the Business which Seller is
required by law to retain in its possession;
(c) Federal income tax refund entitlements or other tax attributes
related to the Business with respect to any period prior to the Closing Date;
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(d) The account receivable payable by Armada de Chile, Contract
Number MK46-ILS119 in the amount of $2.93 million.
2.3 Assumption of Liabilities. On the terms and subject to the
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conditions set forth in this Agreement, at the Closing, Purchaser will assume
and become responsible for the following liabilities and obligations of Seller
(the "Assumed Liabilities"):
(a) the Contracts being transferred to Purchaser hereunder (to the
extent that such liabilities and obligations remain unsatisfied or are required
to be performed on or after the Closing Date);
(b) Employees and employee benefits solely to the extent specifically
set forth in Article XI hereof, and those certain employment contracts between
Seller and the individuals set forth on Schedule 2.3(b) with respect to any
potential severance and severance related liabilities;
(c) once the Remedial Action set forth in the Remedial Plan
contemplated by Section 7.7 hereof is complete, on-site Environmental Claims and
Environmental Costs and Liabilities of Seller, irrespective of when they arise,
at the Mukilteo Facility; and
(d) Except to the extent otherwise specifically provided herein, any
liability or obligation reflected on Column Four of the Closing Date Schedule of
Net Assets irrespective of the amount reserved.
2.4 Excluded Liabilities. Seller and Purchaser expressly understand
--------------------
and agree that Purchaser shall not assume, pay, perform or discharge or become
liable for any and all obligations, commitments or liabilities of any and every
nature whatsoever of Seller including (without limitation) all obligations,
commitments or liabilities (whether recourse or non-recourse to Seller) which
relate to, are secured by or otherwise encumber any of the Assets, including,
without limitation, (a) liabilities arising out of, or relating to, the
operation of the Business prior to the Closing, (b) liabilities resulting from
Environmental Claims or Remedial Action relating to the operation of the
Business prior to the Closing, (c) claims that the operation of the Business
infringes the Intellectual Property rights of any Person, (d) except as
otherwise provided in Section 12.4(c), or Section 12.4(g), all liabilities of
Seller or any Affiliate of Seller for Taxes, and, in each case, which are not
Assumed Liabilities and (e) liabilities arising out of any performance incentive
payment obligations under the contracts described on Schedule 2.3(b)
(collectively, the "Excluded Liabilities").
2.5 Purchase Price. On the terms and subject to the conditions set
--------------
forth in this Agreement, and subject to adjustment as provided in Article IV
hereof, at the Closing, Purchaser will pay to Seller $141,000,000, allocated as
provided in Section 12.4(f) hereof by wire transfer of immediately available
funds to an account designated by Seller not later than three Business Days
prior to the Closing Date.
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ARTICLE III
CERTAIN AGREEMENTS OF THE PARTIES
3.1 Certain Provisions Relating to Assets. (a) To the extent that a
-------------------------------------
Contract, Authorization or other asset which would otherwise be included within
the definition of "Assets", or any claim, right or benefit arising thereunder or
resulting therefrom (each an "Interest" and collectively the "Interests"), is
not capable of being sold, assigned, transferred or conveyed without the
approval, consent or waiver of the issuer thereof or the other party thereto, or
any third person (including a government or governmental unit or agency), and
such approval, consent or waiver has not been obtained prior to the Closing, or
if such sale, assignment, transfer or conveyance or attempted sale, assignment,
transfer or conveyance would constitute a breach thereof or a violation of any
law, decree, order, regulation or other governmental edict, this Agreement shall
not constitute a sale, assignment, transfer or conveyance thereof, or an
attempted sale, assignment, transfer or conveyance thereof.
(b) Seller and Purchaser shall use their best efforts and shall
cooperate to obtain all approvals, consents or waivers necessary to convey to
Purchaser each Interest as of the Closing. The failure to obtain any approval,
consent or waiver necessary to convey any Interest to Purchaser shall not affect
the obligations of the parties to close hereunder.
(c) To the extent any of the approvals, consents or waivers necessary
to convey any Interest (other than Government Contracts with respect to which
Section 7.6 shall govern) to Purchaser have not been obtained by Seller as of
the Closing, Seller shall, during the remaining term of such Interest, use its
best efforts, to (1) at the request of Purchaser, cooperate with Purchaser to
obtain the consent of any such third party (provided that Purchaser shall not be
obligated to pay any consideration therefor), (2) at the request of Purchaser,
cooperate with Purchaser in any reasonable and lawful arrangements designed to
provide the benefits of such Interest to Purchaser (including, with respect to
any Property leased by Seller which would otherwise be an Asset and as to which
Seller has been unable to obtain the lessor's consent to the assignment thereof
to Purchaser, to sublease such Property (to the extent permitted under the
pertinent lease) to Purchaser, upon substantially the same terms and conditions
as are set forth in such lease with respect to Seller), so long as Purchaser
cooperates with Seller in such arrangements and promptly reimburses Seller for
any and all payments required to be made by Seller after the Closing Date by the
terms of the document governing such Interest (as the same shall be in effect on
the date hereof), and (3) enforce, at the request of Purchaser and at the
expense and for the account of Purchaser, any rights of Seller arising from such
Interest against the issuer thereof or the other party or parties thereto
(including the rights to elect to terminate any such Interest in accordance with
the terms thereof upon the advice of Purchaser).
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ARTICLE IV
POST-CLOSING ADJUSTMENT
4.1 Closing Date Balance Sheet. (a)(1) Within 45 days after the
--------------------------
Closing Date, Seller shall deliver to Seller's Auditors a balance sheet of the
Business as it existed immediately prior to the Closing (the "Closing Date
Balance Sheet"), prepared in accordance with GAAP applied on a basis consistent
with that employed by Seller in the preparation of the Interim Date Balance
Sheet and using the same accounting methods, policies, practices and procedures
with consistent classifications, judgments, and valuation and estimation
methodologies as used in the preparation of the Interim Date Balance Sheet,
including those adjustments required by Section 4.1(b). The Closing Date
Balance Sheet shall be accompanied by an additional schedule of information (the
"Closing Date Schedule of Net Assets") (i) the first column of which shall be a
copy of the Closing Date Balance Sheet, (ii) the second column of which
accurately details all adjustments necessary to reflect the elimination of all
assets and liabilities which are reflected on the Closing Date Balance Sheet but
not sold to or assumed by Purchaser in accordance with the terms of this
Agreement (it being understood by the parties that the profit accrual rates on
Contracts will not be affected by the elimination of any such assets or
liabilities not sold or assumed, the costs of which are normally included in
estimated costs at completion), (iii) the third column of which accurately
details the adjustments required by Section 4.1(a)(2) below, and (iv) the fourth
column of which accurately presents the assets and liabilities of the Business
as at the Closing Date after giving effect to the adjustments reflected in the
second and third columns thereof and indicates the Net Assets as at the Closing
Date (the "Closing Date Net Assets"). The Closing Date Balance Sheet and the
Closing Date Schedule of Net Assets are referred to collectively as the "Closing
Date Financial Information."
