EXHIBIT 2.1
Agreement and Plan of Merger dated as of January 7, 1996 among the Registrant,
LAC Acquisition Corporation and Loral Corporation.
CONFORMED COPY
AGREEMENT AND PLAN OF MERGER
DATED AS OF JANUARY 7, 1996
BY AND AMONG
LORAL CORPORATION,
LOCKHEED MARTIN CORPORATION
AND
LAC ACQUISITION CORPORATION
ARTICLE I
THE OFFER
Section 1.1. The Offer.................................................. 9
Section 1.2. Company Actions............................................ 10
Section 1.3. Stockholder Lists.......................................... 10
Section 1.4. Composition of the Board of Directors; Section 14(f)....... 10
ARTICLE II
THE MERGER
Section 2.1. The Merger................................................. 10
Section 2.2. Effective Time............................................. 11
Section 2.3. Effects of the Merger...................................... 11
Section 2.4. Certificate of Incorporation and By-Laws................... 11
Section 2.5. Directors.................................................. 11
Section 2.6. Officers................................................... 11
Section 2.7. Conversion of Shares....................................... 11
Section 2.8. Reserved................................................... 11
Section 2.9. Conversion of Purchaser's Common Stock..................... 11
Section 2.10. Stock Options and Stock Awards............................. 11
Section 2.11. Stockholders' Meeting...................................... 12
Section 2.12. Filing of Certificate of Merger............................ 13
ARTICLE III
DISSENTING SHARES; EXCHANGE OF SHARES
Section 3.1. Dissenting Shares.......................................... 13
Section 3.2. Exchange of Shares......................................... 13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 4.1. Organization............................................... 14
Section 4.2. Capitalization............................................. 14
Section 4.3. Authority Relative to this Agreement....................... 15
Section 4.4. Consents and Approvals; No Violations...................... 15
Section 4.5. Absence of Certain Changes................................. 16
Section 4.6. No Undisclosed Liabilities................................. 16
Section 4.7. Reports.................................................... 16
Schedule 14D-9; Offer Documents; Form 10; Information
Section 4.8. Statement.................................................. 17
Section 4.9. No Default................................................. 17
Section 4.10. Litigation; Compliance with Law............................ 18
Section 4.11. Employee Benefit Plans; ERISA.............................. 18
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Section 4.12. Assets; Intellectual Property............................... 19
Section 4.13. Reserved.................................................... 19
Section 4.14. Reserved.................................................... 19
Section 4.15. Certain Contracts and Arrangements.......................... 19
Section 4.16. Taxes....................................................... 19
Section 4.17. Retained Business FCC Licenses.............................. 21
Section 4.18. Labor Matter................................................ 21
Section 4.19. Rights Agreement............................................ 21
Section 4.20. Certain Fees................................................ 21
Section 4.21. No Additional Approvals Necessary........................... 21
Section 4.22. Materiality................................................. 21
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Section 5.1. Organization................................................ 21
Section 5.2. Authority Relative to this Agreement........................ 22
Section 5.3. Consents and Approvals; No Violations....................... 22
Section 5.4. Information Statement; Schedule 14D-9....................... 22
Section 5.5. Sufficient Funds............................................ 23
Section 5.6. Brokers..................................................... 23
ARTICLE VI
COVENANTS
Section 6.1. Conduct of Business of the Company.......................... 23
Section 6.2. Acquisition Proposals....................................... 25
Section 6.3. Access to Information....................................... 26
Section 6.4. Reasonable Efforts.......................................... 26
Section 6.5. Consents.................................................... 27
Section 6.6. Antitrust Filings........................................... 27
Section 6.7. Public Announcements........................................ 28
Section 6.8. Employee Agreements......................................... 28
Section 6.9. Employee Benefits........................................... 30
Section 6.10. Ancillary Agreements; Spin-Off.............................. 30
Section 6.11. Retained Business Financial Statements...................... 31
Section 6.12. Redemption of Rights........................................ 31
Section 6.13. Pre-Closing Consultation.................................... 31
Section 6.14. Indemnification............................................. 31
Section 6.15 Board of Directors of Parent................................ 32
Section 6.16 Standstill Provisions....................................... 32
Section 6.17 Effectiveness of Rights Agreement........................... 32
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ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
Conditions to Each Party's Obligation to Effect the
Section 7.1. Merger.................................................... 33
Conditions to the Obligation of the Company to Effect the
Section 7.2. Merger.................................................... 33
Conditions to Obligations of Parent and Purchaser to
Section 7.3. Effect the Merger......................................... 33
Section 7.4. Exception................................................. 34
ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
Section 8.1. Termination............................................... 34
Section 8.2 Effect of Termination..................................... 35
Section 8.3 Fees and Expenses......................................... 35
Section 8.4. Amendment................................................. 36
Section 8.5. Extension; Waiver......................................... 37
ARTICLE IX
MISCELLANEOUS
Section 9.1. Survival.................................................. 37
Section 9.2. Entire Agreement.......................................... 37
Section 9.3. Governing Law............................................. 37
Section 9.4. Notices................................................... 37
Section 9.5. Successors and Assigns; No Third Party Beneficiaries...... 38
Section 9.6. Counterparts.............................................. 38
Section 9.7. Interpretation............................................ 38
Section 9.8. Schedules................................................. 39
Section 9.9. Legal Enforceability...................................... 39
Section 9.10. Specific Performance...................................... 39
Section 9.11. Brokerage Fees and Commissions............................ 39
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EXHIBITS
Exhibit A................................................. Tax Sharing Agreement
Exhibit B................................................... Conditions to Offer
Exhibit C............................... Form of Employment Protection Agreement
Exhibit D............................................ Employment Protection Plan
Exhibit E........................................ Supplemental Severance Program
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TABLE OF DEFINED TERMS
TERM SECTION NO.
- ---- -----------------
1987 Plan....................................................... 2.10(b)
Active Negotiations............................................. 8.3(e)
Acquisition Proposal............................................ 6.2(b)
Ancillary Agreements............................................ Recitals
Antitrust Law................................................... 6.6(e)
Asset................................................... Distribution Agreement
Audit........................................................... 4.16(j)(1)
Business Day............................................ Distribution Agreement
Certificates.................................................... 3.2(b)
Code............................................................ 4.11(a)
Commission...................................................... 4.4
Company......................................................... Recitals
Company Bonus Employee.......................................... 6.8(c)
Company Representative.......................................... 6.13
Company SEC Documents........................................... 4.7(a)
Confidentiality Agreement....................................... 6.2(a)
Continuing Director............................................. 8.4
Contracting Subsidiary.......................................... 4.3
Credit Agreement................................................ 4.9
Defense Financial Statements.................................... 4.7(c)
Designated Directors............................................ 8.4
Disclosure Schedule............................................. 4.2(a)
Dissenting Shares............................................... 3.1
Distribution Agreement.......................................... Recitals
Distribution Date....................................... Distribution Agreement
EC Merger Regulations........................................... 4.4
Effective Time.................................................. 2.2
Employment Agreements........................................... 6.8(a)
Employment Protection Arrangement............................... 6.8(e)
ERISA........................................................... 4.11(a)
ERISA Affiliate................................................. 4.11(a)
Exchange Act.................................................... 4.4
Exchange Agent.................................................. 3.2(a)
Form 10-K....................................................... 4.5
Higher Offer.................................................... 8.3(b)
HSR Act......................................................... 4.4
IB.............................................................. 8.3(b)(v)
Important Licenses.............................................. 4.17
Information Statement........................................... 2.11(b)
Intellectual Property........................................... 4.12(b)
IRS............................................................. 4.11(a)
LAH............................................................. Recitals
Law..................................................... Distribution Agreement
Liabilities............................................. Distribution Agreement
Lien.................................................... Distribution Agreement
Material Adverse Effect......................................... 4.1, 5.1
Merger.......................................................... 2.1
Merger Price.................................................... 2.7(a)
NYBCL........................................................... 1.2
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TERM SECTION NO.
- ---- ---------------------
Offer....................................................... 1.1(a)
Offer Documents............................................. 1.1(d)
Order....................................................... 6.6(b)
Ordinary Course Obligations................................. 6.1
Parent...................................................... Recitals
Parent Representative....................................... 6.13
PBGC........................................................ 4.11(b)
Person.......................................... Distribution Agreement, 8.3(b)
Plans....................................................... 4.11(a)
Preferred Stock............................................. 4.2(a)
Public Indenture Merger Opinions............................ 7.3(b)
Public Indentures........................................... 4.9
Purchaser................................................... Recitals
Recent SEC Documents........................................ 4.10(b)
Record Date............................................. Distribution Agreement
Retained Business........................................... 4.1
Retained Business Financial Statements...................... 6.11
Retained Employees...................................... Distribution Agreement
Retained Subsidiaries....................................... 4.1
Rights Agreement............................................ 4.19
Rights Amendment............................................ 4.19
Schedule 14D-9.............................................. 1.2
SEC......................................................... 1.1(d)
Securities Act.............................................. 4.4
Severance Agreements........................................ 6.8(a)
Shares...................................................... 1.1(a)
Significant Adverse Effect.................................. 6.6(b)
Spin-Off.................................................... Recitals
Spinco...................................................... Recitals
Spinco Bonus Employee....................................... 6.8(c)
Spinco Business......................................... Distribution Agreement
Spinco Common Stock..................................... Distribution Agreement
Spinco Companies........................................ Distribution Agreement
Standstill Provisions....................................... 6.2(a)
Stock Options............................................... 2.10(a)
Stockholders' Meeting....................................... 2.11(a)
Subsidiaries............................................ Distribution Agreement
Supplemental Severance Plan................................. 6.9(a)
Surviving Corporation....................................... 2.1
Taxes....................................................... 4.16(j)(2)
Tax Returns................................................. 4.16(j)(3)
Tax Sharing Agreement....................................... Recitals
Third Party................................................. 8.3(b)
Third Party Acquisition..................................... 8.3(b)
Transaction Bonus........................................... 6.8(d)
Transaction Bonus Employee.................................. 6.8(d)
Vesting Date................................................ 2.10(a)
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of January 7, 1996, is among
LOCKHEED MARTIN CORPORATION, a Maryland corporation ("PARENT"), LAC
ACQUISITION CORPORATION, a New York corporation and a wholly-owned subsidiary
of Parent ("PURCHASER"), and LORAL CORPORATION, a New York corporation (the
"COMPANY").
RECITALS
WHEREAS, the Boards of Directors of the Company, Parent and Purchaser deem
it advisable and in the best interests of their respective stockholders that
Parent acquire the Company (other than certain businesses thereof) pursuant to
the terms and conditions set forth in this Agreement;
WHEREAS, as provided in the Restructuring, Financing and Distribution
Agreement dated as of the date hereof herewith among Parent, the Company,
Loral Telecommunications Acquisition, Inc. (to be renamed Loral Space &
Communications Corporation), a Delaware corporation and wholly-owned
subsidiary of the Company (including any successor in interest, "SPINCO"),
Loral Aerospace Holdings, Inc., a Delaware corporation and wholly-owned
subsidiary of the Company ("LAH"), and Loral Aerospace Corp., a Delaware
corporation and wholly-owned subsidiary of LAH (the "DISTRIBUTION AGREEMENT"),
prior to the expiration of the Offer (as defined in Section 1.1 hereof) the
Company will cause Spinco to be restructured so that as a result thereof the
Company's direct and indirect interests in Space Systems/Loral, Inc., a
Delaware corporation, Globalstar L.P., a Delaware limited partnership, K&F
Industries, Inc., a Delaware corporation, all rights to receive management and
certain (but not all) guarantee fees therefrom, several commercial satellite
and telecommunications projects in progress (including related FCC (as defined
in Section 6.5 hereof) applications), a certain portion of the Company's
leased corporate headquarters office space, the Company's corporate aircraft,
certain rights and liabilities with respect to certain litigation in which the
Company has an interest, the nonexclusive right to use certain intellectual
property of the Company, the exclusive right, subject to a limited license
granted to the Company, to the "Loral" name and such other rights and assets
as shall be deemed Spinco Assets (as defined in the Distribution Agreement),
will be owned directly or indirectly by Spinco and substantially all of the
Company's other assets, liabilities and businesses will be owned directly by
the Company or by Subsidiaries (as defined in the Distribution Agreement) of
the Company other than Spinco and Subsidiaries of Spinco; and
WHEREAS, as provided in the Distribution Agreement, the Company will make a
distribution to the Company's stockholders and to holders of Stock Options (as
defined in Section 2.10 hereof) as of the Record Date (as defined in the
Distribution Agreement), on a pro rata basis, of 100% of the shares of common
stock, par value $.01 per share, of Spinco issued and outstanding immediately
prior to such distribution (the "SPIN-OFF"); and
WHEREAS, as set forth in Section 6.10 hereof, as a condition to and in
consideration of the transactions contemplated hereby, following the date
hereof (a) the Company, Spinco and certain other parties will enter into a Tax
Sharing Agreement substantially in the form attached hereto as Exhibit A with
such changes as shall have been approved prior to the consummation of the
Offer by the Company and Parent (or, following the consummation of the Offer,
by a majority of the Continuing Directors (as defined in Section 8.4 hereof),
if any, and Parent) (the "TAX SHARING AGREEMENT" and, together with the
Distribution Agreement, hereafter are collectively referred to as the
"ANCILLARY AGREEMENTS");
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, and intending to be
legally bound hereby, Parent, Purchaser and the Company hereby agree as
follows:
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ARTICLE I
THE OFFER
SECTION 1.1. THE OFFER.
(a) Subject to this Agreement not having been terminated in accordance with
the provisions of Section 8.1 hereof, Purchaser shall, and Parent shall cause
Purchaser to, as promptly as practicable, but in no event later than five
Business Days (as defined in the Distribution Agreement) from the date of the
public announcement of the terms of this Agreement, commence an offer to
purchase for cash (as it may be amended in accordance with the terms of this
Agreement, the "OFFER") all of the Company's outstanding shares of common
stock, par value $.25 per share, together with all preferred stock purchase
rights associated therewith (the "SHARES"), subject to the conditions set
forth in Exhibit B attached hereto, at a price of not less than $38.00 per
Share, net to the seller in cash. Subject only to the conditions set forth in
Exhibit B hereto and the express provisions of the Distribution Agreement, the
Purchaser shall, and Parent shall cause Purchaser to, (i) accept for payment
and pay for all Shares tendered pursuant to the terms of the Offer as promptly
as practicable following the expiration date of the Offer, and (ii) extend the
period of time the Offer is open until the first Business Day following the
date on which the conditions set forth in clause (i)(A) and clause (i)(B) of
Exhibit B hereto are satisfied or waived in accordance with the provisions
thereof; provided, that the Purchaser shall be permitted, but shall not be
obligated, to extend the period of time the Offer is open beyond June 30,
1996. Subject to the preceding sentence of this Section 1.1, neither Purchaser
nor Parent will extend the expiration date of the Offer beyond the twentieth
Business Day following commencement thereof unless one or more of the
conditions set forth in Exhibit B hereto shall not be satisfied or unless
Parent reasonably determines that such extension is necessary to comply with
any legal or regulatory requirements relating to the Offer or the Spin-Off.
Purchaser expressly reserves the right to amend the terms or conditions of the
Offer; provided, that without the consent of the Company, no amendment may be
made which (i) decreases the price per Share or changes the form of
consideration payable in the Offer, (ii) decreases the number of Shares
sought, or (iii) imposes additional conditions to the Offer or amends any
other term of the Offer in any manner materially adverse to the holders of
Shares. Upon the terms and subject to the conditions of the Offer, the
Purchaser will accept for payment and purchase, as soon as permitted under the
terms of the Offer, all Shares validly tendered and not withdrawn prior to the
expiration of the Offer.
(b) Parent will not, nor will it permit any of its affiliates to, tender
into the Offer any Shares beneficially owned by it; provided, that Shares held
beneficially or of record by any plan, program or arrangement sponsored or
maintained for the benefit of employees of Parent or any of its Subsidiaries
shall not be deemed to be held by Parent or an affiliate thereof regardless of
whether Parent has, directly or indirectly, the power to vote or control the
disposition of such Shares. The Company will not, nor will it permit any of
its Subsidiaries (other than Retained Subsidiaries (as defined in Section 4.1
hereof)) to, tender into the Offer any Shares beneficially owned by it;
provided, that Shares held beneficially or of record by any plan, program or
arrangement sponsored or maintained for the benefit of employees of the
Company or any of its Subsidiaries shall not be deemed to be held by the
Company regardless of whether the Company has, directly or indirectly, the
power to vote or control the disposition of such Shares.
(c) Notwithstanding anything to the contrary contained in this Agreement,
Parent and Purchaser shall not be required to commence the Offer in any
foreign country where the commencement of the Offer, in Parent's reasonable
opinion, would violate the applicable Law (as defined in the Distribution
Agreement) of such jurisdiction.
(d) On the date of the commencement of the Offer, Purchaser shall file with
the Securities and Exchange Commission (the "SEC") a Tender Offer Statement on
Schedule 14D-1 with respect to the Offer which will contain an offer to
purchase and form of the related letter of transmittal (together with any
supplements or amendments thereto, the "OFFER DOCUMENTS"). The Company and its
counsel shall be given a reasonable opportunity to review and comment on the
Offer Documents prior to the filing of such Offer Documents with the SEC.
Purchaser agrees to provide the Company and its counsel in writing with any
comments Purchaser and its counsel may receive from the SEC or its staff with
respect to the Offer Documents promptly after the receipt thereof.
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SECTION 1.2. COMPANY ACTIONS. The Company hereby consents to the Offer and
represents that its Board of Directors (at a meeting duly called and held) has
unanimously (a) determined as of the date hereof that the Offer, the Merger
(as defined in Section 2.1 hereof) and the Spin-Off are fair to the
stockholders of the Company and are in the best interests of the stockholders
of the Company and (b) resolved to recommend acceptance of the Offer and
approval and adoption of this Agreement and the Merger by the stockholders of
the Company which approval constitutes approval of each of the transactions
contemplated by this Agreement for purposes of Sections 902 and 912 of the New
York Business Corporation Law ("NYBCL"). The Company further represents that
Lazard Freres & Co. LLC has delivered to the Board of Directors of the Company
its opinion that the consideration to be received by the holders of Shares in
the Offer, the Merger and the Spin-Off is fair to the holders of the Company's
common stock from a financial point of view. The Company hereby agrees to file
a Solicitation/Recommendation Statement on Schedule 14D-9 (the "SCHEDULE 14D-
9") containing such recommendation with the SEC (and the information required
by Section 14(f) of the Exchange Act if Parent shall have furnished such
information to the Company in a timely manner) and to mail such Schedule 14D-9
to the stockholders of the Company; provided, that subject to the provisions
of Section 6.2(a) hereof, such recommendation may be withdrawn, modified or
amended. Such Schedule 14D-9 shall be, if so requested by Purchaser, filed on
the same date as Purchaser's Schedule 14D-1 is filed and mailed together with
the Offer Documents; provided, that in any event the Schedule 14D-9 shall be
filed and mailed no later than 10 Business Days following the commencement of
the Offer. Purchaser and its counsel shall be given a reasonable opportunity
to review and comment on such Schedule 14D-9 prior to the Company's filing of
the Schedule 14D-9 with the SEC. The Company agrees to provide Parent and its
counsel in writing with any comments the Company or its counsel may receive
from the SEC or its staff with respect to such Schedule 14D-9 promptly after
the receipt thereof.
SECTION 1.3. STOCKHOLDER LISTS. In connection with the Offer, at the request
of Parent or Purchaser, from time to time after the date hereof, the Company
will promptly furnish Purchaser with mailing labels, security position
listings and any available listing or computer file containing the names and
addresses of the record holders of the Shares as of a recent date and shall
furnish Purchaser with such information and assistance as Purchaser or its
agents may reasonably request in communicating the Offer to the record and
beneficial holders of Shares.
SECTION 1.4. COMPOSITION OF THE BOARD OF DIRECTORS; SECTION 14(F). In the
event that Purchaser acquires at least a majority of the Shares outstanding
pursuant to the Offer, Parent shall be entitled to designate for appointment
or election to the Company's Board of Directors, upon written notice to the
Company, such number of persons so that the designees of Parent constitute the
same percentage (but in no event less than a majority) of the Company's Board
of Directors (rounded up to the next whole number) as the percentage of Shares
acquired in connection with the Offer. Prior to consummation of the Offer, the
Board of Directors of the Company will obtain the resignation of such number
of directors as is necessary to enable such number of Parent designees to be
so elected. In connection therewith, the Company will mail to the stockholders
of the Company the information required by Section 14(f) of the Exchange Act
and Rule 14f-1 thereunder unless such information has previously been provided
to such stockholders in the Schedule 14D-9. Parent and Purchaser will provide
to the Company in writing, and be solely responsible for, any information with
respect to such companies and their nominees, officers, directors and
affiliates required by such Section and Rule. Notwithstanding the provisions
of this Section 1.4, the parties hereto shall use their respective best
efforts to ensure that at least three of the members of the Company's Board of
Directors shall, at all times prior to the Effective Time (as defined in
Section 2.2 hereof) be, Continuing Directors (as defined in Section 8.4
hereof).
ARTICLE II
THE MERGER
SECTION 2.1. THE MERGER. Upon the terms and subject to the conditions
hereof, and in accordance with the NYBCL, Purchaser shall be merged (the
"MERGER") with and into the Company as soon as practicable following the
satisfaction or waiver of the conditions set forth in Article VII hereof or on
such other date as the parties
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hereto may agree (such agreement to require the approval of a majority of the
Continuing Directors if at the time there shall be any Continuing Directors).
Following the Merger the Company shall continue as the surviving corporation
(the "SURVIVING CORPORATION") and the separate corporate existence of
Purchaser shall cease.
SECTION 2.2. EFFECTIVE TIME. The Merger shall be consummated by filing with
the New York Secretary of State a certificate of merger or, if applicable, a
certificate of ownership and merger, executed in accordance with the relevant
provisions of the NYBCL (the time the Merger becomes effective being the
"EFFECTIVE TIME").
SECTION 2.3. EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in the NYBCL. As of the Effective Time the Company shall be a wholly-
owned subsidiary of Parent.
SECTION 2.4. CERTIFICATE OF INCORPORATION AND BY-LAWS. The Restated
Certificate of Incorporation and By-Laws of the Company as in effect at the
Effective Time, shall be the Certificate of Incorporation and By-Laws of the
Surviving Corporation until amended in accordance with applicable Law;
provided, that promptly following the Effective Time, the Certificate of
Incorporation shall be amended to change the name of the Surviving Corporation
so that the word "Loral" shall be deleted therefrom.
SECTION 2.5. DIRECTORS. The directors of Purchaser at the Effective Time
shall be the initial directors of the Surviving Corporation and will hold
office from the Effective Time until their respective successors are duly
elected or appointed and qualify in the manner provided in the Certificate of
Incorporation and By-Laws of the Surviving Corporation, or as otherwise
provided by Law.
SECTION 2.6. OFFICERS. The officers of Purchaser at the Effective Time shall
be the initial officers of the Surviving Corporation and will hold office from
the Effective Time until their respective successors are duly elected or
appointed and qualify in the manner provided in the Certificate of
Incorporation and By-Laws of the Surviving Corporation, or as otherwise
provided by Law.
SECTION 2.7. CONVERSION OF SHARES. At the Effective Time:
(a) Each Share issued and outstanding immediately prior to the Effective
Time (other than Shares held in the treasury of the Company or held by any
Subsidiary of the Company (other than a Retained Subsidiary), and other than
Dissenting Shares (as defined in Section 3.1 hereof)) shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the right to receive $38.00 in cash, or any higher price paid per Share
in the Offer (the "MERGER PRICE"), payable to the holder thereof, without
interest thereon, upon the surrender of the certificate formerly representing
such Share (except as provided in Section 2.10(c) hereof).
(b) Each Share held in the treasury of the Company or held by any Subsidiary
of the Company (other than a Retained Subsidiary) and each Share held by
Parent or any Subsidiary of Parent immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the
holder thereof, be cancelled and retired and cease to exist; provided, that
Shares held beneficially or of record by any plan, program or arrangement
sponsored or maintained for the benefit of employees of Parent or the Company
or any Subsidiaries thereof shall not be deemed to be held by Parent or the
Company regardless of whether Parent or the Company has, directly or
indirectly, the power to vote or control the disposition of such Shares.
SECTION 2.8. RESERVED.
SECTION 2.9. CONVERSION OF PURCHASER'S COMMON STOCK. Each share of common
stock, par value $.01 per share, of Purchaser issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into and
exchangeable for one share of common stock of the Surviving Corporation.
SECTION 2.10. STOCK OPTIONS AND STOCK AWARDS.
(a) The Company shall take all actions (including, but not limited to,
obtaining any and all consents from employees to the matters contemplated by
this Section 2.10) necessary to provide that all outstanding options and other
rights to acquire Shares ("STOCK OPTIONS") granted under any stock option
plan, program or similar
11
arrangement of the Company or any Subsidiaries, each as amended (the "OPTION
PLANS"), shall become fully exercisable and vested on the date (the "VESTING
DATE") which shall be set by the Company and which, in any event, shall be not
less than 30 days prior to the consummation of the Offer, whether or not
otherwise exercisable and vested. All Stock Options which are outstanding
immediately prior to Purchaser's acceptance for payment and payment for Shares
tendered pursuant to the Offer shall be cancelled as of the consummation of
the Offer and the holders thereof (other than holders who are subject to the
reporting requirements of Section 16(a) of the Exchange Act) shall be entitled
to receive from the Company, for each Share subject to such Stock Option, (1)
an amount in cash equal to the difference between the Merger Price and the
exercise price per share of such Stock Option, which amount shall be payable
upon consummation of the Offer, plus (2) one share of Spinco Common Stock (as
defined in the Distribution Agreement), which shall be held by an escrow agent
pending delivery on the Distribution Date. All applicable withholding taxes
attributable to the payments made hereunder or to distributions contemplated
hereby shall be deducted from the amounts payable under clause (1) above and
all such taxes attributable to the exercise of Stock Options on or after the
Vesting Date shall be withheld from the proceeds received in the Offer or the
Merger, as the case may be, in respect of the Shares issuable on such
exercise.
(b) The Company shall take all actions (including, but not limited to,
obtaining any and all consents from employees to the matters contemplated by
this Section 2.10) necessary to provide that all restrictions on
transferability with respect to each Share which is granted pursuant to the
Company's 1987 Restricted Stock Purchase Plan (the "1987 PLAN") and which is
outstanding and not vested on the Vesting Date shall lapse, and each such
Share shall become free of restrictions as of the Vesting Date. All applicable
withholding taxes attributable to the vesting of restricted Shares shall be
withheld from the proceeds received in respect of such Shares in the Offer or
the Merger, as the case may be.
(c) Except as provided herein or as otherwise agreed to by the parties and
to the extent permitted by the Option Plans and the 1987 Plan, (i) the Option
Plans and the 1987 Plan shall terminate as of the Effective Time and the
provisions in any other plan, program or arrangement, providing for the
issuance or grant by the Company or any of its Subsidiaries of any interest in
respect of the capital stock of the Company or any of its Subsidiaries shall
be deleted as of the Effective Time and (ii) the Company shall use all
reasonable efforts to ensure that following the Effective Time no holder of
Stock Options or any participant in the Option Plans or any other such plans,
programs or arrangements shall have any right thereunder to acquire any equity
securities of the Company, the Surviving Corporation or any Subsidiary
thereof.
SECTION 2.11. STOCKHOLDERS' MEETING. If required by applicable Law in order
to consummate the Merger, the Company, acting through its Board of Directors,
shall, in accordance with applicable Law, its Restated Certificate of
Incorporation and By-Laws and the rules and regulations of the New York Stock
Exchange:
(a) duly call, give notice of, convene and hold a special meeting of its
stockholders as soon as practicable following the consummation of the Offer
for the purpose of considering and taking action upon this Agreement (the
"STOCKHOLDERS' MEETING");
(b) subject to its fiduciary duties under applicable Laws as advised by
counsel, include in the Information Statement prepared by the Company for
distribution to stockholders of the Company in advance of the Stockholders'
Meeting in accordance with Regulation 14C promulgated under the Exchange Act
(the "INFORMATION STATEMENT") the recommendation of its Board of Directors
referred to in Section 1.2 hereof; and
(c) use its best efforts to (i) obtain and furnish the information required
to be included by it in the Information Statement, and, after consultation
with Parent, respond promptly to any comments made by the SEC with respect to
the Information Statement and any preliminary version thereof and cause the
Information Statement to be mailed to its stockholders following the
consummation of the Offer and (ii) obtain the necessary approvals of this
Agreement by its stockholders.
Parent will provide the Company with the information concerning Parent and
Purchaser required to be included in the Information Statement and will vote,
or cause to be voted, all Shares owned by it or its Subsidiaries in favor of
approval and adoption of this Agreement.
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SECTION 2.12. FILING OF CERTIFICATE OF MERGER. Upon the terms and subject to
the conditions hereof, as soon as practicable following the satisfaction or
waiver of the conditions set forth in Article VII hereof, the Company shall
execute and file a certificate of merger or, if applicable, a certificate of
ownership and merger, in the manner required by the NYBCL and the parties
hereto shall take all such other and further actions as may be required by Law
to make the Merger effective. Prior to the filings referred to in this Section
2.12, a closing will be held at the offices of O'Melveny & Myers, 153 East
53rd Street, New York, New York (or such other place as the parties may
agree), for the purpose of confirming all of the foregoing.
ARTICLE III
DISSENTING SHARES; EXCHANGE OF SHARES
SECTION 3.1. DISSENTING SHARES. Notwithstanding anything in this Agreement
to the contrary, Shares which are issued and outstanding immediately prior to
the Effective Time and which are held by stockholders who have not voted such
Shares in favor of the Merger and shall have delivered a written demand for
appraisal of such Shares in the manner provided in the NYBCL (the "DISSENTING
SHARES") shall not be converted into or be exchangeable for the right to
receive the consideration provided in Section 2.7 of this Agreement, unless
and until such holder shall have failed to perfect or shall have effectively
withdrawn or lost such holder's right to appraisal and payment under the
NYBCL. If such holder shall have so failed to perfect or shall have
effectively withdrawn or lost such right, such holder's Shares shall thereupon
be deemed to have been converted into and to have become exchangeable for, at
the Effective Time, the right to receive the consideration provided for in
Section 2.7(a) of this Agreement, without any interest thereon.
SECTION 3.2. EXCHANGE OF SHARES.
(a) Prior to the Effective Time, Parent shall designate a bank or trust
company to act as exchange agent in the Merger (the "EXCHANGE AGENT").
Immediately prior to the Effective Time, Parent will take all steps necessary
to enable and cause the Company to deposit with the Exchange Agent the funds
necessary to make the payments contemplated by Section 2.7 on a timely basis.
(b) Promptly after the Effective Time, the Exchange Agent shall mail to each
record holder, as of the Effective Time, of an outstanding certificate or
certificates which immediately prior to the Effective Time represented Shares
(the "CERTIFICATES") a form letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Exchange
Agent) and instructions for use in effecting the surrender of the Certificates
for payment therefor. Upon surrender to the Exchange Agent of a Certificate,
together with such letter of transmittal duly executed, and any other required
documents, the holder of such Certificate shall be entitled to receive in
exchange therefor the consideration set forth in Section 2.7(a) hereof, and
such Certificate shall forthwith be cancelled. No interest will be paid or
accrued on the cash payable upon the surrender of the Certificates. If payment
is to be made to a person other than the person in whose name the Certificate
surrendered is registered, it shall be a condition of payment that the
Certificate so surrendered shall be properly endorsed or otherwise in proper
form for transfer and that the person requesting such payment shall pay any
transfer or other taxes required by reason of the payment to a person other
than the registered holder of the Certificate surrendered or establish to the
satisfaction
of the Surviving Corporation that such tax has been paid or is not applicable.
Until surrendered in accordance with the provisions of this Section 3.2, each
Certificate (other than Certificates representing Shares held by Parent or any
subsidiary of Parent, Shares held in the treasury of the Company or held by
any subsidiary of the Company and Dissenting Shares) shall represent for all
purposes only the right to receive the consideration set forth in Section
2.7(a) hereof, without any interest thereon.
(c) After the Effective Time there shall be no transfers on the stock
transfer books of the Surviving Corporation of the Shares which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation, they shall be
cancelled and exchanged for the consideration provided in Article II hereof in
accordance with the procedures set forth in this Article III.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Purchaser as follows:
SECTION 4.1. ORGANIZATION. Each of the Company and its Subsidiaries that
will be owned, directly or indirectly, by the Company following the Spin-Off
(the "RETAINED SUBSIDIARIES") is a corporation duly organized, validly
existing and in good standing under the Laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted, except in the case of Retained Subsidiaries where the failure to be
so existing and in good standing or to have such power and authority would not
in the aggregate have a Material Adverse Effect (as defined below). For
purposes of this Agreement (except as provided in Section 5.1 hereof), (a) the
term "MATERIAL ADVERSE EFFECT" shall mean any change or effect that is
reasonably likely to be materially adverse to (i) the business, properties,
operations, prospects, results of operations or condition (financial or
otherwise) of the Retained Business (as hereinafter defined) taken as a whole,
or (ii) the ability of (A) the Company to perform its obligations under this
Agreement or the Distribution Agreement, or (B) Spinco to perform its
obligations under the Distribution Agreement; and (b) the term "RETAINED
BUSINESS" shall mean all of the businesses (and the Assets and Liabilities
thereof (each as defined in the Distribution Agreement)) of the Company and
its Subsidiaries, other than the Spinco Business (as defined in the
Distribution Agreement). Each of the Company and the Retained Subsidiaries is
duly qualified or licensed and in good standing to do business in each
jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or licensing
necessary, except in such jurisdictions where the failure to be so duly
qualified or licensed and in good standing would not in the aggregate have a
Material Adverse Effect. The Company has heretofore delivered or made
available to Parent accurate and complete copies of the Certificate of
Incorporation and By-Laws (or other similar organizational documents in the
event of any entity other than a corporation), as currently in effect of the
Company and each of the Retained Subsidiaries.
SECTION 4.2. CAPITALIZATION.
(a) As of December 31, 1995, the authorized capital stock of the Company
consisted of (i) 300,000,000 Shares, of which 173,068,379 Shares were issued
and outstanding (inclusive of Shares subject to restrictions under the
Company's 1987 Restricted Stock Purchase Plan), and (ii) 2,000,000 shares of
Preferred Stock, par value $1.00 per share ("PREFERRED STOCK"), of which
250,000 shares were designated as Series A Preferred Stock, of which no shares
were issued and outstanding. All of the issued and outstanding Shares are
validly issued, fully paid and non-assessable and free of preemptive rights.