(2) The third column of the Closing Date Schedule of Net Assets
indicates all adjustments to the Closing Date Balance Sheet which are necessary
to remove the effects, if any, resulting from any change in the assets or
liabilities of the Business during the period from the date of the Interim Date
Balance Sheet through the Closing Date, caused by any of the following: (A) any
change resulting from a change in GAAP, including those promulgated after the
Interim Date Balance Sheet is prepared, regardless of whether or not otherwise
required to be made, except as agreed to between Seller and Purchaser; (B) any
change resulting from a change of an accounting policy, practice, procedure,
allocation method or estimation technique from that followed in preparing the
Interim Date Balance Sheet; (C) any extraordinary or non-recurring gains or any
transactions not in the ordinary course of business consistent with past
practices of Seller and not otherwise required by this Section 4.1; (D) the
inclusion in the Closing Date Balance Sheet of any Asset or any Liability which
was not, but could have been, reflected in the Interim Date Balance Sheet; (E)
any corrections relating to mathematical mistakes, mistakes in the application
of accounting principles, or oversight or misuse of facts that existed at the
date of the Interim Date Balance Sheet and affected the determination of any
amounts in the Interim Date Balance Sheet; and (F) any change in the amount
requests for equitable adjustment or claims made or to be made
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by Seller under any contract relating to the Business which has not been
approved by the Purchaser pursuant to the approach described in Schedule
4.1(a)(2)(F); (G) any change in the amount of Seller's reserves for the Business
from the amounts of the reserves reflected on Schedules 5.5(c) and 5.5(d) as of
the Interim Date Balance Sheet, except as noted on Schedules 4.1(a)(2)(G)(A) and
4.1(a)(2)(G)(B). For purposes of Sections 4.1(a)(2)(A), (B), (D) and (E), any
potential adjustment having an individual value of less than $50,000 (the "Small
Adjustment") shall not be considered as a column three adjustment until the
total cumulative value of all such Small Adjustments when measured on a net
basis exceeds $100,000, in which case only the excess value above $100,000 shall
be reflected in column three of the Closing Date Schedule of Net Assets. In
preparing the Closing Date Financial Information, Seller shall use the same
techniques and methodologies in determining its estimates and judgments for
evaluating the status of its Contracts and Government Contract rate reserves as
were used in preparing the Interim Financial Statements, except that the third
column of the Closing Date Schedule of Net Assets shall (A) reverse all
reductions and increases in reserves from the amounts contained in the Interim
Date Balance Sheet and reflected on Schedule 5.5(d), except as noted on Schedule
4.1(a)(2)(G)(A) and (B) make such adjustments as are necessary to cause each
program estimate at completion profit margin percentage on the remaining revenue
to equal the related estimate at completion profit percentage reflected on
Schedule 5.5(c) as of the date of the Interim Date Balance Sheet, except as
noted on Schedule 4.1(a)(2)(G)(B) and (C) make such adjustments as are necessary
to cause each Program Performance Reserve Ratio at Closing to equal the related
Program Performance Reserve Ratio reflected on Schedule 5.5(c) as of the date of
the Interim Date Balance Sheet. For all purposes of this Agreement, reserves
shall be deemed to include (without limitation) balance sheet reserves and/or
contract level reserves whether related to accounts receivable, billed or
unbilled, contracts in process, inventories, fixed assets or any other Purchased
Asset, regardless of whether any such reserve is recorded as an offset to such
Assets' carrying value or is included as an accrued liability in the Closing
Date Balance Sheet. Notwithstanding the above, no adjustments shall be made to
this third column of the Closing Date Schedule of Net Assets under any of the
provisions of Section 4.1(a)(2) if the adjustment pertains to assets or
liabilities which are reflected on the Closing Date Balance Sheet but are not
sold to or assumed by Purchaser under the terms of this Agreement.
(3) The third column of the Closing Date Schedule of Net Assets shall
make any adjustments necessary to remove any values remaining on the accounts
listed on Schedule 4.1(a)(3) after considering previous amounts assigned to
these accounts under the provisions of Section 4.1(a)(1)(i), Section
4.1(a)(1)(ii) and Section 4.1(a)(1)(iii), such that the value assigned to column
four for these accounts in the Closing Date Schedule of Net Assets shall be
zero.
(4) The third column of the Closing Date Schedule of Net Assets shall
make any adjustments necessary to eliminate the effect of any accounting or
audit adjustments posted between the Interim Date Balance Sheet and the Closing
Date Balance Sheet to write down or write up the carrying value of the MK46 New
Brighton H1602 Account. It is the expectation of Purchaser and Seller that a
potential write down of approximately $500,000
17
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may be reflected in this account in the Closing Date Balance Sheet, and it is
the intention of this provision to eliminate the effect of this or any other
such accounting or audit adjustment to the value of the MK46 New Brighton H1602
Account from the price adjustment provisions of Section 4.1.
(5) In the event that sales of the NT37 inventory have occurred or
that cash collections have occurred on the SQQ-89 REA or the Hydroscience
Receivable between the Interim Date and the Closing Date, the following details
the calculation of the Purchase Price adjustment necessary to reflect these
occurrences: (i) sale of NT37 inventory and cash is collected by Seller;
Purchase Price is reduced by Purchaser's share of proceeds per Section 7.21 of
this Agreement; (ii) sale of NT37 inventory and a collectible account receivable
exists on the Closing Date Balance Sheet; Purchase Price is increased by
Seller's share of this receivable per Section 7.21 of this Agreement; (iii) cash
collection on the SQQ-89 REA; Purchase Price is reduced by Purchaser's share of
the proceeds per Section 7.19 of this Agreement; (iv) cash collection on the
Hydroscience Receivable; Purchase Price is reduced by Purchaser's share of the
proceeds per Section 7.20 of this Agreement.
(b) Seller shall engage Seller's Auditors (at Seller's and
Purchaser's expense shared equally) to, within 60 days after Seller's delivery
of the Closing Date Financial Information under Section 4.1(a) above: (i) read
this Agreement and all other documents and instruments deemed necessary by
Seller's Auditors to discharge their obligations required under this Agreement;
(ii) audit the Closing Date Balance Sheet in accordance with generally accepted
auditing standards; and (iii) deliver to Seller, Purchaser and Deloitte &
Touche, a draft certificate in the form set forth in Exhibit A hereto (the final
version of which is referred to as the "Auditors' Report") together with the
Closing Date Balance Sheet to which such draft Auditors' Report relates. The
Auditors' Report shall report, without qualification or other limitation arising
out of the scope of the audit, that, the Closing Date Balance Sheet presents
fairly the financial condition of the Business at the Closing Date in conformity
with GAAP, and that:
(1) the Closing Date Balance Sheet does not give effect to any
purchase accounting (or similar related) adjustments, or any other accounting
effects, arising from the transactions provided for in this Agreement;
(2) the Closing Date Balance Sheet does take into account all
liabilities, accruals and other adjustments on or prior to the Closing Date
which would be appropriate to a balance sheet being prepared at a financial
year-end including (without limitation) all liabilities and accruals necessary
to present the Business as a stand-alone entity and any liabilities and accruals
relating to the Business which may have previously been recorded at the
corporate office or other organizational level, including (without limitation)
all liabilities (A) for such charges as rentals, maintenance services, property
taxes, general and product liability insurance (including self-insurance
accruals), (B) arising from the employment of the employees of the Business
(including obligations for accrued bonuses, workers' compensation obligations
(including claims filed and obligations incurred but not reported), medical,
dental,
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severance, profit sharing, vacation time, paid time off, other insurance
and business expenses) and (C) arising from interorganizational transactions
(i.e., transactions between the Business and any other business, division, unit
-----
or Subsidiary of Seller) and intraorganizational transactions and expense
allocations, accrued in accordance with the past customs and practices of the
Business but only to the extent arising from the purchase and sale of goods or
services in the ordinary performance of the Contracts of the Business;
(3) Reserves are provided on a Contract by Contract basis, as
appropriate, for all Contracts with total estimated costs at completion
(including all other overhead costs allocated to such Contracts in a manner
consistent with the methodology used in preparing the Interim Date Balance
Sheet) in excess of the firm negotiated ceiling price based on the most recently
completed Contract cost estimates. Adjustments have been made to reflect all
other Contracts on the individual contract percentage of completion method
(using Seller's historical methodology for determining the percentage of
completion), based upon effort performed through the Closing Date, and utilizing
the most recently completed contract cost estimates. When calculating the
earnings associated with the most recently completed contract cost estimates,
adjustments have been provided for the difference between booked Government
Contract overhead rates and the rates that are expected to be negotiated with
the government for all years open for audit by the government;
(4) Property, plant and equipment amounts contained in the Closing
Date Balance Sheet represent the respective book values of the specific Assets
as at such date; and
(5) In addition to the foregoing adjustments, the Closing Date
Balance Sheet takes into account all proposed audit adjustments which are
individually in excess of $50,000 on a pre-tax basis. It is understood by
Purchaser and Seller that Seller's Auditors will establish the scope of its
audits based upon its professional judgment of materiality as applied to the
Closing Date Balance Sheet.
Seller covenants to make all such changes to the Closing Date Balance
Sheet as shall be necessary to enable Seller's Auditors to deliver the draft
certificate in substantially the form set forth in Exhibit A and to deliver the
Auditor's Report. Notwithstanding the above, Seller shall not be required to
make any changes where its existing accounting policies, practices, procedures,
allocation methods or estimation techniques are in compliance with GAAP and
consistent with past practices, including those used in preparing the Interim
Date Balance Sheet.
(c) Within 30 Business Days after the receipt of the Closing Date
Financial Information, the Closing Date Balance Sheet and the draft Auditors'
Report on the Closing Date Balance Sheet, Purchaser shall notify Seller of any
objections thereto and shall attempt in good faith to reach an agreement with
Seller as to the matter or matters in dispute. If Purchaser and Seller,
notwithstanding such good faith effort, shall have failed to resolve the matter
or matters in dispute within 20 Business Days after Purchaser advises Seller of
its objections, then Seller immediately will cause Seller's Auditors to issue
the Auditors' Report
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and the related financial statements and schedule and deliver copies thereof to
Seller, Purchaser and Purchaser's representative. Any remaining disputed matters
shall be finally and conclusively determined by an independent auditing firm of
recognized national standing (the "Arbiter") selected by Purchaser and Seller,
which shall not be the regular auditing firm of Purchaser or Seller. Promptly,
but not later than 30 Business Days after its acceptance of its appointment, the
Arbiter shall determine (based solely on presentations by Seller and Purchaser
to the Arbiter and not by independent review) only those issues in dispute and
shall render a report as to the disputes and containing a revised Closing Date
Schedule of Net Assets, which report shall be conclusive and binding upon the
parties hereto. In resolving any disputed item, the Arbiter may not assign a
value to any particular item greater than the greatest value for such item
claimed by either party or less than the smallest value for such item claimed by
either party, in each case, as presented to the Arbiter. For purposes of the
Arbiter's determination of Definitive Closing Date Net Assets, the amounts to be
included shall be the appropriate amounts from the Closing Date Schedule of Net
Assets for assets and liabilities that are being sold or assumed as to items
that are not in dispute, and the amounts determined by the Arbiter as to items
that were submitted for resolution by the Arbiter.
(d) For purposes of complying with the terms set forth herein, each
party shall cooperate with and make available to the other party and its
auditors and representatives, all information, records, data, auditors' working
papers, and access to its personnel, shall permit access to its facilities and
shall permit the other party and its auditors and representatives to make copies
of all information, records, data and auditors' working papers, in each case as
may be reasonably required in connection with the analysis of the Interim Date
Balance Sheet, the draft Auditors' Report, the Auditors' Report, the Closing
Date Financial Information, the Audited Closing Date Balance Sheet and the
resolution of any dispute(s) thereunder. Without limiting the generality of the
foregoing, Seller shall cause Seller's Auditors to make available at its office
to Purchaser and Purchaser's representative immediately after delivery of the
draft Auditors' Report pursuant to Section 4.1(b) above the workpapers therefor
pertaining only to the Business and not to other operations and businesses of
Seller (which may be copied by Purchaser if Purchaser so elects), subject to
approval by Deloitte & Touche. Purchaser's auditors shall also have access to
Seller's Auditors' workpapers pertaining only to the Business and not to other
operations and businesses of Seller (including those relating to prior audits)
as necessary for the purpose of providing regular auditing services to the
Business.
4.2 Post-Closing Adjustment. As soon as the Auditor's Report has
-----------------------
been delivered pursuant to the provisions set forth in Section 4.1 hereof and
either all disagreements with respect to the Closing Date Net Assets have been
resolved directly by Purchaser and Seller or the report of the Arbiter has been
issued: (a) in the event that the Definitive Closing Date Net Assets shall be
less than the Interim Date Net Assets, then Seller shall pay to Purchaser the
amount of such difference in cash plus interest thereon from the Closing Date to
the date of such payment thereof at the per annum rate equal to the rate
announced by Citibank, N.A. in the City of New York as its base rate as in
effect on the Closing Date; or (b) in the event that the Definitive Closing Date
Net Assets shall be greater than the Interim Date Net Assets, then Purchaser
shall pay to Seller the amount of such
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<PAGE>
difference in cash plus interest thereon from the Closing Date to the date of
such payment thereof at the per annum rate equal to the rate announced by
Citibank, N.A. in the City of New York as its base rate as in effect on the
Closing Date. Any such cash payment pursuant to this Section 4.2 shall be made
within 10 Business Days following the later of (i) the receipt by the parties of
the Audited Closing Date Balance Sheet and (ii) if there shall exist a dispute
between the parties as to the amount of Closing Date Net Assets, the date of
receipt of the Arbiter's report, by bank wire transfer of immediately available
funds to an account designated by Purchaser or Seller, as the case may be. The
cash payment pursuant to this Section 4.2 (other than the portion of any such
payment made by Purchaser specifically denominated as interest hereunder) shall
be treated by the parties as an adjustment to the purchase price of the Assets.
The provisions of this Section 4.2 Post Closing Adjustment section, as well as
provisions contained in Section 4.1 and Section 5.5, are intended to measure the
differences between the Interim Date Balance Sheet and the Closing Date Balance
Sheet on a comparable basis. Differences in accounting treatment as identified
in Section 4.1(a)(2) between the Interim Date Balance Sheet and the Closing Date
Balance Sheet are to be addressed under the Indemnification provisions of
Section 12 of this Agreement, and no attempt will be made by either Purchaser or
Seller to seek an economic adjustment under both the price adjustment terms of
Article IV and the indemnity provisions of Article XII of this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser as of the date hereof, and
shall be deemed to have represented and warranted on the Closing Date, as
follows:
5.1 Organization and Authority of Seller. Seller is a corporation
------------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware with full power and authority, corporate and otherwise, to own
and operate its properties and to carry on its business as and where presently
conducted, to enter into and to perform its obligations under this Agreement and
each of the Ancillary Agreements to which it is a party and to consummate the
transactions contemplated hereby and thereby. Seller is duly qualified or
otherwise authorized to do business as a foreign corporation and is in good
standing in each jurisdiction set forth in Schedule 5.1, except where the
failure to so qualify would not have Material Adverse Effect.
5.2 Authorization of Agreements. The execution, delivery and
---------------------------
performance of this Agreement and each of the Ancillary Agreements to which it
is a party by Seller have been duly authorized by all necessary action,
corporate or otherwise, of Seller, and this Agreement has been, and each of the
Ancillary Agreements to which it is a party will be, duly executed and delivered
by Seller and this Agreement constitutes, and each of the Ancillary Agreements
to which it is a party when executed will constitute, the valid and binding
obligation of Seller, enforceable in accordance with its terms.
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5.3 No Conflicts. Except as described in Section 5.4, the execution,
------------
delivery and performance by Seller of this Agreement and each of the Ancillary
Agreements to which it is a party and the consummation of the transactions
contemplated hereby and thereby do not and will not (with or without the giving
of notice or the passage of time or both) (a) conflict with the certificate of
incorporation or by-laws of Seller or, except as set forth in Schedule 5.3,
conflict with, violate, or result in the breach or termination of, or constitute
a default under, (1) any Authorization, lease, agreement, contract, commitment,
letter of intent, memorandum of understanding or other document or instrument,
or (2) any order, judgment, injunction or decree of any court or governmental
authority, foreign or domestic, to which Seller is a party or by which it or any
of its assets or properties are bound; (b) constitute a violation of any law,
statute or regulation of any governmental authority, domestic or foreign,
applicable to Seller; (c) result in the creation of any lien, charge or
encumbrance upon any of the assets or properties of Seller or (d) give to any
other Person any rights whatsoever, including rights of termination,
cancellation or acceleration, in or with respect to any of the properties or
assets of Seller except to the extent that the occurrence of any of the
foregoing would not have a material adverse effect on (i) the ability of Seller
to enter into and perform its obligation under this Agreement or (ii) the
business, operations, prospects or financial condition of Seller.
5.4 Consents. No consent, approval or authorization of, or
--------
designation, declaration or filing with, any governmental authority or other
third party is required on the part of Seller in connection with Seller's
execution, delivery and performance of this Agreement (including, without
limitation, the sale, assignment, transfer and conveyance to Purchaser of all
Interests) and the Ancillary Agreements to which it is a party, except for (a)
any required filings with the Federal Trade Commission and the Department of
Justice pursuant to the HSR Act and due expiration of the waiting period
(including any extensions) thereunder, (b) any novations required in connection
with Government Contracts, (c) any filings required under the Department of
Defense Industrial Security Manual for Safeguarding Classified Information (the
"DoD Manual"), (d) any filings required under United States Export Control Laws
and (e) those consents or approvals which are listed in Schedule 5.4.
5.5 Financial Statements. (a)(1) Set forth in Schedule 5.5(a)(1) are
--------------------
complete and correct copies of the following financial statements:
(A) the unaudited balance sheet for the Business for the fiscal year
ended March 31, 1996 and the related statement of operating income and
statement of operating cash flows for the year then ended (the "Year-End
Financial Statements"). The unaudited balance sheet of the Business as at
March 31, 1996 and the notes thereto are sometimes referred to in this
Agreement as the "March 31, 1996 Balance Sheet";
(B) the unaudited balance sheet of the Business as at July 31, 1996,
and the related statement of operating income and statement of operating
cash flows for the four-month period then ended (together with Schedule
5.5(a)(2) referred to below, the
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"Interim Financial Statements"). The unaudited balance sheet of the
Business as at July 31, 1996 and the notes thereto are sometimes referred
to in this Agreement as the "Interim Date Balance Sheet".