As of December 31, 1995, 11,131,234 Shares were issuable upon the exercise of
outstanding vested and non-vested Stock Options. Since December 31, 1995, the
Company has not granted any Stock Options or issued any shares of its capital
stock except as set forth on Schedule 4.2(a) of the disclosure schedule
delivered by the Company to Parent on or prior to the date hereof (the
"DISCLOSURE SCHEDULE") or except upon exercise of Stock Options or pursuant to
any existing Plan in accordance with the current terms of such Plan. Except as
set forth above and as otherwise provided for in this Agreement, there are not
now, and at the Effective Time there will not be, any shares of capital stock
of the Company issued or outstanding or any subscriptions, options, warrants,
calls, rights, convertible securities or other agreements or commitments of
any character obligating the Company to issue, transfer or sell any of its
securities other than the Rights (as defined in the Rights Agreement). Except
as permitted by this Agreement, following the Merger, the Company will have no
obligation to issue, transfer or sell any shares of its capital stock pursuant
to any employee benefit plan or otherwise.
(b) All of the outstanding shares of capital stock of, or ownership interest
in, each of the Retained Subsidiaries have been validly issued and are fully
paid and non-assessable and are owned by either the Company or another of the
Retained Subsidiaries free and clear of all Liens (as defined in the
Distribution Agreement). There are not now, and at the Effective Time there
will not be, any outstanding subscriptions, options, warrants, calls, rights,
convertible securities or other agreements or commitments of any character
relating to the issued or
14
unissued capital stock or other securities of any of the Retained
Subsidiaries, or otherwise obligating the Company or any such subsidiary to
issue, transfer or sell any such securities.
(c) There are not now, and at the Effective Time there will not be, any
voting trusts or other agreements or understandings to which the Company or
any of the Retained Subsidiaries is a party or is bound with respect to the
voting of the capital stock of the Company or any of the Retained
Subsidiaries.
SECTION 4.3. AUTHORITY RELATIVE TO THIS AGREEMENT. Each of the Company and
each Company Subsidiary which is a party to any of the Ancillary Agreements
(each such subsidiary, a "CONTRACTING SUBSIDIARY") has full corporate power
and authority to execute and deliver this Agreement and the Ancillary
Agreements and to consummate the transactions contemplated hereby and thereby
(but only to the extent it is a party thereto). The execution and delivery of
this Agreement by the Company and of the Ancillary Agreements by the Company
and each Contracting Subsidiary (to the extent it is a party thereto) and the
consummation of the transactions contemplated hereby and thereby have been, or
with respect to Contracting Subsidiaries will be prior to the Record Date,
duly and validly authorized by the Boards of Directors of the Company and each
Contracting Subsidiary (to the extent it is a party thereto) and no other
corporate proceedings on the part of the Company or each Contracting
Subsidiary (to the extent it is a party thereto), including, without
limitation, any approval by the stockholders of the Company, are, or with
respect to Contracting Subsidiaries will be prior to the Record Date,
necessary to authorize this Agreement or the Ancillary Agreements or to
consummate the transactions contemplated hereby or thereby (other than (a)
with respect to the Merger, the approval and adoption of this Agreement by the
holders of the requisite number of the outstanding Shares and (b) the
establishment of the Record Date and the Distribution Date (each as defined in
the Distribution Agreement) by the Board of Directors of the Company). This
Agreement has been, and each of the Ancillary Agreements have been or will
prior to the Record Date be, duly and validly executed and delivered by the
Company and each Contracting Subsidiary (to the extent it is a party thereto)
and constitute or (to the extent such agreement is not being entered into as
of the date hereof) will constitute a valid and binding agreement of the
Company and each Contracting Subsidiary (to the extent it is a party thereto),
enforceable against the Company and each Contracting Subsidiary (to the extent
it is a party thereto) in accordance with its terms except to the extent that
enforcement thereof may be limited by (a) bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws, now
or hereafter in effect, relating to the creditors' rights generally and (b)
general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity). The affirmative vote of the
holders of two-thirds of the Shares, determined on a fully-diluted basis, is
the only vote of the holders of any class or series of Company capital stock
necessary to approve the Merger.
SECTION 4.4. CONSENTS AND APPROVALS; NO VIOLATIONS. Except for any
applicable requirements of the Securities Exchange Act of 1934, as amended,
and all rules and regulations thereunder (the "EXCHANGE ACT"), the Securities
Act of 1933, as amended, and all rules and regulations thereunder (the
"SECURITIES ACT"), the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR ACT"), the EC Merger Regulations (as defined below), and
the Communications Act of 1934, as amended, and all rules and regulations
promulgated thereunder (the "COMMUNICATIONS ACT"), the filing and recordation
of a certificate of merger, or a certificate of ownership and merger, as
required by the NYBCL, filing with and approval of the New York Stock
Exchange, Inc. and the SEC with respect to the delisting and deregistering of
the Shares, such filings and approvals as may be required under the "takeover"
or "blue sky" Laws of various states, and as disclosed in Section 4.4 of the
Disclosure Schedule or as contemplated by this Agreement and the Ancillary
Agreements, neither the execution and delivery of this Agreement or the
Ancillary Agreements by the Company or any Contracting Subsidiary (to the
extent it is a party thereto) nor the consummation by the Company or any
Contracting Subsidiary (to the extent it is a party thereto) of the
transactions contemplated hereby or thereby will (i) conflict with or result
in any breach of any provision of the Certificate of Incorporation or By-Laws
of the Company or any Contracting Subsidiary or Retained Subsidiary (other
than those Retained Subsidiaries which, when taken together, would not be a
"significant subsidiary" within the meaning of Regulation S-X promulgated
under the Securities Act) (any such Retained Subsidiary, other than those
described in the preceding parenthetical, herein called a "SIGNIFICANT
RETAINED SUBSIDIARY"), (ii) require on the part of the Company or any
Contracting Subsidiary or a Significant Retained Subsidiary any filing with,
or the obtaining of any permit,
15
authorization, consent or approval of, any governmental or regulatory
authority or any third party, (iii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation, acceleration
or payment, or to the creation of a lien or encumbrance) under any of the
terms, conditions or provisions of any note, mortgage, indenture, other
evidence of indebtedness, guarantee, license, agreement or other contract,
instrument or obligation to which the Company, any Contracting Subsidiary or
Retained Subsidiary or any of their respective Subsidiaries is a party or by
which any of them or any of their Assets may be bound or (iv) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to the
Company or any Contracting Subsidiary or Retained Subsidiary, any of their
respective Subsidiaries or any of their Assets, except for such requirements,
defaults, rights or violations under clauses (ii), (iii) and (iv) above (x)
which relate to jurisdictions outside the United States or which would not in
the aggregate have a Material Adverse Effect or materially impair the ability
of the Company or any Contracting Subsidiary to consummate the transactions
contemplated by this Agreement, or (y) which become applicable as a result of
the business or activities in which Parent or Purchaser is or proposes to be
engaged (other than the business or activities of the Retained Business to be
acquired by Purchaser, considered independently of the ownership thereof by
Parent and Purchaser) or as a result of other facts or circumstances specific
to Parent or Purchaser. For purposes of this Agreement, "EC MERGER
REGULATIONS" mean Council Regulation (EEC) No. 4064/89 of December 21, 1989 on
the Control of Concentrations Between Undertakings, OJ (1989) L 395/1 and the
regulations and decisions of the Councilor Commission of the European
Community (the "COMMISSION") or other organs of the European Union or European
Community implementing such regulations.
SECTION 4.5. ABSENCE OF CERTAIN CHANGES. Except (a) as set forth in Section
4.5 of the Disclosure Schedule, (b) as set forth in the Company's Annual
Report on Form 10-K for the year ended March 31, 1995 (the "FORM 10-K") or any
other document filed prior to the date hereof pursuant to Section 13(a) or
15(d) of the Exchange Act, or (c) as contemplated by this Agreement or any of
the Ancillary Agreements, from April 1, 1995 until the date hereof, neither
the Company nor any of its Subsidiaries has taken any of the prohibited
actions set forth in Section 6.1 (other than clause (l) thereof) hereof or
suffered any changes that, in each case, either individually or in the
aggregate, would result in a Material Adverse Effect or conducted its business
or operations in any material respect other than in the ordinary and usual
course of business, consistent with past practices.
SECTION 4.6. NO UNDISCLOSED LIABILITIES. Except (a) for Liabilities and
obligations incurred in the ordinary and usual course of business consistent
with past practice since April 1, 1995, (b) for Liabilities incurred in
connection with the Offer, the Merger and the Spin-Off and (c) as set forth in
Section 4.6 of the Disclosure Schedule, from April 1, 1995 until the date
hereof neither the Company nor any of its Subsidiaries has incurred any
Liabilities that, individually or in the aggregate, would have a Material
Adverse Effect and that would be required to be reflected or reserved against
in a consolidated balance sheet of the Company and its Subsidiaries prepared
in accordance with generally accepted accounting principles as applied in
preparing the consolidated balance sheet of the Company and its Subsidiaries
as of March 31, 1995 contained in the Form 10-K.
SECTION 4.7. REPORTS.
(a) The Company has filed all reports, forms, statements and other documents
required to be filed with the SEC pursuant to the Exchange Act since April 1,
1991 (collectively, including, without limitation, any financial statements or
schedules included or incorporated by reference therein, the "COMPANY SEC
DOCUMENTS"). Each of the Company SEC Documents, as of its filing date and at
each time thereafter when the information included therein was required to be
updated pursuant to the rules and regulations of the SEC, complied in all
material respects with all applicable requirements of the Securities Act and
the Exchange Act. None of the Company SEC Documents, as of their respective
filing dates or any date thereafter when the information included therein was
required to be updated pursuant to the rules and regulations of the SEC,
contained or will contain any untrue statement of a material fact or omitted
or will omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of the
consolidated balance sheets (including the related notes) included in the
Company SEC Documents filed prior to or after the date of this Agreement (but
prior to the date on which the Offer is consummated, and excluding the Company
SEC Documents described in Section 4.8 hereof) fairly presents or
16
will fairly present in all material respects the consolidated financial
position of the Company and its Subsidiaries as of the respective dates
thereof, and the other related statements (including the related notes)
included therein fairly present or will fairly present in all material
respects the results of operations and the cash flows of the Company and its
Subsidiaries for the respective periods or as of the respective dates set
forth therein. Each of the financial statements (including the related notes)
included in the Company SEC Documents filed prior to or after the date of this
Agreement (but prior to the date on which the Offer is consummated, and
excluding the Company SEC Documents described in Section 4.8 hereof) has been
prepared or will be prepared in all material respects in accordance with
generally accepted accounting principles consistently applied during the
periods involved, except (i) as otherwise noted therein, (ii) to the extent
required by changes in generally accepted accounting principles or (iii) in
the case of unaudited financial statements, normal recurring year-end audit
adjustments.
(b) The Company has heretofore made available or promptly will make
available to Purchaser a complete and correct copy of any amendments or
modifications, which have not yet been filed with the SEC, to agreements,
documents or other instruments which previously had been filed by the Company
with the SEC pursuant to the Exchange Act.
(c) Except as and to the extent set forth in Section 4.7(c) of the
Disclosure Schedule, the pro forma consolidated balance sheet and the pro
forma statement of operations (including the related notes) of the Retained
Business attached as Annex 1 to Section 4.7(c) of the Disclosure Schedule (the
"DEFENSE FINANCIAL STATEMENTS") fairly presents on a pro forma basis in all
material respects the consolidated financial position of the Retained Business
as of the date thereof, and fairly presents on a pro forma basis in all
material respects the consolidated results of operations of the Retained
Business for the period set forth therein, respectively. The Defense Financial
Statements have been prepared in all material respects in accordance with
generally accepted accounting principles consistently applied during the
periods involved, except as otherwise disclosed therein or in the notes
thereto.
SECTION 4.8. SCHEDULE 14D-9; OFFER DOCUMENTS; FORM 10; INFORMATION
STATEMENT. None of the information (other than information provided in writing
by Parent or Purchaser for inclusion therein) included in the Schedule 14D-9,
the Form 10 (as defined in the Distribution Agreement (or any registration
statement contemplated pursuant to Section 3.1(a) of the Distribution
Agreement) or the Information Statement or supplied by the Company for
inclusion in the Offer Documents, including any amendments thereto, will be
false or misleading with respect to any material fact or will omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading. Except for information supplied by Parent in writing for
inclusion therein, the Schedule 14D-9, the Form 10 (or any registration
statement contemplated pursuant to Section 3.1(a) of the Distribution
Agreement) and the Information Statement, including any amendments thereto,
will comply in all material respects with the Exchange Act and the Securities
Act.
SECTION 4.9. NO DEFAULT. Except as set forth in Section 4.9 of the
Disclosure Schedule, neither the Company nor any of its Subsidiaries is in
default or violation (and no event has occurred which with notice or the lapse
of time or both would constitute a default or violation) of any term,
condition or provision of (i) its charter or its by-laws, (ii) any note,
mortgage, indenture (including, without limitation, the Indenture dated
January 15, 1992 with respect to the Company's 9 1/8% Senior Debentures due
2022, the Indenture dated September 1, 1993 with respect to the Company's 7
5/8% Senior Notes due 2004, 8 3/8% Senior Debentures due 2024 and 7 5/8%
Senior Debentures due 2025, and the Indenture dated November 1, 1992 with
respect to the Company's 7% Senior Debentures due 2023 and 8 3/8% Senior
Debentures due 2023 (collectively, the "PUBLIC INDENTURES")), other evidence
of indebtedness, guarantee, license, agreement or other contract, instrument
or contractual obligation to which the Company or any of its Subsidiaries is
now a party or by which they or any of their Assets may be bound, or (iii) any
order, writ, injunction, decree, statute, rule or regulation applicable to the
Company or any of its Subsidiaries, except for defaults or violations under
clause (i) (with respect to Company Subsidiaries other than the Retained
Subsidiaries), clause (ii) (other than defaults under or violations of any of
the Public Indentures or the Amended and Restated Credit Agreement dated as of
November 23, 1994 between the Company and the
17
banks party thereto (the "CREDIT AGREEMENT")), and clause (iii) above which,
(A) in the aggregate would not have a Material Adverse Effect and would not
have a material adverse effect on the ability of the Company or Spinco to
consummate the transactions contemplated by this Agreement or the Distribution
Agreement, or (B) become applicable as a result of the business or activities
in which Parent or Purchaser is or proposes to be engaged (other than the
business or activities of the Retained Business to be acquired by Purchaser,
considered independently of the ownership thereof by Parent and Purchaser) or
as a result of any other facts or circumstances specific to Parent or
Purchaser.
SECTION 4.10. LITIGATION; COMPLIANCE WITH LAW.
(a) Except as set forth in Section 4.10(a) of the Disclosure Schedule, as of
the date hereof (except as provided in the following sentence), there are no
actions, suits, claims, proceedings or investigations pending or, to the best
knowledge of the Company, threatened, involving the Company or any of its
Subsidiaries or any of their respective Assets (or any person or entity whose
liability therefrom may have been retained or assumed by the Company or any of
its Subsidiaries either contractually or by operation of Law), by or before
any court, governmental or regulatory authority or by any third party which,
either individually or in the aggregate, would have a Material Adverse Effect.
None of the Company, any of its Subsidiaries or any of their respective Assets
is subject to any outstanding order, writ, injunction or decree which, insofar
as can be reasonably foreseen, individually or in the aggregate, in the future
would have a Material Adverse Effect.
(b) Except as disclosed by the Company in the Company SEC Documents filed
since April 1, 1995 (the "RECENT SEC DOCUMENTS") or Section 4.10(b) of the
Disclosure Schedule, the Company and its Retained Subsidiaries are now being
and in the past have been operated in substantial compliance with all Laws
except for violations which individually or in the aggregate do not, and,
insofar as reasonably can be foreseen, will not, have a Material Adverse
Effect.
SECTION 4.11. EMPLOYEE BENEFIT PLANS; ERISA.
(a) Except for those matters set forth in Section 4.11(a) of the Disclosure
Schedule, (i) each "employee benefit plan" (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), and
all other employee benefit, bonus, incentive, stock option (or other equity-
based), severance, change in control, welfare (including post-retirement
medical and life insurance) and fringe benefit plans (whether or not subject
to ERISA) maintained or sponsored by the Company or its Subsidiaries or any
trade or business, whether or not incorporated, that would be deemed a "single
employer" within the meaning of Section 4001 of ERISA (an "ERISA AFFILIATE"),
for the benefit of any employee or former employee of the Company or any of
its ERISA Affiliates (the "PLANS") is, and has been, operated in all material
respects in accordance with its terms and in substantial compliance (including
the making of governmental filings) with all applicable Laws, including,
without limitation, ERISA and the applicable provisions of the Internal
Revenue Code of 1986, as amended (the "CODE"), (ii) each of the Plans intended
to be "qualified" within the meaning of Section 401(a) of the Code has been
determined by the Internal Revenue Service (the "IRS") to be so qualified and
is not under audit by the IRS or the Department of Labor and the Company knows
of no fact or set of circumstances that is reasonably likely to adversely
affect such qualification prior to the Effective Time, (iii) no material
withdrawal liability with respect to any "multiemployer pension plan" (as
defined in Section 3(37) of ERISA) would be incurred by the Company and its
ERISA Affiliates if withdrawal from such plan were to occur on the Effective
Time, (iv) no "reportable event", as such term is defined in Section 4043(c)
of ERISA (for which the 30-day notice requirement to the PBGC has not been
waived), has occurred with respect to any Plan that is subject to Title IV of
ERISA, and (v) there are no material pending or, to the best knowledge of
Company, threatened claims (other than routine claims for benefits) by, on
behalf of or against any of the Plans or any trusts related thereto other than
routine benefit claim matters.