(2) Attached hereto as Schedule 5.5(a)(2) is a schedule (i) the first
column of which is a copy of the Interim Date Balance Sheet, (ii) the second
column of which accurately details all adjustments necessary to reflect the
elimination of all assets and liabilities which are reflected on the Interim
Date Balance Sheet but not sold to or assumed by Purchaser in accordance with
the terms of this Agreement, except that no amount shall appear in this second
column for any vacation accrual that is not to be assumed by Purchaser at
Closing, (it being understood by the parties that the profit accrual rates on
Contracts will not be affected by the elimination of any such assets or
liabilities not sold or assumed, the costs of which are normally included in
estimated costs at completion), (iii) the third column of which shall make any
adjustments necessary to remove any values remaining on the accounts listed on
Schedule 4.1(a)(3) after considering previous amounts assigned to these accounts
under the provisions of Section 5.5(a)(2)(i) and Section 5.5(a)(2)(ii), such
that the value assigned to column four for these accounts in this Interim Date
Schedule of Net Assets shall be zero; and (iv) the fourth column of which
accurately presents the assets and liabilities of the Business as at the date of
the Interim Date Balance Sheet after giving effect to the adjustments reflected
in the second and third columns thereof and indicates the Net Assets as at the
date of the Interim Date Balance Sheet (the "Interim Date Net Assets").
The Year-End Financial Statements and the Interim Financial Statements
(including the schedules thereto) are sometimes referred to herein collectively
as the "Financial Statements".
(3) The Interim Date Balance Sheet takes into account all
liabilities, accruals and other adjustments on or prior to the date thereof
which would be appropriate to a balance sheet being prepared at a financial
year-end and gives effect to the following adjustments:
(A) Reserves have been provided on a Contract by Contract basis, as
appropriate, for all Contracts with total estimated costs at completion
(including all other overhead costs allocated to such Contracts) in excess
of the firm negotiated ceiling price based on the most recently completed
Contract cost estimates. Adjustments have been made to reflect all other
Contracts on the individual contract percentage of completion method (using
Seller's historical methodology for determining the percentage of
completion), based upon effort performed through the date of such balance
sheet, and utilizing the most recently completed contract cost estimates.
When calculating the earnings associated with the most recently completed
contract cost estimates, adjustments have been provided for the difference
between booked Government Contract overhead rates and the rates that are
expected to be negotiated with the government for all years open for audit
by the government. Reserves shall be deemed to include (without
limitation) balance sheet reserves related to accounts receivable, whether
billed or unbilled, contracts in process, inventories,
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fixed assets or any other assumed asset, regardless of whether any such
reserve is recorded as an offset to such assets' carrying value or is
included as an accrued liability in the Interim Date Balance Sheet; and
(B) Property, plant and equipment amounts contained therein represent
the respective book values of the specific Assets as at the date of the
Interim Date Balance Sheet and provision has been made for the disposition
of any idle or excess property, plant and equipment in accordance with
Federal Acquisition Regulation 31.205-16.
The Interim Date Balance Sheet does not give effect to any purchase
accounting adjustments arising from the transactions provided for in this
Agreement.
(b) The Financial Statements are in agreement with the books and
records regularly maintained by Seller and its Subsidiaries and were prepared in
accordance with GAAP (except as otherwise required by Section 5.5(a)(3)(B), or
as disclosed in the notes to the Financial Statements) and using the same
accounting methods, policies, practices and procedures with consistent
classifications, judgments, and valuation and estimation methodologies as those
used by Seller with respect to the Business in preparing its historical
financial statements, except as otherwise expressly noted on Schedule 5.5(a)(1).
Subject to normal year-end adjustments with respect to the Interim Financial
Statements (which adjustments, individually and in the aggregate, are not
material) the Financial Statements present fairly the financial position of the
Business as of the dates specified therein and the results of operations for the
fiscal periods then ended, taking into account all liabilities and accruals
necessary to present the Business as a stand-alone entity and any liabilities
and accruals which may have previously been recorded at the corporate office or
other organizational level, including (without limitation) all liabilities (A)
for such charges as rentals, maintenance services, property taxes, general and
product liability insurance (including self-insurance accruals), (B) arising
from the employment of the employees of the Business (including obligations for
accrued bonuses, workers' compensation obligations (including claims filed and
obligations incurred but not reported), medical, dental, severance, profit
sharing, vacation time, paid time off, other insurance and business expenses)
and (C) arising from interorganizational transactions (i.e., transactions
----
between the Business and any other business, division, unit or Subsidiary of
Seller) and intraorganizational transactions and expense allocations, accrued in
accordance with the past customs and practices of the Business.
(c) Set forth in Schedule 5.5(c) is a complete and correct list on a
Contract by Contract basis, for all Contracts having a total contract value in
excess of $500,000, of the EAC profit rates reflected in the Interim Date
Balance Sheet with respect to all Contracts relating to the Business, as well as
Performance Reserves, Rate Reserves and Warranty Reserves included in Program
Reserves.
(d) Set forth in Schedule 5.5(d) is a complete and correct list on a
Contract by Contract basis of all reserves for warranties, reserves for bad
debts, rate reserves and gross
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margin reserves maintained by Seller with respect to the Business as of the date
of the Interim Date Balance Sheet.
5.6 Absence of Certain Developments. Except as set forth on Schedule
-------------------------------
4.1(a)(3) and the reduction in projected sales to $125 million for the fiscal
year ending March 31, 1997, since July 31, 1996, there has not been any Material
Adverse Change in the business, condition, revenues, earnings, assets or results
of operations of the Business.
5.7 Material Contracts and Leases. (a) To the extent permitted by
-----------------------------
government regulations applicable to classified documents, Schedule 5.7 contains
a listing of all Contracts described in clauses (i) through (xv) below to which
Seller is a party and which relate to or involve the Business as currently
operated by Seller or which are material to the continued operation of the
Business by the Purchaser. True, correct and complete copies of the Contracts
referred to in clauses (i)-(xv) below and listed on Schedule 5.7 have been
delivered to or made available to Purchaser and its agents and representatives.
(i) Each Government Contract which involves performance of
services or delivery of goods and/or materials by Seller;
(ii) Each note, debenture, letter of credit, bond or surety,
other evidence of indebtedness, guarantee, loan, credit or financing
agreement or instrument or other contract for money borrowed, including any
agreement or commitment for future loans, credit or financing in excess of
$75,000;
(iii) Each Contract not in the ordinary course of business
involving expenditures or receipts of Seller in excess of $250,000;
(iv) Each lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other Contract affecting
the ownership of, leasing of, title to, use of, or any leasehold or other
interest in, any real or personal property and involving aggregate payments
in excess of $250,000;
(v) Each license agreement or other material Contract with
respect to any Intellectual Property of Seller or any other Person,
including any agreements with current or former employees, consultants, or
contractors of Seller regarding the ownership, appropriation or the
nondisclosure of Intellectual Property;
(vi) Each collective bargaining agreement or other Contract
to or with any labor union or other employee representative of a group of
employees relating to wages, hours, and other conditions of employment;
(vii) Each joint venture Contract, co-production or partnership
agreement, or limited liability company agreement;
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(viii) Each Contract requiring capital expenditures after the
date hereof in an amount in excess of $250,000 or otherwise material to
Seller;
(ix) Each distributorship, agency or manufacturer's
representative agreement;
(x) Each management, consulting or employment Contract or
severance agreement, including, without limitation, any Contract (A) to
employ or terminate executive officers or other personnel and other
Contracts with present or former officers, directors or shareholders of
Seller or (B) that will result in the payment by, or the creation of any
commitment or obligation (absolute or contingent) to pay on behalf of
Seller any severance, termination, "golden parachute," or other similar
payments to any present or former personnel following termination of
employment or otherwise as a result of the consummation of the transactions
contemplated by this Agreement;
(xi) Each distribution, franchise, license, sales representative,
commission, consulting, agency or advertising Contract which is not
cancelable on thirty (30) calendar days notice without liability to Seller;
(xii) Each material option to buy any property, real or personal,
or material option to sell any real property or personal property;
(xiii) Each Contract containing covenants limiting the freedom of
Seller to engage in any line of business or compete with any Person
anywhere in the world;
(xiv) Each open sales order, contract or firm written quotation
for more than $250,000 ("Backlog Contracts"); and
(xv) Each Contract pursuant to which Seller is required to
indemnify a third party (other than with respect to product warranties in
the ordinary course of business).