(b) (i) No Plan has incurred an "Accumulated Funding Deficiency" (as defined
in Section 302 of ERISA or Section 412 of the Code), whether or not waived,
(ii) neither the Company nor any ERISA Affiliate has incurred any Liability
under Title IV of ERISA except for required premium payments to the Pension
Benefit Guaranty Corporation ("PBGC"), which payments have been made when due,
and no events have occurred
18
which are reasonably likely to give rise to any Liability of the Company or an
ERISA Affiliate under Title IV of ERISA or which could reasonably be
anticipated to result in any claims being made against Buyer by the PBGC, and
(iii) the Company has not incurred any material withdrawal liability
(including any contingent or secondary withdrawal liability) within the
meaning of Section 4201 and 4204 of ERISA to any multiemployer plan (within
the meaning of Section 3(37) of ERISA) which has not been satisfied in full.
(c) Except as set forth in Section 4.11(c) of the Disclosure Schedule, with
respect to each Plan that is subject to Title IV of ERISA (i) the Company has
provided to Purchaser copies of the most recent actuarial valuation report
prepared for such Plan, (ii) the assets and liabilities in respect of the
accrued benefits as set forth in the most recent actuarial valuation report
prepared by the Plan's actuary fairly present the funded status of such Plan
in all material respects, and (iii) since the date of such valuation report
there has been no material adverse change in the funded status of any such
Plan.
(d) Neither the Company nor any ERISA Affiliate has failed to make any
contribution or payment to any Plan or multiemployer plan which, in either
case has resulted or could result in the imposition of a material lien or the
posting of a material bond or other material security under ERISA or the Code.
(e) Except as otherwise set forth on Section 4.11(e) of the Disclosure
Schedule or as expressly provided for in this Agreement, the consummation of
the transactions contemplated by this Agreement or the Distribution Agreement
will not (i) entitle any current or former employee or officer of the Company
or any ERISA Affiliate to severance pay, unemployment compensation or any
other payment, or (ii) accelerate the time of payment or vesting, or increase
the amount of compensation due any such employee or officer.
SECTION 4.12. ASSETS; INTELLECTUAL PROPERTY.
(a) Except as set forth in Section 4.12(a) of the Disclosure Schedule, upon
consummation of the Spin-Off, the Company and the Retained Subsidiaries will
own or have rights to use all Assets necessary to permit the Company and the
Retained Subsidiaries to conduct the Retained Business as it is currently
being conducted except where the failure to own or have the right to use such
Assets would not, individually or in the aggregate, have a Material Adverse
Effect.
(b) To the knowledge of the Company, based solely upon inquiry of the
Company's General Counsel and Chief Patent Counsel, the Company does not now
and has not in the past used Intellectual Property in the Retained Business
which conflicts with or infringes upon any proprietary rights of others except
where such conflict or infringement would not have, individually or in the
aggregate, a Material Adverse Effect. "INTELLECTUAL PROPERTY" means
trademarks, trade names, service marks, service names, mark registrations,
logos, assumed names, copyright registrations, patents and all applications
therefor and all other similar proprietary rights.
SECTION 4.13. RESERVED.
SECTION 4.14. RESERVED.
SECTION 4.15. CERTAIN CONTRACTS AND ARRANGEMENTS. During the twelve months
immediately prior to the date hereof, no significant contracts of the Retained
Business have been cancelled or otherwise terminated and during such time the
Company has not been threatened with any such cancellation or termination
except, in each case, for cancelled or terminated contracts which,
individually or in the aggregate, would not constitute a Material Adverse
Effect.
SECTION 4.16. TAXES. Except as otherwise disclosed in Section 4.16 of the
Disclosure Schedule and except for those matters which, either individually or
in the aggregate, would not result in a Material Adverse Effect:
(a) The Company and each of its Subsidiaries have filed (or have had filed
on their behalf) or will file or cause to be filed, all Tax Returns (as
defined in Section 4.16(j)(3) hereof) required by applicable Law to be filed
19
by any of them prior to the consummation of the Offer, and all such Tax
Returns and amendments thereto are or will be true, complete and correct.
(b) The Company and each of its Subsidiaries have paid (or have had paid on
their behalf) all Taxes (as defined in Section 4.16(j)(2) hereof) due with
respect to any period ending prior to or as of the expiration of the Offer),
or where payment of Taxes is not yet due, have established (or have had
established on their behalf and for their sole benefit and recourse), or will
establish or cause to be established before the consummation of the Offer, an
adequate accrual for the payment of all such Taxes which have accrued prior to
expiration of the Offer other than Taxes directly attributable to the
transactions contemplated by the Distribution Agreement.
(c) There are no Liens for any Taxes upon the Assets of the Company or any
of its Subsidiaries used primarily in the Retained Business, other than
statutory liens for Taxes not yet due and payable and Liens for real estate
Taxes being contested in good faith.
(d) No Audit (as defined in Section 4.16(j)(3)) is pending with respect to
any Taxes due from the Company or any Subsidiary. There are no outstanding
waivers extending the statutory period of limitation relating to the payment
of Taxes due from the Company or any Subsidiary for any taxable period ending
prior to the expiration of the Offer which are expected to be outstanding as
of the expiration of the Offer.
(e) Neither the Company nor any subsidiary is a party to, is bound by, or
has any obligation under, a tax sharing contract or other agreement or
arrangement for the allocation, apportionment, sharing, indemnification, or
payment of Taxes, other than the Tax Sharing Agreement.
(f) Neither the Company nor any of its Subsidiaries has made an election
under Section 341(f) of the Code.
(g) The statute of limitations for all Tax Returns of the Company and each
of its Subsidiaries for all years through 1987 have expired for all federal,
state, local and foreign tax purposes, or such Tax Returns have been subject
to a final Audit.
(h) Neither the Company nor any of its Subsidiaries has received any written
notice of deficiency, assessment or adjustment from the Internal Revenue
Service or any other domestic or foreign governmental taxing authority that
has not been fully paid or finally settled, and any such deficiency,
adjustment or assessment shown on such schedule is being contested in good
faith through appropriate proceedings and adequate reserves have been
established on the Company's financial statements therefor. To the best of
their knowledge, there are no other deficiencies, assessments or adjustments
threatened, pending or assessed with respect to the Company or any of its
Subsidiaries.
(i) Except as contemplated by this Agreement and the Ancillary Documents or
as disclosed in the Recent SEC Documents, neither the Company nor any of its
Subsidiaries is a party to any agreement, contract or other arrangement that
would result, separately or in the aggregate, in the requirement to pay any
"excess parachute payments" within the meaning of Section 280G of the Code or
any gross-up in connection with such an agreement, contract or arrangement.
(j) For purposes of this Section 4.16, capitalized terms have the following
meaning:
(1) "AUDIT" shall mean any audit, assessment or other examination of
Taxes or Tax Returns by the IRS or any other domestic or foreign
governmental authority responsible for the administration of any Taxes,
proceeding or appeal of such proceeding relating to Taxes.
(2) "TAXES" shall mean all Federal, state, local and foreign taxes, and
other assessments of a similar nature (whether imposed directly or through
withholding) including, but not limited to income, excise, property, sales,
use (or any similar taxes), gains, transfer, franchise, payroll, value-
added, withholding, Social Security, business license fees, customs, duties
and other taxes, assessments, charges, or other fees imposed by a
governmental authority, including any interest, additions to tax, or
penalties applicable thereto.
20
(3) "TAX RETURNS" shall mean all Federal, state, local and foreign tax
returns, declarations, statements, reports, schedules, forms and
information returns and any amended Tax Return relating to Taxes.
SECTION 4.17. RETAINED BUSINESS FCC LICENSES. The licenses and permits
issued to the Company or its Subsidiaries by the Federal Communications
Commission and used in connection with the Retained Business are not
individually or in the aggregate Important Licenses. "IMPORTANT LICENSES"
means licenses or permits which are important to the Retained Business and
which, if terminated, forfeited or otherwise not available to the Retained
Business after the consummation of any of the transactions contemplated by
this Agreement, would adversely affect the Retained Business in a significant
manner.
SECTION 4.18. LABOR MATTERS. Except as set forth in Section 4.18 of the
Disclosure Schedule, neither the Company nor any of the Retained Subsidiaries
has, since April 1, 1993, (i) been subject to, or threatened with, any
material strike, lockout or other labor dispute or engaged in any unfair labor
practice, the result of which could have a Material Adverse Effect, or (ii)
received notice of any pending petition for certification before the National
Labor Relations Board with respect to any material group of Retained Employees
(as defined in the Distribution Agreement) who are not currently organized.
SECTION 4.19. RIGHTS AGREEMENT. The Board of Directors of the Company has
approved a form of Rights Agreement between the Company and the Rights Agent
thereunder (the "RIGHTS AGREEMENT"), and a form of amendment thereto (the
"RIGHTS AMENDMENT"); the Rights Agreement, as amended by the Rights Amendment,
when each are executed and delivered by the Company and the Rights Agent,
shall (a) prevent this Agreement or the consummation of any of the
transactions contemplated hereby or by the Distribution Agreement, including
without limitation, the publication or other announcement of the Offer and the
consummation of the Offer and the Merger, from resulting in the distribution
of separate rights certificates or the occurrence of a Distribution Date (as
defined in the Rights Agreement) or being deemed to be a Triggering Event (as
defined in the Rights Agreement) or a Section 13 Event (as defined in the
Rights Agreement) and (b) provide that neither Parent nor Purchaser shall be
deemed to be an Acquiring Person (as defined in the Rights Agreement) by
reason of the transactions expressly provided for in this Agreement.
SECTION 4.20. CERTAIN FEES. Except for Lazard Freres & Co. LLC and Lehman
Brothers Inc., neither the Company nor any Subsidiary has employed any
financial advisor or finder or incurred any Liability for any financial
advisory or finders' fees in connection with this Agreement or the Ancillary
Agreements or the transactions contemplated hereby or thereby.
SECTION 4.21. NO ADDITIONAL APPROVALS NECESSARY. The Board of Directors of
the Company has taken all actions necessary under the Company's Restated
Certificate of Incorporation and the NYBCL, including approving the
transactions contemplated in this Agreement, to ensure that Section 912 of the
NYBCL will not, prior to any termination of this Agreement, apply to this
Agreement, the Offer, the Merger, the Spin-Off or the transactions
contemplated hereby.
SECTION 4.22. MATERIALITY. The representations and warranties set forth in
this Article IV would in the aggregate be true and correct even without the
materiality exceptions or qualifications contained therein except for such
exceptions and qualifications which, in the aggregate for all such
representations and warranties, are not and could not reasonably be expected
to constitute a Material Adverse Effect.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser represent and warrant to the Company as follows:
SECTION 5.1. ORGANIZATION. Each of Parent and Purchaser is a corporation
duly organized, validly existing and in good standing under the Laws of the
state of its incorporation and has all requisite corporate power and
21
authority to own, lease and operate its properties and to carry on its
business as now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power and authority would not,
in the aggregate, have a Material Adverse Effect (as defined below) on Parent
or Purchaser. When used in connection with Parent or Purchaser, the term
"MATERIAL ADVERSE EFFECT" means any change or effect that is materially
adverse to the business, properties, operations, prospects results of
operations or condition (financial or otherwise) of Parent and its
Subsidiaries, taken as a whole.
SECTION 5.2. AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and
Purchaser has full corporate power and authority to execute and deliver this
Agreement and the Ancillary Agreements (to the extent it is a party thereto)
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the Ancillary Agreements (to the
extent it is a party thereto) and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by the
Boards of Directors of Purchaser and Parent and no other corporate or other
proceedings on the part of Parent, Purchaser or any of their affiliates are
necessary to authorize this Agreement or the Ancillary Agreements (to the
extent it is a party thereto) or to consummate the transactions so
contemplated. This Agreement has been, and each of the Ancillary Agreements
have been, or will prior to the Record Date be, duly and validly executed and
delivered by each of Parent and Purchaser (to the extent it is a party
thereto) and constitute or (to the extent such agreement is not being entered
into as of the date hereof) will constitute valid and binding agreements of
each of Parent and Purchaser, enforceable against each of Parent and Purchaser
in accordance with their respective terms, except to the extent that
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar Laws, now or hereafter in
effect, relating to creditors' rights generally and general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity).
SECTION 5.3. CONSENTS AND APPROVALS; NO VIOLATIONS. Except for applicable
requirements of the Securities Act, the Exchange Act, Antitrust Laws, the
Communications Act, the filing and recordation of a certificate of merger, or
a certificate of ownership and merger, as required by the NYBCL, any filings
required by the Investment Canada Act, such filings and approvals as may be
required under the "takeover" or "blue sky" Laws of various states, and as
contemplated by this Agreement and the Ancillary Agreements, neither the
execution and delivery of this Agreement or the Ancillary Agreements by Parent
or Purchaser (to the extent it is a party thereto) nor the consummation by
Parent or Purchaser of the transactions contemplated hereby or thereby will
(i) conflict with or result in any breach of any provision of the charter or
by-laws of Parent or Purchaser, (ii) require on the part of Parent or
Purchaser any filing with, or the obtaining of any permit, authorization,
consent or approval of, any governmental or regulatory authority or any third
party, (iii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation, acceleration or payment, or to
the creation of a lien or encumbrance) under any of the terms, conditions or
provisions of any note, mortgage, indenture, other evidence of indebtedness,
guarantee, license, agreement or other contract, instrument or contractual
obligation to which Parent, Purchaser or any of their respective Subsidiaries
is a party or by which any of them or any of their Assets may be bound, or
(iv) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Parent, Purchaser, any of their Subsidiaries or any of their
Assets, except for such requirements, defaults, rights or violations under
clauses (ii), (iii) and (iv) above which would not in the aggregate have a
material adverse effect on the ability of Parent or Purchaser to consummate
the Offer and the Merger.
SECTION 5.4. INFORMATION STATEMENT; SCHEDULE 14D-9. Neither the Offer
Documents nor any other document filed or to be filed by or on behalf of
Parent or Purchaser with the SEC or any other governmental entity in
connection with the transactions contemplated by this Agreement contained when
filed or will, at the respective times filed with the SEC or other
governmental entity, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements made therein, in light of the circumstances under which
they were made, not misleading; provided, that the foregoing shall not apply
to information supplied by or on behalf of the Company specifically for
inclusion or incorporation by reference in any such document. The Offer
Documents will comply as to form in all material respects with
22
the provisions of the Exchange Act. None of the information supplied by Parent
or Purchaser in writing for inclusion in the Information Statement or the
Schedule 14D-9 will, at the respective times that the Information Statement
and the Schedule 14D-9 or any amendments or supplements thereto are filed with
the SEC and are first published or sent or given to holders of Shares, and in
the case of the Information Statement, at the time that it or any amendment or
supplement thereto is mailed to the Company's shareholders, at the time of the
Shareholders' Meeting or at the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
SECTION 5.5. SUFFICIENT FUNDS. Parent and its lenders are negotiating the
terms of a credit facility to provide Purchaser with financing sufficient to
permit Purchaser to consummate the Offer. Parent is highly confident that such
financing will be available and has no reason to believe that Purchaser will
not have sufficient funds available prior to the satisfaction of the
conditions to the Offer set forth in Exhibit B hereto to purchase all Shares
on a fully diluted basis at the Merger Price.
SECTION 5.6. BROKERS. Except for Bear, Stearns & Co. Inc. no broker, finder
or investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by and on behalf of Parent or Purchaser.
ARTICLE VI
COVENANTS
SECTION 6.1. CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated by
this Agreement or the Ancillary Agreements, during the period from the date of
this Agreement to the consummation of the Offer and, if Parent has made a
prompt request therefor pursuant to Section 1.4 hereof, until its Designated
Directors (as defined in Section 8.4 hereof) shall constitute in their
entirety a majority of the Company's Board of Directors, the Company and its
Subsidiaries (other than Spinco and the Spinco Companies (as defined in the
Distribution Agreement)) will each conduct its operations according to its
ordinary course of business, consistent with past practice, will use its
commercially reasonable efforts to (i) preserve intact its business
organization, (ii) maintain its material rights and franchises, (iii) keep
available the services of its officers and key employees, and (iv) keep in
full force and effect insurance comparable in amount and scope of coverage to
that maintained as of the date hereof (collectively, the "ORDINARY COURSE
OBLIGATIONS"); provided, that Spinco and the Spinco Companies shall comply
with the Ordinary Course Obligations to the extent that non-compliance
therewith could adversely affect the Retained Business or adversely affect (or
materially delay) the consummation of the Offer, the Merger or the Spin-Off.
Without limiting the generality of and in addition to the foregoing, and
except as otherwise contemplated by this Agreement or the Ancillary
Agreements, prior to the time specified in the preceding sentence, neither the
Company nor any of its Subsidiaries (other than Spinco and the Spinco
Companies insofar as any action of the type specified below could not
adversely affect the Retained Business and could not adversely affect (or
materially delay) the Offer, the Spin-Off or the Merger) will, without the
prior written consent of Parent:
(a) amend its charter or by-laws other than filing a Certificate of
Amendment of the Company's Restated Certificate of Incorporation as
contemplated by the Rights Agreement;
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any
stock of any class or any other securities (except by the Company in
connection with Stock Options, pursuant to the Rights Agreement as
contemplated by the Distribution Agreement or pursuant to the current terms of
any existing Plan) or amend any of the terms of any such securities or
agreements (other than such securities or agreements of any Subsidiary other
than any of the Retained Subsidiaries, or amendments of the Distribution
Agreement as permitted thereunder) outstanding on the date hereof;
23
(c) split, combine or reclassify any shares of its capital stock, declare,
set aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock (other
than pursuant to the Rights Agreement) or redeem or otherwise acquire any of
its securities or any securities of its Subsidiaries (other than pursuant to
the Rights Agreement); provided, that the Company may declare and pay to
holders of Shares regular quarterly dividends of not more than $.08 per Share
on the dividend declaration and payment dates normally applicable to the
Shares.
(d) (i) pledge or otherwise encumber shares of capital stock of the Company
or any of its Subsidiaries; or (ii) except in the ordinary course of business
consistent with past practices, (A) incur, assume or prepay any long-term debt
or incur, assume, or prepay any obligations with respect to letters of credit
or any material short-term debt; (B) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
any material obligations of any other person except wholly owned Subsidiaries
of the Company; (C) make any material loans, advances or capital contributions
to, or investments in, any other person; (iv) change the practices of the
Company and its Retained Subsidiaries with respect to the timing of payments
or collections; or (D) mortgage or pledge any Assets of the Retained Business
or create or permit to exist any material Lien thereupon;
(e) except (i) as disclosed in Section 6.1(e) of the Disclosure Schedule and
except for arrangements entered into in the ordinary course of business
consistent with past practices, (ii) as required by Law or (iii) as
specifically provided for in the Agreement or Distribution Agreement, enter
into, adopt or materially amend any bonus, profit sharing, compensation,
severance, termination, stock option, stock appreciation right, restricted
stock, performance unit, pension, retirement, deferred compensation,
employment, severance or other employee benefit agreements, trusts, plans,
funds or other arrangements of or for the benefit or welfare of any Retained
Employee (or any other person for whom the Retained Business will have
Liability), or (except for normal increases in the ordinary course of business
that are consistent with past practices) increase in any manner the
compensation or fringe benefits of any Retained Employee (or any other person
for whom the Retained Business will have Liability) or pay any benefit not
required by any existing plan and arrangement (including, without limitation,
the granting of stock options, stock appreciation rights, shares of restricted
stock or performance units) or enter into any contract, agreement, commitment
or arrangement to do any of the foregoing;
(f) transfer, sell, lease, license or dispose of any lines of business,
Subsidiaries, divisions, operating units or facilities (other than facilities
currently closed or currently proposed to be closed) relating to the Retained
Business outside the ordinary course of business or enter into any material
commitment or transaction with respect to the Retained Business outside the
ordinary course of business;
(g) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the Assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or agree
to acquire any Assets of any other person (other than the purchase of Assets
in the ordinary course of business and consistent with past practice), in each
case where such action would be material to the Retained Business;
(h) except as may be required by Law or as disclosed in Section 6.1(e) of
the Disclosure Schedule, take any action to terminate or materially amend any
of its pension plans or retiree medical plans with respect to or for the
benefit of Retained Employees or any other person for whom the Retained
Business will have Liability;
(i) materially modify, amend or terminate (1) any significant contract
related to the Retained Business or waive any material rights or claims of the
Retained Business except in the ordinary course of business consistent with
past practice; or (2) any contract having an aggregate contract value of $100
million or greater, whether or not in the ordinary course of business
consistent with past practice, unless such modification, amendment or
termination does not materially diminish the projected profit or materially
increase the projected loss anticipated from such contract; provided, that
nothing contained in this Section 6.1(i) shall limit the Company and its
Subsidiaries in connection with programs or contracts with respect to which
Parent or a Subsidiary of Parent has submitted, or is reasonably expected to
submit, a competing bid; provided further, that the provisions of this
24
Section 6.1(i) shall not apply to any arrangement, agreement or contract
proposal previously submitted by the Company or a Subsidiary thereof which
proposal, upon acceptance thereof, cannot be revised or withdrawn;
(j) effect any material change in any of its methods of accounting in effect
as of March 31, 1995, except as may be required by Law or generally accepted
accounting principles;
(k) except as expressly provided in this Agreement, amend, modify, or
terminate the Rights Agreement or redeem any Rights thereunder; provided, that
if the Board of Directors of the Company by a majority vote determines in its
good faith judgment, based as to legal matters upon the written opinion of
legal counsel, that the failure to redeem any Rights would likely constitute a
breach of the Board's fiduciary duty, the Rights may be redeemed;
(l) enter into any material arrangement, agreement or contract that
individually or in the aggregate with other material arrangements, agreements
and contracts entered into after the date hereof, the Company reasonably
expects will adversely affect in a significant manner the Retained Business
after the date hereof; provided, that nothing contained in this Section 6.1(l)
shall limit the Company and its Subsidiaries from submitting bids for programs
or contracts with respect to which the Company reasonably expects Parent or a
Subsidiary of Parent to submit a bid; and
(m) enter into a legally binding commitment with respect to, or any
agreement to take, any of the foregoing actions.
SECTION 6.2. ACQUISITION PROPOSALS.
(a) The Company and its officers, directors, employees, representatives and
agents shall immediately cease any existing discussions or negotiations with
any parties conducted heretofore with respect to any Acquisition Proposal (as
defined in Section 6.2(b) hereof). The Company and its Subsidiaries will not,
and will use their best efforts to cause their respective officers, directors,
employees and investment bankers, attorneys, accountants or other agents
retained by the Company or any of its Subsidiaries not to, (i) initiate or
solicit, directly or indirectly, any inquiries with respect to, or the making
of, any Acquisition Proposal, or (ii) except as permitted below, engage in
negotiations or discussions with, or furnish any information or data to any
Third Party (as defined in Section 8.3(b) hereof) relating to an Acquisition
Proposal (other than the transactions contemplated hereby and by the Ancillary
Agreements). Notwithstanding anything to the contrary contained in this
Section 6.2, the Company may furnish information to, and participate in
discussions or negotiations (including, as a part thereof, making any counter-
proposal) with, any Third Party which submits an unsolicited written
Acquisition Proposal to the Company if the Company's Board of Directors by a
majority vote determines in its good faith judgment, based as to legal matters
upon the written opinion of legal counsel, that the failure to furnish such
information or participate in such discussions or negotiations would likely
constitute a breach of the Board's fiduciary duties under applicable Law;
provided, that nothing herein shall prevent the Board from taking, and
disclosing to the Company's shareholders, a position contemplated by Rules
14D-9 and 14e-2 promulgated under the Exchange Act with regard to any tender
offer; provided further, that the Board shall not recommend that the
shareholders of the Company tender their Shares in connection with any such
tender offer unless the Board by a majority vote determines in its good faith
judgment, based as to legal matters on the written opinion of legal counsel,
that failing to take such action would likely constitute a breach of the
Board's fiduciary duty; provided further, that the Company shall not enter
into any agreement with respect to any Acquisition Proposal except
concurrently with or after the termination of this Agreement (except with
respect to confidentiality and standstill agreements to the extent expressly
provided below). The Company shall promptly provide Parent with a copy of any
written Acquisition Proposal received and a written statement with respect to
any non-written Acquisition Proposal received, which statement shall include
the identity of the parties making the Acquisition Proposal and the terms
thereof. The Company shall promptly inform Parent of the status and content of
any discussions regarding any Acquisition Proposal with a Third Party. In no
event shall the Company provide non-public information regarding the Retained
Business to any Third Party making an Acquisition Proposal unless such party
enters into a confidentiality agreement containing provisions designed to
reasonably protect the confidentiality of such
25
information. In the event that following the date hereof the Company enters
into a confidentiality agreement with any Third Party which does not include
terms and conditions which are substantially similar to the provisions of
Paragraph No. 7 (the "STANDSTILL PROVISIONS") of the letter agreement, dated
as of December 4, 1995, between the Company and Parent (the "CONFIDENTIALITY
AGREEMENT"), then Parent and its affiliates shall be released from their
obligations under such Standstill Provisions to the same extent as such third
party.
(b) For purposes of this Agreement, the term "ACQUISITION PROPOSAL" shall
mean any bona fide proposal, whether in writing or otherwise, made by a Third
Party to acquire beneficial ownership (as defined under Rule 13(d) of the
Exchange Act) of all or a material portion of the Assets of, or any material
equity interest in, any of the Company, a Retained Subsidiary or the Retained
Business pursuant to a merger, consolidation or other business combination,
sale of shares of capital stock, sale of Assets, tender offer or exchange
offer or similar transaction involving either the Company, a Retained
Subsidiary or the Retained Business, including, without limitation, any single
or multi-step transaction or series of related transactions which is
structured to permit such third party to acquire beneficial ownership of any
material portion of the Assets of, or any material portion of the equity
interest in, either the Company, a Retained Subsidiary or the Retained
Business (other than the transactions contemplated by this Agreement and the
Ancillary Agreements); provided, that the term "ACQUISITION PROPOSAL" shall
not include any transactions which relate solely to the businesses to be owned
by Spinco and the Spinco Companies following the Spin-Off and which could not
have an adverse effect on the consummation of the Offer, the Merger, the Spin-
Off or the transactions contemplated hereby.
SECTION 6.3. ACCESS TO INFORMATION.
(a) Between the date of this Agreement and the Effective Time, upon
reasonable notice and at reasonable times, and subject to any access,
disclosure, copying or other limitations imposed by applicable Law or any of
the Company's or its Subsidiaries' contracts, the Company will give Parent and
its authorized representatives reasonable access to all offices and other
facilities and to all books and records of it and its Subsidiaries, and will
permit Parent to make such inspections as it may reasonably require, and will
cause its officers and those of its Subsidiaries to furnish Parent with (i)
such financial and operating data and other information with respect to the
Company and its Subsidiaries as Parent may from time to time reasonably
request, or (ii) any other financial and operating data which materially
impacts the Company and its Subsidiaries. Parent and its authorized
representatives will conduct all such inspections in a manner which will
minimize any disruptions of the business and operations of the Company and its
Subsidiaries.
(b) Parent, Purchaser and the Company agree that the provisions of the
Confidentiality Agreement shall remain binding and in full force and effect
(subject, however, to the provisions of Section 6.2(a) hereof) and that the
terms of the Confidentiality Agreement are incorporated herein by reference.
SECTION 6.4. REASONABLE EFFORTS. Subject to the terms and conditions of this
Agreement and without limitation to the provisions of Section 6.6 hereof, each
of the parties hereto agrees to use all reasonable efforts to take, or cause
to be taken, all action, and to do, or cause to be done, all things reasonably
necessary, proper or advisable under applicable Laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
and the Ancillary Agreements (including, without limitation, (i) cooperating
in the preparation and filing of the Offer Documents, the Schedule 14D-9, the
Form 10, the Information Statement and any amendments to any thereof; (ii)
cooperating in making available information and personnel in connection with
presentations, whether in writing or otherwise, to prospective lenders to
Parent and Purchaser that may be asked to provide financing for the
transactions contemplated by this Agreement; (iii) taking of all action
reasonably necessary, proper or advisable to secure any necessary consents or
waivers under existing debt obligations of the Company and its Subsidiaries or
amend the notes, indentures or agreements relating thereto to the extent
required by such notes, indentures or agreements or redeem or repurchase such
debt obligations; (iv) contesting any pending legal proceeding relating to the
Offer, the Merger or the Spin-Off; and (v) executing any additional
instruments necessary to consummate the transactions contemplated hereby and
thereby). In case at any time after the Effective Time any further action is
necessary to carry out the purposes of this Agreement, the proper officers and
directors of each party hereto shall use all reasonable efforts to take all
such necessary action.
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SECTION 6.5. CONSENTS. Each of the Company, Parent and Purchaser shall
cooperate and use their respective reasonable efforts to make all filings and
obtain all consents and approvals of governmental authorities (including,
without limitation, the Federal Communication Commission ("FCC")) and other
third parties necessary to consummate the transactions contemplated by this
Agreement and the Ancillary Agreements. Each of the parties hereto will
furnish to the other party such necessary information and reasonable
assistance as such other persons may reasonably request in connection with the
foregoing.
SECTION 6.6. ANTITRUST FILINGS.
(a) In addition to and without limiting the agreements of Parent and
Purchaser contained in Section 6.5 hereof, Parent, Purchaser and the Company
will (i) take promptly all actions necessary to make the filings required of
Parent, Purchaser or any of their affiliates under the applicable Antitrust
Laws (as defined in Section 6.6(e) hereof), (ii) comply at the earliest
practicable date with any request for additional information or documentary
material received by Parent, Purchaser or any of their affiliates from the
Federal Trade Commission or the Antitrust Division of the Department of
Justice pursuant to the HSR Act and from the Commission or other foreign
governmental or regulatory authority pursuant to Antitrust Laws, and (iii)
cooperate with the Company in connection with any filing of the Company under
applicable Antitrust Laws and in connection with resolving any investigation
or other inquiry concerning the transactions contemplated by this Agreement or
the Ancillary Agreements commenced by any of the Federal Trade Commission, the
Antitrust Division of the Department of Justice, state attorneys general, the
Commission, or other foreign governmental or regulatory authorities.
(b) In furtherance and not in limitation of the covenants of Parent and
Purchaser contained in Section 6.5 and Section 6.6(a) hereof, Parent,
Purchaser and the Company shall each use all reasonable efforts to resolve
such objections, if any, as may be asserted with respect to the Offer, the
Spin-Off, the Merger or any other transactions contemplated by this Agreement
or the Ancillary Agreements under any Antitrust Law. If any administrative,
judicial or legislative action or proceeding is instituted (or threatened to
be instituted) challenging the Offer, the Spin-Off, the Merger or any other
transactions contemplated by this Agreement or the Ancillary Agreements as
violative of any Antitrust Law, Parent, Purchaser and the Company shall each
cooperate to contest and resist any such action or proceeding, and to have
vacated, lifted, reversed or overturned any decree, judgment, injunction or
other order (whether temporary, preliminary or permanent) (any such decree,
judgment, injunction or other order is hereafter referred to as an "ORDER")
that is in effect and that restricts, prevents or prohibits consummation of
the Offer, the Spin-Off, the Merger or any other transactions contemplated by
this Agreement or the Ancillary Agreements, including, without limitation, by
pursuing all reasonable avenues of administrative and judicial appeal. Parent
and Purchaser shall each also use their respective reasonable efforts to take
all reasonable action, including, without limitation, agreeing to hold
separate or to divest any of the businesses or Assets of Parent or Purchaser
or any of their affiliates, or, following the consummation of the Offer or the
Effective Time, of the Company or any of the Retained Subsidiaries, as may be
required (i) by the applicable governmental or regulatory authority (including
without limitation the Federal Trade Commission, the Antitrust Division of the
Department of Justice, any state attorney general or any foreign governmental
or regulatory authority) in order to resolve such objections as such
governmental or regulatory authority may have to such transactions under any
Antitrust Law, or (ii) by any domestic or foreign court or other tribunal, in
any action or proceeding brought by a private party or governmental or
regulatory authority challenging such transactions as violative of any
Antitrust Law, in order to avoid the entry of, or to effect the dissolution,
vacating, lifting, altering or reversal of, any Order that has the effect of
restricting, preventing or prohibiting the consummation of the Offer, the
Spin-Off, the Merger or any other transactions contemplated by this Agreement
or the Ancillary Agreements; provided, that Parent shall not be required to
take any action, divest any Asset or enter into any consent decree if the
taking of such action, disposing of such Asset or entering into such decree
would have a Significant Adverse Effect. "SIGNIFICANT ADVERSE EFFECT" shall
mean any change or effect that, in Parent's judgment, is reasonably likely to
adversely affect in a substantial way the benefits and opportunities which
Parent reasonably expects to receive from the acquisition of the Retained
Business or from Parent's current business.
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(c) Each of the Company, Parent and Purchaser shall promptly inform the
other party of any material communication received by such party from the
Federal Trade Commission, the Antitrust Division of the Department of Justice,
the Commission or any other governmental or regulatory authority regarding any
of the transactions contemplated hereby. Parent and/or Purchaser will promptly
advise the Company with respect to any understanding, undertaking or agreement
(whether oral or written) which it proposes to make or enter into with any of
the foregoing parties with regard to any of the transactions contemplated
hereby.
(d) "ANTITRUST LAW" means the Sherman Act, as amended, the Clayton Act, as
amended, the HSR Act, the Federal Trade Commission Act, as amended, EC Merger
Regulations and all other federal, state and foreign statutes, rules,
regulations, orders, decrees, administrative and judicial doctrines, and other
Laws that are designed or intended to prohibit, restrict or regulate actions
having the purpose or effect of monopolization or restraint of trade.
SECTION 6.7. PUBLIC ANNOUNCEMENTS. Parent, Purchaser and the Company will
consult with each other before issuing any press release or otherwise making
any public statements with respect to the Offer, the Spin-Off or the Merger
and shall not issue any such press release or make any such public statement
prior to such consultation, except as may be required by Law or by obligations
pursuant to any listing agreement with any securities exchange.
SECTION 6.8. EMPLOYEE AGREEMENTS.
(a) Prior to the Spin-Off, the Company shall use its best efforts to, and
shall use its best efforts to cause its Subsidiaries to, assign to Spinco or
Subsidiaries of Spinco or terminate all employment agreements with employees
of the Company who are not Retained Employees (the "EMPLOYMENT AGREEMENTS")
and all individual severance agreements with employees of the Company who are
not Retained Employees (the "SEVERANCE AGREEMENTS"). The parties hereto
acknowledge and agree that, whether or not such Employment Agreements and
Severance Agreements are so assigned or terminated, all Liabilities under or
arising from such Employment Agreements and Severance Agreements other than as
expressly contemplated in the Distribution Agreement or by this Section 6.8
shall be deemed to be Spinco Liabilities (as defined in the Distribution
Agreement), with respect to which Spinco shall indemnify the Company and
Parent as provided therein.
(b) Parent acknowledges and agrees that all employment agreements and
severance agreements with the Retained Employees will be binding and
enforceable obligations of the Surviving Corporation, except as the parties
thereto may otherwise agree. The parties hereto acknowledge and agree that all
Liabilities under or arising from such agreements with the Retained Employees
from and after the consummation of the Offer shall be deemed to be Company
Liabilities (as defined in the Distribution Agreement), with respect to which
the Company and Parent shall indemnify Spinco as provided therein.