(b) Except as set forth on Schedule 5.7, all the Contracts listed
pursuant to paragraph (a) hereof are (i) in full force and effect and (ii)
represent the legal, valid and binding obligations of Seller and, to the
knowledge of Seller, represent the legal, valid and binding obligations of the
other parties thereto. Except as set forth on Schedule 5.7(b), no condition
exists or event has occurred which, with notice or lapse of time or both, would
constitute a default under such Contracts by Seller or any other party thereto,
except where the occurrence of such event or existence of any such condition
would not have a Material Adverse Effect on the Business.
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(c) Except as set forth in Schedule 5.7(c), there is no outstanding
bid for the sale of goods or services by Seller for which the total costs
estimated at the time of the bid, including allocable overhead and general and
administrative expenses, as estimated in good faith by Seller would exceed 93%
of the proposed price set forth in such bid on the applicable Contract.
(d) Except as set forth in Schedule 5.7(d), there is no unexercised
option for the sale of goods or services by Seller for which the most recent
estimated total costs of completing the unexercised option, including allocable
overhead and general and administrative expenses, as estimated in good faith by
Seller exceeds 93% of the price for such goods and services in respect of the
applicable Contract.
(e) Except as set forth on Schedule 5.7(e), there are no Contracts
for the sale of goods or services by Seller as to which at the time of the most
recent scheduled contract milestone for any such Contract the work scheduled was
more than sixty (60) days late.
(f) Except as set forth on Schedule 5.7(f), there are no Contracts,
options or bids for the sale of goods or services by Seller which include a
liquidated damages clause for late delivery.
(g) Except as set forth on Schedule 5.7(g), there are no Contracts
for the sale of goods or services by Seller which require Seller to be an
account party to a letter of credit or bank guarantee which allows the
beneficiary to draw funds without the specific consent of the account party, in
the absence of an arbitration or judicial ruling in favor of the beneficiary.
(h) Except as set forth on Schedule 5.7(h), (i) there is no
outstanding bid for the sale of goods or services where performance of
contractual effort will begin prior to contract award, and (ii) there are no
existing Contracts where performance will continue while awaiting additional
contractual funding.
5.8 Employee Benefit Plans. In regard to the Business: (a)
----------------------
Schedule 5.8(a) sets forth all Employee Benefit Plans and any other material
employee benefit arrangements, policies or payroll practices, including, without
limitation, with respect to sick leave, vacation pay, severance pay, salary
continuation for disability, consulting or other compensation agreements or
arrangements, workers' compensation, retirement, deferred compensation, bonus,
stock purchase, hospitalization, medical insurance, life insurance and
scholarship programs maintained by Seller to which Seller has contributed or is
or was obligated to contribute to or otherwise make payments to (hereinafter the
"Seller Employee Benefit Plans"), in each case with respect to any employees of
Seller who are employed in the Business as of fourteen (14) days prior to the
Closing Date (hereinafter "Employees"). All Employee Pension Plans maintained
by Seller, or to which Seller has contributed or is obligated to contribute, in
each case with respect to any Employees (hereinafter, the "Seller Employee
Pension Plans") are separately listed on Schedule 5.8(a). Schedule 5.8(a) also
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<PAGE>
clearly sets forth which of such plans are Multiemployer Plans, multiple
employer plans subject to Sections 4063 and 4064 of ERISA ("Multiple Employer
Plans"), plans other than Multiemployer Plans and Multiple Employer Plans that
are subject to Section 412 of the Code and "welfare benefit plans" within the
meaning of Section 3(1) of ERISA which provide for continuing benefits or
coverage for any participant or any beneficiary or dependent of a participant
after such participant's termination of employment except as required by Section
4980B of the Code and which is required to be paid 100% by the participant.
(b) True, correct and complete copies of the following documents,
with respect to each of the Seller Employee Benefit Plans and Seller Employee
Pension Plans, have been made available or delivered by Seller to Purchaser:
(A) any plans, insurance policies and service agreements and amendments thereto,
(B) the most recent Forms 5500 and any financial statements attached thereto,
(C) the last Internal Revenue Service determination letter, (D) summary plan
descriptions, and (E) the last actuarial reports, if any.
(c) Except as set forth on Schedule 5.8(c), there are no pending or,
to Seller's knowledge, threatened claims or lawsuits which have been asserted or
instituted against the Seller Employee Benefit Plans and/or the Seller Employee
Pension Plans, the assets of any of the trusts under such plans or the plan
sponsor or the plan administrator, or against any fiduciary of the Seller
Employee Benefit Plans and/or Seller Employee Pension Plans (other than routine
benefit claims) nor does Seller have knowledge of facts which could form the
basis for any such claim or lawsuit.
(d) [Intentionally Omitted]
(e) [Intentionally Omitted]
(f) [Intentionally Omitted]
(g) [Intentionally Omitted]
(h) Except as set forth in Schedule 5.8(h), neither the execution
and delivery of this Agreement nor the consummation of the transactions
contemplated hereby will (i) result in any payment becoming due to any employee
(current, former or retired) of the Seller, (ii) increase any benefits otherwise
payable under any Seller Employee Benefit Plan or Seller Employee Pension Plan
or (iii) result in the acceleration of the time of payment or vesting of any
such benefits.
(i) Neither Seller nor any Subsidiary of Seller has any contract or
commitment, to create any additional Seller Employee Benefit Plans or Seller
Employee Pension Plans or to modify any existing Seller Employee Benefit Plan or
Seller Employee Pension Plans to the detriment of any employee.
(j) [Intentionally Omitted]
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5.9 Litigation; Violation of Law. (a) There are no judicial,
----------------------------
arbitral or administrative actions, proceedings, investigations or audits
(including, but not limited to, any audits or investigations referred to in
Section 5.9(b) hereof) pending or, to Seller's knowledge, threatened that
question the validity of this Agreement or any action taken or to be taken by
Seller in connection with this Agreement or any of the Ancillary Agreements, or
which, if adversely determined, would have a Material Adverse Effect upon
Seller's ability to enter into or perform its obligations under this Agreement.
(b) Except as set forth on Schedule 5.9 or 5.13: (1) there are no
suits, actions, or legal, administrative, arbitration or other proceedings or
governmental investigations or audits with respect to the Business, including,
without limitation, any thereof related to any Government Contract or other
Contract to which Seller is a party or by which it is bound and which relates to
or involves the Business, pending or, to Seller's knowledge, threatened, (2)
there are no orders, injunctions or decrees outstanding against Seller related
to any Government Contract or other Contract involving the Business or pursuant
to which Seller is performing services or supplying goods, (3) there are no
internal, or to Seller's knowledge, outside investigations (other than routine
audits under Governmental Contracts) of Seller which relate to the Business
concerning any actual or potential liabilities which relate to Government
Contracts or other Contracts or with respect to which voluntary disclosure may
be necessary under the Defense Industry Initiatives, and (4) Seller has no
knowledge of any claim or claims, whether asserted or unasserted, or other
assertion of liability against Seller which relates to the Business and in each
case, (A) in which relief other than, or in addition to, money damages from
Seller is sought, or (B) in which recovery of money damages from Seller in an
amount (individually or in the aggregate for all such claims and assertions of
liability) in excess of $100,000 is sought.
(c) Except as set forth in Schedule 5.9 or 5.13, Seller has not
received any notice of violation of, and Seller is not in violation of, any
applicable federal, state, local or foreign law, statute, ordinance, order, rule
or regulation, or judgment entered by any federal, state, local or foreign court
or governmental authority, relating in each case to the operation, conduct or
ownership of the properties or businesses of the Business, including but not
limited to, the federal antitrust laws, federal procurement laws, the state
antitrust laws, the federal securities laws, the state securities laws (so
called "Blue Sky" and similar laws), and all other federal, state or local laws,
regulations or ordinances pertaining to the Business, except for any such
violations, which, individually or in the aggregate, would not have a Material
Adverse Effect on the Business.
(d) All Authorizations material to the current operations of the
Business are in full force and effect without any default thereunder by Seller
or, to the knowledge of Seller, by any other party thereto, and Seller has not
received any notice, written or oral, of any claim or charge that Seller is
currently in violation of or in default under any Authorization or
Authorizations necessary to any of the current operations of the Business.