(c) (i) Parent agrees to cause the Company to pay in cash to each Company
Bonus Employee (as defined below) to the extent not previously paid, all bonus
compensation payable with respect to the fiscal year of the Company ending
March 31, 1996 under any bonus program of the Company or its Subsidiaries in
which such Company Bonus Employee participated prior to the consummation of
the Offer or under any employment agreement. Such bonus compensation shall be
paid at the time or times that comparable bonus compensation was paid to any
similarly situated employee after March 31, 1995 with respect to the fiscal
year ended March 31, 1995. Bonus compensation which is based on objective
criteria shall be calculated and paid in accordance with such criteria. With
respect to bonus compensation which is wholly or partially discretionary, such
bonus compensation shall be determined and paid on a basis consistent with
past practices of the Company. Subject to Section 6.8(c)(iii), the amount of
discretionary bonus compensation to be paid to any Company Bonus Employee
shall be determined by the Chief Executive Officer of the Company in office
immediately prior to the date of the consummation of the Offer or by his
designee. "COMPANY BONUS EMPLOYEE" means a person, other than a Spinco
Employee, employed by the Company or any of its Subsidiaries immediately prior
to the date the Offer is consummated, who was eligible to receive a bonus
under any bonus program of the Company or any of its Subsidiaries in effect at
December 31, 1995, or under any employment agreement in effect on such date,
with respect to the fiscal year ending March 31, 1996.
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(ii) Spinco agrees to pay in cash to each Spinco Bonus Employee (as
defined in this Section 6.8(c)(ii)) to the extent not previously paid, all
bonus compensation payable with respect to the fiscal year of the Company
ending March 31, 1996 under any bonus program of the Company or its
Subsidiaries in which such Spinco Bonus Employee participated prior to the
consummation of the Offer or under any employment agreement. Such bonus
compensation shall be paid at the time or times that comparable bonus
compensation was paid to any similarly situated employee after March 31,
1995 with respect to the fiscal year ended March 31, 1995. Bonus
compensation which is based on objective criteria shall be calculated and
paid in accordance with such criteria. With respect to bonus compensation
which is wholly or partially discretionary, such bonus compensation shall
be determined and paid on a basis consistent with past practices of the
Company. Subject to Section 6.8(c)(iii), the amount of discretionary bonus
compensation to be paid to any Spinco Bonus Employee shall be determined by
Spinco. "SPINCO BONUS EMPLOYEE" means any Spinco Employee employed by the
Company or any of its Subsidiaries immediately prior to the date the Offer
is consummated, who was eligible to receive a bonus under any bonus program
of the Company or any of its Subsidiaries in effect at December 31, 1995,
or under any employment agreement in effect on such date, with respect to
the fiscal year ending March 31, 1996. Upon payment of such bonuses to
Spinco Bonus Employees, Spinco shall submit to Parent a statement showing
the individual and aggregate bonus amounts paid to Spinco Bonus Employees,
and Parent shall thereupon promptly pay to Spinco (or cause the Company to
pay to Spinco) the aggregate amount of bonuses so paid; provided, that if
the consummation of the Offer occurs prior to March 31, 1996, the amount of
such reimbursement shall be a prorated amount of the aggregate bonus
amounts so paid, based on a fraction, the numerator of which is the number
of days of the Company's fiscal year ending March 31, 1996 which had
elapsed as of the consummation of the Offer, and the denominator of which
is 365.
(iii) The aggregate amount of discretionary bonuses payable to all
Company Bonus Employees and Spinco Bonus Employees as a group for the
fiscal year ending March 31, 1996 shall not exceed a dollar amount to be
mutually agreed to by the Chief Executive Officer of Parent and the Chief
Executive Officer of Spinco; provided, that in the event the Chief
Executive Officer of Parent and the Chief Executive Officer of Spinco
cannot agree on such dollar amount, the maximum aggregate amount of
discretionary bonuses payable to Company Bonus Employees and Spinco Bonus
Employees shall be based on the aggregate amount of discretionary bonuses
paid to all such employees for the Company's fiscal year ending March 31,
1995, increased by a percentage equal to the average of the percentage
increases in discretionary bonuses paid to all such employees over the
Company's three fiscal years ending March 31, 1993, 1994 and 1995.
(d) Pursuant to the "change of control" provisions of the Restated
Employment Agreement between the Company and Bernard L. Schwartz dated April
1, 1990, as amended June 14, 1994, the Company shall, subject to the following
sentences of this Section 6.8(d), make a cash payment to Mr. Schwartz upon
consummation of the Offer, calculated in accordance with such agreement, less
$18 million. The Company also may make a cash payment of a bonus (inclusive of
the amount paid to Mr. Schwartz pursuant to the preceding sentence, the
"TRANSACTION BONUS") to Transaction Bonus Employees (as defined below) other
than Mr. Schwartz; provided, that the aggregate Transaction Bonus paid shall
not exceed $40 million; and provided further, that the Transaction Bonus
payable to any Transaction Bonus Employee shall not exceed the maximum amount
which can be paid at such time without such amounts being treated as "excess
parachute payments" within the meaning of Section 280G of the Code, taking
into account all payments made on or prior to the time the Transaction Bonus
is paid (including the value of accelerated vesting of stock options or
restricted shares granted under the 1987 Plan determined in accordance with
proposed regulations promulgated under Section 280G of the Code) which
constitute parachute payments for purposes of Section 280G of the Code. The
Transaction Bonus may be paid by the Company, in its discretion, prior to, on
or immediately following, the date the Offer is consummated. "TRANSACTION
BONUS EMPLOYEE" means Mr. Schwartz and each person employed by the Company or
any of its Subsidiaries on or prior to the date the Offer is consummated who
is selected by Mr. Schwartz to receive a Transaction Bonus.
(e) The Company may provide for employment protection payments to be made to
certain Company employees upon qualifying terminations of employment pursuant
to "Employment Protection Agreements" and
29
an "Employment Protection Plan," (each substantially in the forms attached
hereto as Exhibits C and D, respectively; together, the "EMPLOYMENT PROTECTION
ARRANGEMENTS") occurring after a change in control of the Company; provided,
that (i) neither the execution of this Agreement and the Distribution
Agreement, nor any transaction contemplated thereby, shall constitute a change
in control of the Company for any purpose under the Employment Protection
Arrangements or give rise to any rights thereunder and (ii) the Employment
Protection Arrangements shall terminate as of the consummation of the Offer
and no rights thereunder shall continue after the consummation of the Offer.
SECTION 6.9. EMPLOYEE BENEFITS.
(a) Prior to the Effective Time, the Company shall adopt a severance plan
substantially in the form attached hereto as Exhibit E (the "SUPPLEMENTAL
SEVERANCE PLAN") covering up to 150 employees of the Company or its
Subsidiaries selected by the Company prior to the Effective Time.
(b) Except with respect to accruals under any defined benefit pension plans,
Parent will, or will cause the Company to, give Retained Employees full credit
for purposes of eligibility, vesting and determination of the level of
benefits under any employee benefit plans or arrangements maintained by the
Parent, the Company or any Subsidiary of Parent or Company for such Retained
Employees' service with the Company or any Subsidiary of the Company to the
same extent recognized by the Company immediately prior to the Effective Time.
Parent will, or will cause the Company to, (i) waive all limitations as to
pre-existing conditions exclusions and waiting periods with respect to
participation and coverage requirements applicable to the Retained Employees
under any welfare plans that such employees may be eligible to participate in
after the Effective Time, other than limitations or waiting periods that are
already in effect with respect to such employees and that have not been
satisfied as of the Effective Time under any welfare plan maintained for the
Retained Employees immediately prior to the Effective Time, and (ii) provide
each Retained Employee with credit for any co-payments and deductibles paid
prior to the Effective Time in satisfying any applicable deductible or out-of-
pocket requirements under any welfare plans that such employees are eligible
to participate in after the Effective Time.
SECTION 6.10. ANCILLARY AGREEMENTS; SPIN-OFF.
(a) Simultaneously with the execution hereof, the Company and certain of its
Subsidiaries are entering into the Distribution Agreement. Immediately prior
to the Record Date, the Company, Spinco and certain other parties will enter
into the Tax Sharing Agreement. From and after the Effective Time, Parent
shall cause the Surviving Corporation to perform any and all obligations and
agreements of the Company set forth herein or in the Ancillary Agreements or
in any other agreements contemplated herein or therein.
(b) Parent and Purchaser accept and agree that, subject to the provisions of
the Distribution Agreement, the form of certificate of incorporation and by-
laws of Spinco adopted in contemplation of the Spin-Off shall be as agreed to
by the Company and Spinco in their sole discretion; provided, that nothing in
the certificates of incorporation and by-laws shall adversely affect or
otherwise limit (i) Spinco's ability to perform its obligations under the
Ancillary Agreements or the other agreements contemplated by the Distribution
Agreement or (ii) the Company's or its affiliates' rights under the
Stockholders Agreement.
(c) In no event shall Parent or Purchaser or any of their Subsidiaries be
entitled to receive any shares of Spinco Common Stock as a distribution with
respect to Shares purchased upon consummation of the Offer. If, for any
reason, any shares of Spinco Common Stock distributed in the Spin-Off are
received by Parent or Purchaser or any of their Subsidiaries with respect to
Shares acquired by Purchaser in the Offer, then Parent or Purchaser shall
convey, on behalf of the Company, such shares of Spinco to the stockholders of
the Company who would have otherwise received such shares of Spinco pursuant
to the Distribution Agreement; provided, that the foregoing provisions shall
not apply with respect to Shares held by Parent or any of its Subsidiaries
prior to the date hereof.
(d) If the Company reasonably determines that the Spin-Off may not be
effected without registering the shares of common stock of Spinco to be
distributed in the Spin-Off pursuant to the Securities Act, the Company,
30
Parent and Purchaser, as promptly as practicable, shall use their respective
best efforts to cause the shares of Spinco to be registered pursuant to the
Securities Act and thereafter effect the Spin-Off in accordance with the terms
of the Distribution Agreement including, without limitation, by preparing and
filing on an appropriate form a registration statement under the Securities
Act covering the shares of Spinco and using their respective best efforts to
cause such registration statement to be declared effective and preparing and
making such other filings as may be required under applicable state securities
Laws.
(e) Parent shall, and shall cause the Surviving Corporation to, treat the
Spin-Off for purposes of all federal and state taxes as an integrated
transaction with the Offer and the Merger and thus report the Spin-Off as a
constructive redemption of a number of Shares equal in value to the value of
the Spinco Common Stock distributed in the Spin-Off.
SECTION 6.11. RETAINED BUSINESS FINANCIAL STATEMENTS. The Company will
forthwith prepare, and retain Coopers & Lybrand L.L.P. to audit, balance
sheets for the Retained Business as at March 31, 1993, March 31, 1994, March
31, 1995 and the Effective Time, together with statements of operations and
cash flows for the periods then ended (collectively, the "RETAINED BUSINESS
FINANCIAL STATEMENTS"). The Company hereby agrees to use its best efforts to
take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable to assist and otherwise cause Coopers &
Lybrand L.L.P. to complete the audit of the Retained Business Financial
Statements as promptly as reasonably practicable, but in no event later than
45 days after the date of this Agreement; provided, that with respect to the
period ended the Effective Time, the information will be provided no later
than 15 days prior to the latest date on which Parent may file a Current
Report on Form 8-K with respect to the Merger and still be in compliance with
the regulations promulgated by the SEC under the Exchange Act. The Company
will pay the fees and expenses for auditing the Retained Business Financial
Statements. The Company also agrees to provide promptly to Parent such
quarterly unaudited financial information relating to the Retained Business
and covering the period ending December 31, 1995 and the quarterly and annual
periods following the date hereof within five days after the filing by the
Company with the SEC of its quarterly reports on Form 10-Q and Annual Report
on Form 10-K, as the case may be.
SECTION 6.12. REDEMPTION OF RIGHTS. At Parent's request, the Company will
take such action as Parent may request to effectuate the redemption, at any
time before the purchase by Purchaser pursuant to the Offer of at least a
majority of the outstanding Shares, of the Rights (as defined in the Rights
Agreement).
SECTION 6.13. PRE-CLOSING CONSULTATION. Following the date hereof and prior
to the Effective Time, the Company shall designate a senior officer of the
Company (the "COMPANY REPRESENTATIVE") to consult with an officer of Parent
designated by Parent (the "PARENT REPRESENTATIVE") with respect to major
business decisions to be made concerning the operation of the Retained
Business. Such consultation shall be made on as frequent a basis as may be
reasonably requested by Parent. The parties hereto acknowledge and agree that
the agreements set forth in this Section 6.13 shall be subject to any
restrictions or limitations required under applicable Law.
SECTION 6.14. INDEMNIFICATION.
(a) From and after the Effective Time, Parent shall cause the Surviving
Corporation to indemnify, defend and hold harmless the present and former
officers, directors, employees and agents of the Company and its Subsidiaries
(the "INDEMNIFIED PARTIES") against all losses, claims, damages, expenses or
liabilities arising out of or related to actions or omissions or alleged
actions or omissions occurring at or prior to the Effective Time to the same
extent and on the same terms and conditions (including with respect to
advancement of expenses) provided for in the Company's Restated Certificate of
Incorporation and By-Laws and agreements in effect as of December 31, 1995 (to
the extent consistent with applicable Law), which provisions will survive the
Merger and continue in full force and effect after the Effective Time. Without
limiting the foregoing, (i) Parent shall, and shall cause the Surviving
Corporation to, periodically advance expenses (including attorney's fees) as
incurred by an Indemnified Person with respect to the foregoing to the full
extent permitted under the Company's Restated Certificate of Incorporation and
By-Laws in effect on the date hereof (to the extent consistent with applicable
Law) and (ii) any determination required to be made with respect to whether an
Indemnified Party shall be
31
entitled to indemnification shall, if requested by such Indemnified Party, be
made by independent legal counsel selected by the Surviving Corporation and
reasonably satisfactory to such Indemnified Party. Parent hereby guarantees
the obligation of the Surviving Corporation provided for under this Section
6.14(a); provided, that the guarantee obligation of Parent provided for herein
shall, in the aggregate, be limited to an amount equal to the Net Worth of the
Company. "NET WORTH OF THE COMPANY" means an amount equal to (i) the aggregate
value of the consolidated assets of the Retained Business less (ii) the
aggregate value of the consolidated liabilities of the Retained Business, each
as reflected on the books and records of the Company as of the most recent
quarterly period ended prior to the date of the consummation of the Offer.
(b) For a period of six years after the Effective Time, Parent shall use
reasonable efforts to cause to be maintained in effect the current policies of
directors and officers liability insurance maintained by the Company (provided
that Parent may substitute therefor policies with reputable and financially
sound carriers of at least the same coverage and amounts containing terms and
conditions which are no less advantageous) with respect to claims arising from
or related to facts or events which occurred at or before the Effective Time;
provided, that Parent shall not be obligated to make annual premium payments
for such insurance to the extent such premiums exceed 150% of the annual
premiums paid as of the date hereof by the Company for such insurance (the
"MAXIMUM AMOUNT"). If the amount of the annual premiums necessary to maintain
or procure such insurance coverage exceeds the Maximum Amount, Parent and the
Surviving Corporation shall maintain the most advantageous policies of
directors, and officers' insurance obtainable for an annual premium equal to
the Maximum Amount.
(c) The provisions of this Section 6.14 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
his or her representatives.
SECTION 6.15 BOARD OF DIRECTORS OF PARENT. Upon the consummation of the
Offer or as soon as practicable thereafter, Parent shall use its best efforts
and take all reasonable steps to cause (a) Bernard L. Schwartz to be appointed
a member and Vice Chairman and Frank C. Lanza to be appointed a member, of the
Board of Directors of Parent; and (b) the bylaws of Parent to be amended to
modify the eligibility requirements of directors to permit Mr. Schwartz to
continue to be eligible to serve as a director through 2001, without prejudice
or commitment with respect to any further continuation of eligibility
thereafter.
SECTION 6.16 STANDSTILL PROVISIONS. The restrictions on Parent and its
affiliates contained in the Standstill Provisions (as defined in Section
6.2(a) hereof) (the "RESTRICTIONS") are hereby waived and Parent and Purchaser
are hereby released therefrom (a) as of and after the date hereof to the
extent necessary to permit Parent and Purchaser to comply with their
respective obligations and to enable Parent and Purchaser to exercise any of
their respective rights, under or as contemplated by this Agreement; and (b)
as of and after the termination of this Agreement (other than by the Company
pursuant to Section 8.1(f) hereof) if at such time or thereafter there is
proposed a Third Party Acquisition (as defined in Section 8.3(b) hereof);
provided, that the Restrictions shall not be waived under this Section 6.16(b)
with respect to any proposal by Parent, Purchaser and their affiliates to
acquire, directly or indirectly, both the Retained Business and all or
substantially all of the Spinco Business, whether by merger, consolidation or
otherwise, unless the proposed Third Party Acquisition also contemplates a
transaction or series of transactions in which both the Retained Business and
all or substantially all of the Spinco Business would be acquired, directly or
indirectly, by the Third Party or its affiliates.
SECTION 6.17 EFFECTIVENESS OF RIGHTS AGREEMENT. On or before January 10,
1996 the Company shall execute and deliver, and cause a person qualified to be
the Rights Agent under the Rights Agreement to execute and deliver, each of
the Rights Agreement and the Rights Amendment so that each shall be valid and
binding agreements of the Company.
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ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 7.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger is subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) This Agreement shall have been adopted by the affirmative vote of the
stockholders of the Company by the requisite vote in accordance with
applicable Law, if required by applicable Law;
(b) No statute, rule, regulation, order, decree, or injunction shall have
been enacted, entered, promulgated or enforced by any court or governmental
authority which prohibits or restricts the consummation of the Merger;
(c) Any waiting period applicable to the Merger under the Antitrust Laws
shall have terminated or expired and all approvals required under the
Antitrust Laws shall have been received;
(d) The Spin-Off shall have been consummated in all material respects; and
(e) The Offer shall not have been terminated in accordance with its terms
prior to the purchase of any Shares.