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<PAGE>
5.10 Taxes. (a) Except as set forth in Schedule 5.10, Seller has
-----
timely filed all Tax Returns required to be filed and all such Tax Returns were
correct and complete in all material respects. Seller has timely paid all Taxes
that are due, or claimed by any taxing authority to be due, or has provided for
all such Taxes on its financial statements in accordance with GAAP.
(b) Except as set forth in Schedule 5.10, no assessment, audit or
other proceeding by any taxing authority, court, or other governmental or
regulatory authority has occurred or is pending, or to the knowledge of Seller,
threatened with respect to the Taxes or Tax Returns of Seller.
(c) Except as set forth in Schedule 5.10, none of the Assets is: (1)
"tax-exempt use property" within the meaning of Section 168(h)(1) of the Code,
(2) used predominantly outside the United States within the meaning of Proposed
Treasury Regulation Section 1.168-2(g)(5), (3) "Tax-exempt bond financed
property" within the meaning of Section 168(g)(5) of the Code, or (4) "limited
use property" as that term is used in Rev. Proc. 76-30. Following the Closing,
none of the Assets will be property that Purchaser or any of its Affiliates will
be required to treat as being owned by any other Person pursuant to the
provisions of Section 168(f)(8) of the 1954 Code.
(d) Seller is not a foreign person within the meaning of Section 1445
of the Code.
(e) With respect to Leased Assets placed in service on or before the
date hereof, each Lease Contract (excluding property sold on installment sales
contracts) will be treated as a lease for federal income tax purposes.
(f) Seller has complied with all applicable laws, rules and
regulations relating to the payment and withholding of Taxes and has duly and
timely withheld from employee salaries, wages and other compensation and has
paid over to the appropriate taxing authorities all amounts required to be so
withheld and paid over for all periods under all applicable laws.
5.11 Material Changes. Except as set forth in Schedule 5.11 or the
----------------
Interim Date Balance Sheet, whether or not in the ordinary course of business,
since July 31, 1996, there has not been, occurred or arisen: (1) any material
damage or destruction to properties or assets of Seller, whether covered by
insurance or not; (2) any increase in the compensation payable, or to become
payable, by Seller to any officer or employee employed in the Business whose
remuneration during 1996 exceeded the rate of $75,000 per year, or any material
increase in benefits or benefit plan costs or any material change in any bonus,
insurance, pension, compensation or other benefit plan made for or with or
covering any officer or employee of Seller employed in the Business; (3) any
material extraordinary or non-recurring loss (as defined in Opinion Number 30 of
the Accounting Principles Board of the American Institute of Certified Public
Accountants) suffered by Seller; or (4) any waiver by Seller of any material
rights of substantial value.
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5.12 Affiliate Agreements. Schedule 5.12(a) sets forth a list of all
--------------------
Contracts and invoices outstanding as of the date of this Agreement which relate
to (i) the provision of products or services to the Business by any other
division, unit, Subsidiary or Affiliate of Seller or (ii) the provision of
products or services by the Business to any other division, unit, Subsidiary or
Affiliate of Seller. Except as set forth on Schedule 5.12(b) and in Section
12.6, all such Contracts are terminable at will by Seller without penalty, are
assignable by Seller to Purchaser and, following the assignment thereof by
Seller to Purchaser pursuant hereto, will be terminable at will by Purchaser
without penalty.
5.13 Contracts with the United States Government. (a) Schedule
-------------------------------------------
5.13(a) contains a complete list of all open Government Contracts with respect
to the Business to which Seller is a party.
(b) Seller has complied in all material respects with all applicable
federal procurement laws and regulations including, without limitation, the
Truth in Negotiations Act, the Cost Principles and Cost Accounting Standards,
and the Federal Acquisition Regulation and all supplements thereto, in
connection with such Government Contracts, and Seller is not aware of any
allegation by any Person that Seller has not so complied.
(c) All of the Government Contracts relating to or involving the
Business have been legally awarded and are binding on the parties thereto and
Seller is in compliance in all material respects with all terms and conditions
in such Government Contracts, including all terms and conditions incorporated
expressly by reference or by operation of law therein.
(d) To Seller's knowledge, except as set forth on Schedule 5.13(d),
Seller has not received any notice, written or oral, of performance or
administrative deficiencies relating to or involving any of such Government
Contracts.
(e) The pricing, cost accounting, estimating, material management and
accounting, property and resource planning and procurement systems relating to
the Business have been properly disclosed to and, to the extent required by
applicable regulations, approved by the United States government and such
disclosures are in material compliance with applicable federal procurement laws
and regulations, including the Cost Principles and Cost Accounting Standards.
(f) To the Seller's knowledge, no officer, director, employee, agent,
or representative of Seller has made with respect to the Business (1) any
illegal political contributions, (2) material payments from corporate funds not
recorded on the books and records of Seller, (3) payments from corporate funds
that were falsely recorded on the books and records of Seller, (4) any payments
from corporate funds, promises to pay, or authorization of payment, or offer,
gift or promise to give, to any government officials or any foreign political
party, official thereof or candidate for foreign political office, or to any
person while knowing that all or a portion of such funds will be offered
directly or indirectly to any foreign official or any foreign political party,
party official, or candidate for foreign political office for the purpose of
influencing the action of such official, party official, or candidate for
foreign
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<PAGE>
political office or the action of the government, or foreign political party, in
order to obtain, retain or direct business to or obtain, retain or direct
licenses or other special treatment for the Business.
(g) Except as set forth in Schedule 5.13(g), neither Seller, any of
Seller's Affiliates nor, to Seller's knowledge, any of their respective
directors, officers or employees has been debarred or suspended from
participation in the award of Government Contracts or subcontracts or from
otherwise conducting business with the United States government or any agency
thereof, nor are there any facts or circumstances which may form the basis of a
debarment or suspension proceeding, in any such case, relating to or involving
the Business.
(h) Except as set forth in Schedule 5.13(h), Seller has not received
any notice of any "stop orders", "cure notice", "show cause notice" or any
"terminations for convenience or default" of any of the Government Contracts
relating to or involving the Business.
(i) Seller holds such security clearances as are required to perform
its respective Government Contracts or subcontracts. To Seller's knowledge,
there are no facts or circumstances that could result in the suspension or
termination of such clearances, or that could render Seller ineligible for such
security clearances in the future. All security measures required by the
Department of Defense Industrial Security Manual have been implemented.
(j) [Intentionally Omitted]
(k) Except as set forth on Schedule 5.13(k), there is no cost type
Government Contract relating to or involving the Business with a ceiling, cap or
share ratio, which is or is likely to be exceeded.
5.14 Export Control and Related Matters. (a) In connection with the
----------------------------------
Business, Seller is in substantial compliance with all United States and foreign
Export Control Laws.
(b) Except as set forth on Schedule 5.14(b), Seller has all necessary
authority under the Export Control Laws to conduct operations relating to the
Business including, but not limited to, (1) all necessary licenses for any
pending export transactions, (2) all necessary licenses and clearances for the
disclosure of information to foreign persons and (3) all necessary registrations
with government agencies with authority to implement the Export Control Laws.
(c) Seller has not participated directly or indirectly in any
boycotts or other similar practices in violation of the regulations of the
United States Department of Commerce or Section 999 of the Code.
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5.15 Subsidiaries; Cooperative Business Agreements. (a) There are
---------------------------------------------
no Subsidiaries of Seller that are engaged, in whole or in part, in the Business
or that own or lease any of the Assets.
(b) Schedule 5.15(b) contains a complete and correct list of all of
the teaming arrangements, advance agreements, associate contractor agreements,
MOUs and MOAs to which Seller is a party and which relate to or involve the
Business.
5.16 Personal Property. Except for property furnished by the
-----------------
government or prime contractors, Seller owns or leases, and the Assets
constitute, sufficient tangible personal Property to conduct the business and
operations of the Business in all material respects as presently conducted.
Schedule 5.16(a) contains a complete and correct list of all tangible personal
Property that constitute Assets used by the Seller in the operation of the
Business in the ordinary course. Schedule 5.16(b) separately identifies all
Third Party Assets, including, without limitation, tooling and test equipment,
necessary to perform the obligations under or for which Purchaser could be held
accountable under the Government Contracts transferred to Purchaser pursuant to
this Agreement, and such Third Party Assets are maintained by Seller in
accordance with a government approved property management system. Schedule
5.16(c) separately identifies all Third Party Assets, including, without
limitation, tooling and test equipment, necessary to carry on the Business, not
accountable under the Government Contracts and included in the Assets. Except
as set forth on Schedule 5.16(d), Seller now has, and on the Closing Date will
have, good and valid title to all such tangible personal Property owned by it as
of the date of this Agreement, free and clear of all liens, security interests,
mortgages, claims, levies, charges, pledges, hypothecations, conditional sale or
retention contracts and encumbrances of any nature whatsoever (collectively,
"Liens"), except for Liens of the type referred to in Section 5.19(a) hereof.
Except as set forth on Schedule 5.16(e), upon consummation of the transactions
contemplated by this Agreement, Purchaser will be entitled to continue to use
all tangible personal Property owned or used by Seller in the Business on the
date hereof.
5.17 Environmental Matters. (a) Except as disclosed in Schedule
---------------------
5.17:
(1) the Facilities and the operations of the Business are in
compliance in all material respects with all Environmental Laws;
(2) (a) Seller has obtained all Environmental Permits necessary for
the operations of the Business, all such Environmental Permits are in good
standing, and Seller is in material compliance with all terms and conditions of
such Environmental Permits; (b) there are no judicial or administrative
proceedings pending nor, to the knowledge of Seller, threatened to revoke,
cancel, suspend or adversely modify any such Environmental Permits; and (c) no
notice to or approval by a governmental authority is required under or pursuant
to any such Environmental Permits as a result of the transaction contemplated
hereunder;
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(3) none of the Facilities or the operations of the Business is
subject to any Environmental Claim nor, to the knowledge of Seller, has any such
Environmental Claim been threatened;
(4) to the knowledge of Seller, none of the Facilities or the
operations of the Business is the subject of any federal, state or local
investigation evaluating whether any of the Facilities or the Business is not in
compliance with Environmental Laws or whether any Remedial Action is needed to
respond to a Release of any Contaminant nor, to the knowledge of the Seller, is
any such investigation threatened;
(5) [Intentionally Omitted]
(6) to the knowledge of Seller, Seller is not subject to any
Environmental Costs and Liability with respect to any Contaminant and no facts
or circumstances exist which could give rise to Environmental Costs and
Liabilities in each case related to the Business in excess of $500,000;
(7) to the knowledge of Seller, there is not currently, nor has there
been in the past, on, under, in or about any of the Facilities (a) any above
ground storage tanks which are owned or operated by Seller; (b) underground
storage tanks; (c) surface impoundments or dikes; (d) any asbestos-containing
materials or presumed asbestos-containing materials; (e) and polychlorinated
biphynels; or (f) radioactive substances;
(8) To the knowledge of Seller, Seller has not received any notices
of any violation or alleged violation of, or any liability under or pursuant to
any Environmental Law relating to the operations of the Business or the
Facilities and there are no outstanding or, to the knowledge of Seller,
threatened writs, injunctions, Environmental Liens, judgments, decrees,
administrative orders or settlement agreements arising under or pursuant to
Environmental Laws against Seller or the Facilities and there are no outstanding
compliance schedules or requirements under any of the Environmental Permits;
(9) To the knowledge of Seller, neither the Facilities nor any real
property formerly owned, operated or leased by or for the Business is listed or
has been proposed for listing on the National Priorities List ("NPL"), the
Comprehensive Environmental Response Compensation and Liability and Information
System ("CERCLIS") or any analogous list identifying possibly contaminated sites
and neither Seller nor any predecessor of Seller has been named as a
"potentially responsible party" with respect to or received any request for
information or demand from any party concerning, its potential involvement in or
at any site listed or proposed for listing on the NPL, the CERCLIS or analogous
state list or for which a condition exists which may give rise to Remedial
Action under any applicable Environmental Laws, in each such case, which relates
to or involves the Business;
(b) [Intentionally Omitted]
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(c) Except as disclosed in Schedule 5.17, to the knowledge of Seller,
Seller has provided Purchaser with copies of or made available all environmental
reports, investigations, studies, audits, assessments, tests, reviews or other
environmental analyses relating to the Business, the Facilities or any real
property owned, operated or leased by or for the Business that are in the
possession, custody or control of Seller or its subsidiaries relating to a
potential liability in excess of $500,000.
5.18 [Intentionally Omitted]
5.19 Real Property. (a) Schedule 2.1(a) sets forth a complete list
-------------
of all real property and interests in real property owned in fee by Seller and
used in, held for use by or related to the Business (individually, an "Owned
Property"), including the address and description of the improvements thereon,
and sets forth a complete list of all real property and interests in real
property leased by Seller, as lessee and used in, held for use by or related to
the Business (individually, a "Leased Property"), including the names of the
lessee and lessor and a description of the premises and the lease (collectively,
the "Leases"); and Schedule 5.19 sets forth a complete list of all Persons (the
"Occupants") that occupy any portion of the Owned Property or Leased Property
pursuant to an agreement with Seller, including the names of the parties thereto
and a description of the premises and the agreement. True, complete and correct
copies of the Leases (together with any recorded memoranda or short-form leases)
as the same have been amended, modified, supplemented or assigned have been
delivered or made available to Seller. Seller has provided to the extent
available all title insurance policies, title reports, surveys and instruments
or documents affecting title with respect to the Owned Property and Leased
Property in the possession of Seller or an Affiliate of Seller. Except as set
forth on Schedule 5.19, Seller or an Affiliate of Seller owns and has (1)
marketable and insurable fee simple title to all Owned Properties and (2) valid
leasehold estates in all Leased Properties (Owned Property and Leased Property
are sometimes referred to individually as a "Seller Property" and collectively
as "Seller Properties"), in each case free and clear of all Liens and
encumbrances of any nature except (A) as set forth on Schedule 5.19, such minor
covenants, restrictions, easements and encroachments, if any, not listed on
Schedule 5.19, as do not materially interfere with such property's present, or
to the extent known to Seller, proposed use or the business operations thereon
(the Liens and encumbrances described in the foregoing clauses (A) and (B) are
collectively hereinafter referred to as "Permitted Encumbrances"). Seller is in
peaceful, exclusive and undisturbed possession of the Seller Properties, with
the exception only of the Occupants.
(b) Neither Seller nor, to Seller's knowledge, any other party is in
default under any of the Leases, and to Seller's knowledge no event has occurred
which, with notice, lapse of time or both, would constitute a default
thereunder. No previous or current party to any such Lease has furnished notice
to Seller of or made a claim against Seller with respect to any breach or
default thereunder.
(c) With respect to those Leases that were transferred to Seller or
any of Seller's Affiliates by a third party, to Seller's knowledge all necessary
consents to such
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transfers have been obtained and are in full force and effect and neither Seller
nor any Affiliate of Seller has received any notice that any such third party's
acts or omissions has given rise to any breach of the underlying lease or
sublease to which it is a party.
(d) Except to the extent otherwise disclosed by Seller elsewhere in
this Agreement, to the knowledge of Seller, each Owned Property and each Leased
Property complies in all material respects with all applicable Laws, including
without limitation, zoning and subdivision, and no notice of violation of Law
has been received by Seller or any Affiliate of Seller or, to the knowledge of
Seller, has been issued by any public or governmental authority with respect to
any Seller Property, which noncompliance or violation, if not remedied, would
prevent, hinder or impair the ability of Purchaser to use such Seller Property
consistent with its present use.
(e) [Intentionally Omitted]
(f) To the knowledge of Seller, all utility systems required in
connection with use, occupancy and operation of each Seller Property are
sufficient for their present purposes and are fully operational and in working
order.
(g) Except as set forth on Schedule 5.19(g), other than options,
rights of first refusal or other similar arrangements in favor of the Seller or
any Affiliate of Seller under the Leases which have not been exercised as of the
date hereof, neither Seller nor any Affiliate of Seller has entered into any
contract, arrangement or understanding with respect to the future ownership,
development, use, occupancy or operation of any of the Facilities.
(h) To the knowledge of Seller, no termination rights have been
exercised or threatened by any party with respect to the Leases.
(i) To Seller's knowledge, there is no material default or violation
of an Authorization necessary for the current and continued operation or use of
Seller's Property. Seller has not received any notice from any governmental
entity to the effect that there is lacking any Authorization required in
connection with the current or continued use or operation of any Owned Property.
(j) There does not exist any actual or, to the knowledge of Seller,
threatened condemnation or eminent domain proceedings that affect any Owned
Property or any part thereof, and none of Seller or its Affiliates has received
any written notice of the intention of any governmental entity or other Person
to take or use all or any part thereof.