SECTION 7.2. CONDITIONS TO THE OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger is further subject
to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) The representations and warranties of Parent and Purchaser contained in
this Agreement shall be true and correct in all material respects at and as of
the Effective Time as if made at and as of such time; and
(b) Each of Parent and Purchaser shall have performed in all material
respects its obligations under this Agreement required to be performed by it
at or prior to the Effective Time pursuant to the terms hereof.
Parent and Purchaser will furnish the Company with such certificates and
other documents to evidence the fulfillment of the conditions set forth in
this Section 7.2 as the Company may reasonably request.
SECTION 7.3. CONDITIONS TO OBLIGATIONS OF PARENT AND PURCHASER TO EFFECT THE
MERGER. The obligations of Parent and Purchaser to effect the Merger are
further subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) The representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects at and as of the
Effective Time as if made at and as such time;
(b) The Company shall have delivered to Purchaser and (i) Bank of America,
Illinois (formerly known as Continental Bank, National Association), one or
more opinions of counsel acceptable to Bank of America, Illinois, stating that
the Merger complies with (A) Article IV of the Indenture dated as of January
15, 1992 between the Company and Continental Bank, National Association, as
trustee; and (B) Article Nine of the Indenture dated as of September 1, 1993
between the Company and Continental Bank, National Association, as trustee, as
supplemented by a First Supplemental Indenture dated as of June 1, 1994
between the Company and Continental Bank, National Association, as trustee;
and (ii) NationsBank of Georgia, National Association, an opinion of counsel
acceptable to NationsBank of Georgia, National Association, stating that the
Merger complies with Article Nine of the Indenture dated as of November 1,
1992 between the Company and NationsBank of Georgia, National Association, as
trustee (collectively, the "PUBLIC INDENTURE MERGER OPINIONS");
(c) The Company shall have performed in all material respects each of its
obligations under this Agreement required to be performed by it at or prior to
the Effective Time pursuant to the terms hereof.
33
The Company will furnish Parent and Purchaser with such certificates and
other documents to evidence the fulfillment of the conditions set forth in
this Section 7.3 as Parent or Purchaser may reasonably request.
SECTION 7.4. EXCEPTION. The conditions set forth in Sections 7.2 and 7.3
hereof shall cease to be conditions to the obligations of any of the parties
hereto if Purchaser shall have accepted for payment and paid for Shares
validly tendered pursuant to the Offer or if Purchaser fails to accept for
payment any Shares pursuant to the Offer in violation of the terms thereof.
ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
SECTION 8.1. TERMINATION. This Agreement may be terminated and the Offer and
the Merger may be abandoned at any time (notwithstanding approval of the
Merger by the stockholders of the Company) prior to the Effective Time:
(a) by mutual written consent of Parent, Purchaser and the Company;
(b) by Parent, Purchaser or the Company if any court of competent
jurisdiction in the United States or other United States governmental body
shall have issued a final order, decree or ruling or taken any other final
action restraining, enjoining or otherwise prohibiting the consummation of the
Offer, the Spin-Off or the Merger and such order, decree, ruling or other
action is or shall have become nonappealable;
(c) by Parent or Purchaser if due to an occurrence or circumstance which
would result in a failure to satisfy any of the conditions set forth in
Exhibit B hereto, Purchaser shall have (i) failed to commence the Offer within
the time required by Regulation 14D under the Exchange Act, (ii) terminated
the Offer or (iii) failed to pay for Shares pursuant to the Offer prior to
June 30, 1996;
(d) by the Company if (i) there shall not have been a material breach of any
representation, warranty, covenant or agreement on the part of the Company and
Purchaser shall have (A) failed to commence the Offer within the time required
by Regulation 14D under the Exchange Act, (B) terminated the Offer or (C)
failed to pay for Shares pursuant to the Offer prior to June 30, 1996 or (ii)
prior to the purchase of Shares pursuant to the Offer, a Third Party shall
have made a bona fide offer that the Board of Directors of the Company by a
majority vote determines in its good faith judgment and in the exercise of its
fiduciary duties, based as to legal matters on the written opinion of legal
counsel, is a Higher Offer (as defined in Section 8.3(b) hereof); provided,
that such termination under this clause (ii) shall not be effective until
payment of the fee required by Section 8.3(a) hereof;
(e) by Parent or Purchaser prior to the purchase of Shares pursuant to the
Offer, if (i) there shall have been a breach of any representation or warranty
on the part of the Company or Spinco under either this Agreement or the
Distribution Agreement having a Material Adverse Effect or materially
adversely affecting (or materially delaying) the consummation of the Offer,
(ii) there shall have been a breach of any covenant or agreement on the part
of the Company or Spinco under either this Agreement or the Distribution
Agreement resulting in a Material Adverse Effect or materially adversely
affecting (or materially delaying) the consummation of the Offer, which shall
not have been cured prior to the earlier of (A) 10 days following notice of
such breach and (B) two Business Days prior to the date on which the Offer
expires, (iii) the Company shall engage in Active Negotiations (as defined in
Section 8.3(b) hereof) with a Third Party with respect to a Third Party
Acquisition (as defined in Section 8.3(b) hereof), (iv) the Board of Directors
of the Company shall have withdrawn or modified (including by amendment of
Schedule 14D-9) in a manner adverse to Purchaser its approval or
recommendation of the Offer, the Spin-Off, the Merger, this Agreement or the
Distribution Agreement, shall have recommended to the Company's stockholders
another offer, shall have authorized the redemption of any Rights (whether or
not in accordance with Section 6.1(k) hereof) after the Company's receipt of
an Acquisition Proposal or shall have adopted any resolution to effect any of
the foregoing or (v) there shall not have been validly tendered and not
withdrawn prior to the expiration of the Offer at least two-thirds of the
Shares, determined on a fully diluted
34
basis, and on or prior to such date an entity or group (other than Parent or
Purchaser) shall have made and not withdrawn a proposal with respect to a
Third Party Acquisition; or
(f) by the Company if (i) there shall have been a breach of any
representation or warranty in this Agreement or the Distribution Agreement on
the part of Parent or Purchaser which materially adversely affects (or
materially delays) the consummation of the Offer or (ii) there shall have been
a material breach of any covenant or agreement in this Agreement or the
Distribution Agreement on the part of Parent or Purchaser which materially
adversely affects (or materially delays) the consummation of the Offer which
shall not have been cured prior to the earliest of (A) 10 days following
notice of such breach and (B) two Business Days prior to the date on which the
Offer expires.
SECTION 8.2 EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement pursuant to Section 8.1, this Agreement shall
forthwith become void and have no effect, without any Liability on the part of
any party hereto or its affiliates, directors, officers or shareholders, other
than the provisions of this Section 8.2 and Sections 6.3(b), 6.14, 8.3, 9.3
and 9.11 hereof. Nothing contained in this Section 8.2 shall relieve any party
from Liability for any breach of this Agreement.
SECTION 8.3 FEES AND EXPENSES.
(a) If:
(i) Parent or Purchaser terminates this Agreement pursuant to Section
8.1(e)(ii), (iii) or (v) hereof and within 12 months thereafter the Company
enters into an agreement with respect to a Third Party Acquisition, or a
Third Party Acquisition occurs, involving any party (or any affiliate
thereof) (A) with whom the Company (or its agents) had negotiations with a
view to a Third Party Acquisition, (B) to whom the Company (or its agents)
furnished information with a view to a Third Party Acquisition or (C) who
had submitted a proposal or expressed an interest in a Third Party
Acquisition, in the case of each of clauses (A), (B) and (C) after the date
hereof and prior to such termination; or
(ii) Parent or Purchaser terminates this Agreement pursuant to Section
8.1(e)(iii) or (v) hereof and, within 12 months thereafter, a Third Party
Acquisition shall occur involving a Higher Offer; or
(iii) Parent or Purchaser terminates this Agreement pursuant to Section
8.1(e)(iv) hereof; or
(iv) the Company terminates this Agreement pursuant to Section 8.1(d)(ii)
hereof;
then, in each case, the Company shall pay to Parent, within one Business Day
following the execution and delivery of such agreement or such occurrence, as
the case may be, or simultaneously with such determination pursuant to Section
8.1(d)(ii), a fee, in cash, of $175 million; provided, that the Company in no
event shall be obligated to pay more than one such $175 million fee with
respect to all such agreements and occurrences and such termination.
(b) "ACTIVE NEGOTIATIONS" means negotiations with a Third Party that has
proposed a Third Party Acquisition or made an Acquisition Proposal, or with
such Third Party's agents or representatives with respect to the substance of
such Third Party Acquisition or Acquisition Proposal, but will not include (x)
communications in connection with, or constituting, the furnishing of
information pursuant to a confidentiality agreement as contemplated by Section
6.2(a) hereof or (y) communications that include no more than an explicit bona
fide rejection of such proposal and a very brief statement of the reasons
therefor. "THIRD PARTY ACQUISITION" means the occurrence of any of the
following events: (i) the acquisition of the Company by merger or otherwise by
any person (which includes for these purposes a "person" as defined in Section
13(d)(3) of the Exchange Act) or entity other than Parent, Purchaser or any
affiliate thereof (a "THIRD PARTY"); (ii) the acquisition by a Third Party of
more than 30% of the total Assets of the Company and its Subsidiaries, taken
as a whole; (iii) the acquisition by a Third Party of 30% or more of the
outstanding Shares; (iv) the adoption by the Company of a plan of liquidation
or the declaration or payment of an extraordinary dividend; or (v) the
purchase by the Company or any of its Subsidiaries of more than 20% of the
outstanding Shares. "HIGHER OFFER" means any Third Party Acquisition which
reflects a higher value for the Shares than the aggregate value being provided
35
pursuant to the transactions contemplated by this Agreement and the Ancillary
Agreements including, without limitation, the shares of Spinco Common Stock
distributed in the Spin-Off. Prior to the termination of this Agreement by the
Company pursuant to Section 8.1(d)(ii) hereof, the Board of Directors shall
provide a reasonable opportunity to a nationally recognized investment banking
firm selected by Parent, Purchaser or their designee (the "IB") to evaluate
the proposed Third Party Acquisition, to determine whether it is a Higher
Offer and to advise the Board of Directors of the Company of the basis for and
results of its determination. The Company agrees to cooperate and cause the
Company's financial advisors to cooperate with the IB (including, without
limitation, providing the IB with full access to all such information which
the IB deems relevant and which the IB agrees to keep confidential) to the
extent reasonably requested by the IB. The fees and expenses incurred by the
IB shall be paid by Parent. Nothing contained in this Section 8.3(b) shall
prevent Parent and Purchaser from challenging, by injunction or otherwise, the
termination or attempted termination of this Agreement pursuant to Section
8.3(d)(ii) hereof.
(c) If this Agreement is terminated pursuant to Sections 8.1(e)(i) or
8.1(e)(ii) (the "DESIGNATED TERMINATION PROVISIONS") or Parent is entitled to
receive the $175 million fee under Section 8.3(a) hereof, then the Company
shall reimburse Parent, Purchaser and their affiliates (not later than one
Business Day after submission of statements therefore) for actual documented
out-of-pocket fees and expenses, not to exceed $45 million, actually incurred
by any of them or on their behalf in connection with the Offer, the proposed
Merger and the proposed Spin-Off and the transactions contemplated by this
Agreement and the Distribution Agreement (including, without limitation, fees
payable to financing sources, investment bankers (including to the IB),
counsel to any of the foregoing and Accountants), whether incurred prior to or
after the date hereof. The Company shall in any event pay the amount requested
(not to exceed $45 million) within one Business Day of such request, subject
to the Company's right to demand a return of any portion as to which invoices
are not received in due course.
(d) Except as specifically provided in this Section 8.3 and except as
otherwise specifically provided in the Distribution Agreement, each party
shall bear its own respective expenses incurred in connection with this
Agreement, the Offer and the Merger, including, without limitation, the
preparation, execution and performance of this Agreement and the Ancillary
Agreements and the transactions contemplated hereby and thereby, and all fees
and expenses of investment bankers, finders, brokers, agents, representatives,
counsel and accountants.
(e) Notwithstanding anything to the contrary contained in this Agreement,
upon payment by the Company of the amounts referred to in this Section 8.3(a),
the Company shall be released from all Liability hereunder, including any
Liability for any claims by Parent, Purchaser or any of their affiliates based
upon or arising out of any breach of this Agreement or any Ancillary
Agreement. The parties agree that reimbursement of Parent's expenses pursuant
to Section 8.3(c) hereof in connection with a termination of this Agreement
pursuant to any of the Designated Termination Provisions does not constitute
the payment of liquidated damages and, except to the extent of the payment
thereunder, shall not limit the Liability of the Company for any claims by
Parent, Purchaser or any of their affiliates based upon or arising out of any
breach of this Agreement or any Ancillary Agreement.
SECTION 8.4. AMENDMENT. This Agreement may be amended by action taken by the
Company, Parent and Purchaser at any time before or after adoption of the
Merger by the stockholders of the Company, if any; provided that (a) in the
event that any persons designated by Parent pursuant to Section 1.4 hereof
(such directors are hereinafter referred to as the "DESIGNATED DIRECTORS")
constitute in their entirety a majority of the Company's Board of Directors,
no amendment shall be made which decreases the cash price per Share or which
adversely affects the rights of the Company's stockholders hereunder without
the approval of a majority of the Continuing Directors (as hereafter defined)
if at the time there shall be any Continuing Directors and (b) after the date
of adoption of the Merger by the stockholders of the Company, no amendment
shall be made which decreases the cash price per Share or which adversely
affects the rights of the Company's stockholders hereunder without the
approval of such stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of the parties. For purposes hereof,
the term "CONTINUING DIRECTOR" shall mean (a) any member of the Board of
Directors of the Company as of the date hereof, (b) any member of the Board of
36
Directors of the Company who is unaffiliated with, and not a Designated
Director or other nominee of, Parent or Purchaser or their respective
Subsidiaries, and (c) any successor of a Continuing Director who is (i)
unaffiliated with, and not a Designated Director or other nominee of, Parent
or Purchaser or their respective Subsidiaries and (ii) recommended to succeed
a Continuing Director by a majority of the Continuing Directors then on the
Board of Directors.
SECTION 8.5. EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations
or other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties of the other parties contained herein or in any
document, certificate or writing delivered pursuant hereto or (c) waive
compliance with any of the agreements or conditions of the other parties
hereto contained herein; provided that (x) in the event that any Designated
Directors constitute in their entirety a majority of the Company's Board of
Directors, no extensions or waivers shall be made which adversely affect the
rights of the Company's stockholders hereunder without the approval of a
majority of the Continuing Directors if at the time there shall be any
Continuing Directors and (y) after the date of adoption of the Merger by the
stockholders of the Company, no extensions or waivers shall be made which
adversely affect the rights of the Company's stockholders hereunder without
the approval of such stockholders. Any agreement on the part of any party to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. SURVIVAL. Except as otherwise expressly set forth in the
Distribution Agreement, the representations, warranties, covenants and
agreements made herein shall not survive beyond the Effective Time; provided,
that the covenants and agreements contained in Sections 2.7, 2.10, 3.1, 3.2,
6.3(b), 6.4, 6.5, 6.6, 6.8, 6.9, 6.10, 6.14, 8.2, 8.3, 8.4, 8.5, 9.3, 9.5 and
9.11 hereof shall survive beyond the Effective Time without limitation.
SECTION 9.2. ENTIRE AGREEMENT. Except for the provisions of the
Confidentiality Agreement which shall continue in full force and effect, this
Agreement (including the schedules and exhibits and the agreements and other
documents referred to herein, including, without limitation, the Ancillary
Agreements) constitutes the entire agreement among the parties with respect to
the subject matter hereof and supersedes all other prior negotiations,
commitments, agreements and understandings, both written and oral, between the
parties or any of them with respect to the subject matter hereof.
SECTION 9.3. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the Laws of the State of New York (regardless of
the Laws that might otherwise govern under applicable principles of conflicts
Law) as to all matters, including, without limitation, matters of validity,
construction, effect, performance and remedies.
SECTION 9.4. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given upon (a) transmitter's confirmation of
a receipt of a facsimile transmission, (b) confirmed delivery by a standard
overnight carrier or when delivered by hand or (c) the expiration of five
Business Days after the day when mailed by certified or registered mail,
postage prepaid, addressed at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) If to the Parent or Purchaser, to:
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
Telephone: (301) 897-6125
Telecopy: (301) 897-6333
Attention: General Counsel
37
with a copy to:
O'Melveny & Myers
153 E. 53rd Street
New York, New York 10022
Telephone: (212) 326-2000
Telecopy: (212) 326-2061
Attention: C. Douglas Kranwinkle, Esq.
Jeffrey J. Rosen, Esq.
and to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Telephone: (212) 735-3000
Telecopy: (212) 735-2001
Attention: Peter Allan Atkins, Esq.
Lou R. Kling, Esq.
(b) If to the Company, to:
Loral Corporation
600 Third Avenue
New York, New York 10016
Telephone: (212) 697-1105
Telecopy: (212) 661-8988
Attention: General Counsel
with a copy to:
Willkie Farr & Gallagher
153 E. 53rd Street
New York, New York 10022
Telephone: (212) 821-8000
Telecopy: (212) 821-8111
Attention: Robert B. Hodes, Esq.
Bruce R. Kraus, Esq.