(k) Except as set forth in Schedule 5.19(k), to the knowledge of
Seller there is no actual or pending imposition of any assessments for public
improvements with respect to any Seller Property, except for customary annual
assessments under state and local law.
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(l) Except as set forth on Schedule 5.19(l), no labor has been
performed or material furnished for any portion of any Owned Property for which
any Lien, having a value in excess of $50,000 in the aggregate can be claimed,
except as covered by insurance.
(m) [Intentionally Omitted]
(n) Seller has not received any written notice from any insurance
company that has issued a policy to Seller with respect to any Seller Property
requiring performance of any structural or other repairs or alterations to such
Seller Property.
(o) The transactions contemplated hereby will not constitute a
default under, or result in any change in the material terms of any Lease,
provided that consent to the assignment thereof to Purchaser, if required by
such Lease, is obtained prior to the Closing. For purposes of this Section
5.19(o), rent, other monetary obligations or term shall constitute "material
terms of any Lease."
5.20 Intellectual Property. (a) Unless otherwise indicated in
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Schedule 5.20, the Purchased Intellectual Property constitutes all of the
Intellectual Property owned by or licensed to Seller relating to, used in, or
necessary to the operation of the Business.
(b) Unless otherwise indicated in Schedule 5.20, Seller owns the
entire right, title and interest in and to the Purchased Intellectual Property
(including, without limitation, the right to use and license the same) free and
clear of all liens and encumbrances.
(c) Schedule 5.20 sets forth complete and correct lists of:
(1) all patents, trademark registrations, copyright registrations,
mask work registrations and applications for any of them which are part of
the Purchased Intellectual Property (the "Registered Intellectual
Property");
(2) all Contracts ("Intellectual Property Licenses") between Seller
and any other Person (other than licenses for off-the-shelf Software
purchased by Seller in the ordinary course) granting Seller a license in,
or rights with respect to, the Intellectual Property of any Person
("Licensed Intellectual Property") relating to the Business;
(3) all Intellectual Property, including without limitation, Software
(other than off-the-shelf Software purchased by Seller in the ordinary
course), owned by any Person (other than Seller) that is used in, or is
necessary to the operation of, the Business.
(4) all Contracts between Seller and any other Person pursuant to
which Seller grants a license to, or rights with respect to, the Purchased
Intellectual Property to any Person; and
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(5) all Intellectual Property which is the subject of the obligations
of Seller described in Section 3.1(c) hereof.
(d) Neither this Agreement, nor the consummation of the transactions
contemplated hereby, will (i) result in the termination, suspension, breach, or
violation of any Contract between Seller and any Person relating to Intellectual
Property; or (ii) will result in the termination, suspension, breach, or
violation of Intellectual Property Licenses. Except as set forth on Schedule
5.20, all of Seller's rights under the Intellectual Property Licenses are
transferable to Purchaser in connection with the transactions contemplated by
this Agreement and Purchaser will be entitled to continue to use all of the
Licensed Intellectual Property to the same extent and under the same conditions
that it has heretofore been used in the Business, without financial obligations
to any other Person.
(e) The Purchased Intellectual Property together with the Licensed
Intellectual Property constitutes all of the Intellectual Property used in, or
necessary to, the operation of the Business.
(f) To Seller's knowledge, the operation of the Business by Seller
does not infringe or violate the Intellectual Property rights of any Person.
(g) Schedule 5.20 sets forth a list of all notices or claims received
by and suits or proceedings pending against Seller or, to Seller's knowledge,
received by or pending against any customer of Seller, which notices, claims,
suits or proceedings assert infringement of any Intellectual Property of any
Person as a result of the operation of the Business or activities of any such
customer with regard to any product or service supplied by the Business and
Seller has no knowledge of any basis for any additional claims, suits or
proceedings against it or any customer for any such infringement.
(h) To Seller's knowledge, (i) no person is infringing,
misappropriating or otherwise violating any right of Seller in the Purchased
Intellectual Property and (ii) there are no interferences, pending or
threatened, involving any of the Patents that constitute "Assets," and Seller
knows of no basis for any such interference.
(i) All of the material Registered Intellectual Property is valid and
subsisting and all actions (including, without limitation, the payment of
renewal and maintenance fees) necessary to maintain or renew, as the case may
be, the registrations and applications to register such Registered Intellectual
Property have been taken.
(j) To Seller's knowledge, there exist no notices, claims, suits or
proceedings made or brought by Seller pending against any third party asserting
infringement or misappropriation of any of the Purchased Intellectual Property.
(k) No Purchased Intellectual Property is owned or controlled by any
officer, director or employee of Seller or any of its Affiliates.
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5.21 Employees and Employee Relations. (a) Seller has provided
--------------------------------
Purchaser with access to a list of all Employees and the salary for each.
(b) Except as set forth on Section 5.21(b), there is no strike, work
stoppage, slowdown, picketing or lockout pending or, to Seller's knowledge,
threatened against or involving Employees or Seller with respect to the
Business. Except as set forth on Schedule 5.21(b), there has been no such
strike, work stoppage, slowdown, picketing or lockout at any time in respect of
the Business in the past five years.
(c) There is no pending or, to Seller's knowledge, threatened strike,
work stoppage, slowdown, picketing or lockout with respect to the employees of
any of the suppliers or customers of the Business that could reasonably be
expected to have a Material Adverse Effect on the Business.
(d) Seller is not a party to, nor has any obligations under, any
collective bargaining agreement involving any Employees, except as set forth on
Schedule 5.21(d).
(e) To Seller's knowledge, there is no organizing activity involving
any Employees pending or threatened by any labor union or group of employees.
There are no representation proceedings pending or threatened with the National
Labor Relations Board, and no labor organization or group of Employees has made
a pending demand for recognition.
(f) Except as set forth on Schedule 5.21(f), there are no unfair
labor practice charges, or complaints pending or, to Seller's knowledge,
threatened by or on behalf of any employee or group of Employees.
(g) Except as set forth on Schedule 5.21(g), there are no complaints
or charges pending or, to Seller's knowledge, threatened to be filed with any
federal, state or local court, governmental agency or arbitrator based on,
arising out of, in connection with, or otherwise relating to employment,
termination of employment or retirement from employment with Seller in respect
of the Business.
(h) Except as set forth on Schedule 5.21(h), to Seller's knowledge,
Seller is in compliance with all Laws, and all orders of any court, governmental
agency or arbitrator, relating to employment, including all such Laws relating
to wages, hours, collective bargaining, discrimination, civil rights,
affirmative action and the payment of withholding and/or Social Security and
similar taxes, except where such non-compliance could not reasonably be expected
to have a Material Adverse Effect.
5.22 Product Warranty. Except as set forth on Schedule 5.22, no
----------------
products heretofore sold by Seller are now subject to any guarantee or warranty
other than Seller's standard terms and conditions of sale, a copy of which has
been furnished to Purchaser. To Seller's knowledge, Seller has committed no
act, and there has been no omission, which would result in, and there has been
no occurrence which would give rise to, any material
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product liability or liability for breach of warranty (whether covered by
insurance or not) on the part of Seller, with respect to products sold or
services rendered prior to the Closing in the operation of the Business.
5.23 Backlog. Schedule 5.23 sets forth, with respect to each Backlog
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Contract, the backlog of Seller. With respect to each such Contract, Seller has
disclosed in writing or otherwise made available to Purchaser the name of each
customer (where permitted) and the dollar amount of backlog.
5.24 Insurance. Schedule 5.24 contains an accurate and complete list
---------
of all policies of insurance owned by Seller under which Seller, in respect of
the Business, or any properties or assets of Seller which are used in the
Business, is insured. To Seller's knowledge, all such policies (i) are in full
force and effect and (ii) are sufficient for compliance by Seller with all
applicable requirements of Law and all agreements to which Seller is a party or
subject, in each case with respect to the Business.
5.25 Brokers' and Finders' Fees. Except for Merrill Lynch & Co. and
--------------------------
Lehman Bros., whose fees will be paid by Seller, no Person acting on behalf of
Seller or any of its Affiliates or under the authority of any of the foregoing
is or will be entitled to any brokers' or finders' fee or any other commission
or similar fee, directly or indirectly, from any of the parties hereto in
connection with any of the transactions contemplated hereby.
5.26 [Intentionally Omitted]
5.27 Knowledge. Whenever the representations and warranties set
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forth in this Article V are qualified by or use the phrase "to the knowledge of
Seller" or words of l