SECTION 9.5. SUCCESSORS AND ASSIGNS; NO THIRD PARTY BENEFICIARIES. This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties and their respective successors and permitted
assigns, but neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by either party (whether by operation
of law or otherwise) without the prior written consent of the other party;
provided, that Parent may assign its rights and obligations hereunder or those
of Purchaser to Parent or any subsidiary of Parent, and Spinco may assign its
rights and obligations hereunder to any successor to Spinco, but in each case
no such assignment shall relieve Parent, Purchaser or Spinco, as the case may
be, of its obligations hereunder. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and except for Sections 2.7,
2.10, 6.8 and 6.10 hereof nothing in this Agreement, express or implied, is
intended to or shall confer upon any other person any rights, benefits or
remedies of any nature whatsoever under or by reason of this Agreement.
SECTION 9.6. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same instrument.
SECTION 9.7. INTERPRETATION. The descriptive headings herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement. Except as
38
otherwise expressly provided in this Agreement, as used in this Agreement, the
term "person" shall have the meaning assigned to that term in the Distribution
Agreement.
SECTION 9.8. SCHEDULES. The Disclosure Schedule shall be construed with and
as an integral part of this Agreement to the same extent as if the same had
been set forth verbatim herein.
SECTION 9.9. LEGAL ENFORCEABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without affecting the validity or enforceability of the
remaining provisions hereof. Any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction. If any provision of this Agreement is so broad as to
be unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
SECTION 9.10. SPECIFIC PERFORMANCE. Each of the parties hereto acknowledges
and agrees that in the event of any breach of this Agreement, each non-
breaching party would be irreparably and immediately harmed and could not be
made whole by monetary damages. It is accordingly agreed that the parties
hereto (a) will waive, in any action for specific performance, the defense of
adequacy of a remedy at law and (b) shall be entitled, in addition to any
other remedy to which they may be entitled at law or in equity, to compel
specific performance of this Agreement in any action instituted in any state
or federal court sitting in New York. The parties hereto consent to personal
jurisdiction in any such action brought in any state or federal court sitting
in New York and to service of process upon it in the manner set forth in
Section 9.4 hereof.
SECTION 9.11. BROKERAGE FEES AND COMMISSIONS. Except as set forth in
Sections 4.18 and 5.6, the Company hereby represents and warrants to Parent
with respect to the Company, and Parent hereby represents and warrants to the
Company with respect to Parent and Purchaser, that no person or entity is
entitled to receive from the Company or Parent and Purchaser, respectively,
any investment banking, brokerage or finder's fee or fees for financial
consulting or advisory services in connection with this Agreement and Plan of
Merger or any of the transactions contemplated hereby.
[The remainder of this page has been left blank intentionally.]
39
IN WITNESS WHEREOF, each of the parties has caused this Agreement and Plan of
Merger to be executed on its behalf by its officers thereunto duly authorized,
all as of the day and year first above written.
Loral Corporation
By: /s/ Michael B. Targoff
----------------------------------
Name: Michael B. Targoff
Title: Senior Vice President
Lockheed Martin Corporation
By: /s/ Marcus C. Bennett
----------------------------------
Name: Marcus C. Bennett
Title: Senior Vice President
LAC Acquisition Corporation
By: /s/ Frank H. Menaker, Jr.
----------------------------------
Name: Frank H. Menaker, Jr.
Title: Vice President
40
EXHIBITS
Exhibit A............................... Tax Sharing Agreement
Exhibit B............................... Conditions to Offer
Exhibit C............................... Form of Employment Protection Agreement
Exhibit D............................... Employment Protection Plan
Exhibit E............................... Supplemental Severance Program
EXHIBIT A
TAX SHARING AGREEMENT
TAX SHARING AGREEMENT ("the Agreement") dated as of _____________,
1996 by and among Loral Corporation, a New York corporation (the "Company"),
Loral Telecommunications Acquisition, Inc., a Delaware corporation and a wholly-
owned subsidiary of the Company ("Spinco"), Lockheed Martin Corporation, a
Maryland corporation ("Parent") and LAC Acquisition Corporation, a New York
corporation and a wholly-owned subsidiary of Parent (the "Purchaser").
WHEREAS, in connection with the restructuring of the Company pursuant
to the Restructuring, Financing and Distribution Agreement, dated as of January
8, 1996 (the "Distribution Agreement"), the Company, Spinco and certain of the
Retained Subsidiaries have agreed to certain intercompany distributions,
assignments, transfers and contributions of the Spinco Assets and the assumption
of certain liabilities by Spinco, as more fully described in Section 2.1 of the
Distribution Agreement (the "Transfer");
WHEREAS, the Company will retain its stock in all of its subsidiaries
other than the Spinco Subsidiaries (the "Retained Subsidiaries");
WHEREAS, in accordance with the terms of the Agreement and Plan of
Merger dated as of January 8, 1996 (the "Merger Agreement"), the Purchaser will
commence and consummate the Offer and the Company will complete the Transfer;
WHEREAS, immediately after the consummation of the Offer and the Form
10 or registration statement, as the case may be, having been declared effective
by the SEC, the Company will distribute the Spinco Common Stock to the Company
shareholders and the Company will retain its Spinco Preferred Stock;
WHEREAS, pursuant to the Merger Agreement, and in accordance with New
York law, the Purchaser will merge with and into the Company after certain
conditions are satisfied at the Effective Time (the "Merger"), whereby each
share of common stock of the Company issued and outstanding immediately prior to
the Effective Time will be converted into the right to receive cash and, as a
result of such Merger, the Company, as the surviving corporation, will become
wholly-owned by Parent;
WHEREAS, at the end of the day on which the Distribution occurs (the
"Distribution Date"), Spinco's taxable year shall close for U.S. federal income
tax purposes;
WHEREAS, the parties hereto wish to provide for the payment of tax
liabilities and entitlement to refunds, allocate responsibility and provide for
cooperation in the filing of tax returns, provide for the realization and
payment of tax benefits arising out of adjustments to the tax returns of the
parties and provide for certain other matters;
NOW, THEREFORE, in consideration of the premises and the
representations, covenants and agreements herein contained, and intending to be
legally bound hereby, the Company, Spinco, Parent, and the Purchaser hereby
agree as follows:
1. Certain Definitions. The following terms used herein shall have
the meanings set forth below (such terms to be equally applicable to the
singular and plural forms of the terms defined or referred to below):
"Aerospace" shall have the meaning set forth in the Distribution Agreement.
"Agreement" shall have the meaning set forth in the recitals to this
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" shall have the meaning set forth in the recitals to this
Agreement.
"Company Group" means the Retained Subsidiaries, together with the Company.
"Consolidated Group" or "consolidated group" means an affiliated group of
corporations filing a consolidated federal income tax return, as defined in
Treasury Regulation Section 1.1502-1(h).
A-2
"Continental" shall have the meaning set forth in the Distribution
Agreement.
"Distribution" shall have the meaning set forth in the Distribution
Agreement.
"Distribution Agreement" shall have the meaning set forth in the recitals
to this Agreement.
"Distribution Date" shall have the meaning set forth in the recitals to
this Agreement.
"Effective Time" shall have the meaning set forth in the Merger Agreement.
"Form 10" shall have the meaning set forth in the Distribution Agreement.
"Holdings" shall have the meaning set forth in the Distribution Agreement.
"Income Taxes" means any and all taxes based upon or measured by net income
(including, without limitation, any alternative minimum tax under Section 55 of
the Code) imposed by or payable to the U.S., or any state, county, local or
foreign government or any subdivision or agency thereof, and such term shall
include any interest (whether paid or received), penalties or additions to tax
attributable thereto.
"Income Tax Liabilities" means all liabilities for Income Taxes.
"Indemnified Party" means the party that is entitled to indemnification by
another party pursuant to this Agreement.
"Indemnifying Party" means the party that is required to indemnify another
party pursuant to this Agreement.
"Independent Accounting Firm" means a "big six" independent accounting
firm, jointly selected by the parties; or, if the parties cannot agree on such
accounting firm, Spinco and Parent shall each submit the name of a "big six"
independent accounting firm that does not at the time and has not in the prior
two years provided
A-3
services to any member of the Spinco Group or the Parent Group, and the
"Independent Accounting Firm" shall mean the firm selected by lot from these two
firms.
"Independent Law Firm" means a nationally-recognized independent law firm,
jointly selected by the parties; or, if the parties cannot agree on such law
firm, Spinco and Parent shall each submit the name of a nationally-recognized
independent law firm that does not at the time and has not in the prior two
years provided services to any member of the Spinco Group or the Parent Group,
and the "Independent Law Firm" shall mean the firm selected by lot from these
two firms.
"Information Return" means any report, return, declaration or other
information or filing (other than a Tax Return) required to be supplied to any
taxing authority or jurisdiction.
"K&F" shall have the meaning set forth in the Distribution Agreement.
"LGP" shall have the meaning set forth in the Distribution Agreement.
"Merger" shall have the meaning set forth in the recitals to this
Agreement.
"Merger Agreement" shall have the meaning set forth in the recitals to this
Agreement.
"Offer" shall have the meaning set forth in the Merger Agreement.
"Old Company Group" means the consolidated group of corporations of which
the Company is the "common parent" within the meaning of Section 1504 of the
Code and the Treasury Regulations promulgated under Section 1502 of the Code and
any Subsidiary of a member of such consolidated group.
"Other Taxes" means any and all taxes, levies or other like assessments,
charges or fees, other than Income Taxes, including, without limitation, any
excise, real or personal property, gains, sales, use, license, real estate or
personal property transfer, net worth, stock transfer, payroll, ad valorem and
other governmen-
A-4
tal taxes and any withholding obligation imposed by or payable to the U.S., or
any state, county, local or foreign government or subdivision or agency thereof,
and any interest (whether paid or received), penalties or additions to tax
attributable thereto.
"Overpayment Rate" means the rate specified under Section 6621(a)(1) of the
Code for overpayments of tax.
"Parent" shall have the meaning set forth in the recitals to this
Agreement.
"Parent Group" means the consolidated group of which Parent or any
successor is the "common parent" within the meaning of Section 1504 of the Code
and the Treasury Regulations promulgated under Section 1502 of the Code and any
Subsidiary of a member of such consolidated group.
"Proceeding" means any audit or other examination, judicial or
administrative proceeding relating to liability for or refunds or adjustments
with respect to Other Taxes or Income Taxes.
"Purchaser" shall have the meaning set forth in the recitals to this
Agreement.
"Refund" means any refund of Income Taxes or Other Taxes, including any
reduction in liabilities for such taxes.
"Retained Subsidiaries" shall have the meaning set forth in the recitals to
this Agreement.
"SEC" means the Securities and Exchange Commission.
"Spinco" shall have the meaning set forth in the recitals to this
Agreement.
"Spinco Assets" shall have the meaning set forth in the Distribution
Agreement.
"Spinco Common Stock" shall have the meaning set forth in the Distribution
Agreement.
"Spinco Companies" shall have the meaning set forth in the Distribution
Agreement.
A-5
"Spinco Group" means the Spinco Companies, Spinco and any Subsidiary
thereof (including any successors thereto).
"Spinco Preferred Stock" shall have the meaning set forth in the
Distribution Agreement.
"SSL" shall have the meaning set forth in the Distribution Agreement.
"Subsidiary" or "subsidiary" shall have the meaning set forth in the
Distribution Agreement.
"Tax Benefit" means, in the case of separate state, local or other Income
Tax Returns, the sum of the amount by which the tax liability (after giving
effect to any alternative minimum or similar tax and adjusted for the loss of
any federal tax benefit) of a person to the appropriate taxing authority is
reduced (including, without limitation, by deduction, entitlement to refund,
credit or otherwise, whether available in the current taxable year, as an
adjustment to taxable income in any other taxable year or as a carryforward or
carryback, as applicable) plus any interest from such government or jurisdiction
relating to such tax liability, and in the case of a consolidated federal Income
Tax Return or similar state, local or other Income Tax Return, the sum of the
amount by which the tax liability of the consolidated group or other relevant
group of corporations to the appropriate government or jurisdiction is reduced
(including, without limitation, by deduction, entitlement to refund, credit or
otherwise, whether available in the current taxable year, as an adjustment to
taxable income in any other taxable year or as a carryforward or carryback, as
applicable) plus any interest from such government or jurisdiction relating to
such tax liability, less the amount by which the tax liability to another taxing
authority is increased as a result of the reduction in tax liabilities to
another taxing authority (unless such increase has already been taken into
account under the provisions of Section 5 hereof) and less any increase in tax
liability as a result of the receipt of interest as described above.
"Tax Return" means any report, return, declaration or other information or
filing required to be supplied to any taxing authority or jurisdiction with
respect to
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Income Taxes or Other Taxes, including, without limitation, any documents with
respect to or accompanying payments of estimated Income Taxes or Other Taxes, or
with respect to or accompanying requests for the extension of time in which to
file any such report, return, declaration or other document.
"Transfer" shall have the meaning set forth in the recitals to this
Agreement.
"Treasury Regulation" means any final, temporary or proposed regulation
promulgated under the Code.
"U.S." means the United States of America.
2. Cooperation; Maintenance and Retention of Records. Parent and
Spinco shall, and shall cause the members of the Parent Group and the Spinco
Group, respectively, to, provide the requesting party with such assistance and
documents, without charge, as may be reasonably requested by such party in
connection with (i) the preparation of any Tax Return or any Information Return,
(ii) the conduct of any Proceeding (iii) any matter relating to Income Taxes,
Other Taxes or Information Returns of any member of the Old Company Group, the
Company Group, the Spinco Group or the Parent Group and (iv) any other matter
that is a subject of this Agreement. Such cooperation and assistance shall be
provided to the requesting party promptly upon its request. Parent and the
Company, on the one hand, and Spinco, on the other hand, shall retain or cause
to be retained all Tax Returns, Information Returns, schedules and workpapers,
and all material records or other documents relating thereto, until the
expiration of the statute of limitations (including any waivers or extensions
thereof) of the taxable years to which such Tax Returns, Information Returns,
and other documents relate or until the expiration of any additional period that
any party reasonably requests, in writing, with respect to specific material
records or documents. A party intending to destroy any material records or
documents shall provide the other party with advance notice and the opportunity
to copy or take possession of such records and documents. The parties hereto
will notify each other in writing of any waivers or extensions of the applicable
statute of limitations that may affect the period for which the foregoing
records or other documents must be retained.
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3. Timing of Distribution Date; Reporting of Certain Transactions.
(a) The parties hereby agree that, for federal income tax
purposes (and, to the extent permissible under applicable law, for state, local
and other tax purposes), Spinco's taxable year shall end at the close of the
Distribution Date, in accordance with the rule of Treasury Regulation Section
1.1502-76(b)(1).
(b) The Parent Group hereby agrees to report each of the
transactions set forth in Section 2.1 of the Distribution Agreement for all
foreign, federal, state and local Income Tax purposes in a manner consistent
with the form and chronology described therein, including (i) in the case of any
distribution of a Spinco Asset by any member of the Old Company Group that is a
corporation, as a distribution of property under Section 311(b) of the Code and
any comparable provision of state or local law; (ii) in the case of any such
distribution between members of the Old Company Group filing a consolidated Tax
Return, as an "intercompany transaction" within the meaning of Treasury
Regulations Section 1.1502-13(b) and any comparable provision of state or local
law; and (iii) in the case of any transfer subject to Treasury Regulations
Section 1.1502-13(d) and any comparable provision of state or local law, by
applying the rules described therein. The parties hereby agree to negotiate in
good faith to determine the fair market values of Spinco and the material items
of the Spinco Assets for purposes of reporting the transactions described in
this subsection (b) for all foreign, federal, state and local Income Tax
purposes, and the parties shall report all Income Taxes in a manner consistent
with such fair market values.
4. Filing of Tax Returns and Information Returns; Payment of Taxes.
(a) Old Company Group. To the extent not filed before the
Distribution Date, Parent shall prepare and file or cause to be prepared and
filed all Tax Returns of the Old Company Group and any member thereof, other
than Tax Returns involving only the Spinco Group (or any members thereof) for
which Spinco is responsible pursuant to subsection (c) hereof, and Parent shall
pay or cause to be paid all Income Taxes shown to be due and
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payable by any member of the Old Company Group on such Tax Returns.
(b) Company Group; Parent Group. Parent shall prepare and file or
shall cause to be prepared and filed all Tax Returns of the Company Group and
the Parent Group and any member of either the Company Group or the Parent Group
(other than Tax Returns of Spinco or any of its Subsidiaries for taxable periods
beginning after the Distribution Date) and shall pay or cause to be paid all
Income Taxes shown to be due and payable by any member of the Company Group or
the Parent Group on such Tax Returns.
(c) Spinco Group. Spinco shall prepare and file or cause to be
prepared and filed (i) all Tax Returns of the Spinco Group for all taxable
periods beginning after the Distribution Date and (ii) all Tax Returns
involving only one or more members of the Spinco Group for all taxable periods,
and Spinco shall pay or cause to be paid all Income Taxes shown to be due and
payable by any member of the Spinco Group on such Tax Returns.
(d) Information Returns. Spinco shall file all Information
Returns required to be filed by any member of the Spinco Group after the
Distribution Date and all Information Returns involving only the Spinco Group
(or any members thereof) for all taxable periods. Except as provided in the
preceding sentence, to the extent not filed before the Distribution Date, Parent
shall file all Information Returns required to be filed by any member of the Old
Company Group, the Parent Group or the Company Group. Any party required to file
any Information Return pursuant to this Section 4 shall pay any fees or charges
required in connection with such filing and shall indemnify and hold the other
party harmless against any penalties, fees or other charges resulting from the
failure to pay such fees or charges or the failure to file such Information
Returns in a correct or timely fashion, unless such failure results from the
failure of the other party to provide correct information.
5. Indemnification for Taxes.
(a) Spinco Group Income Taxes. The Spinco Group shall pay, and
shall indemnify and hold the
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Parent Group harmless against, (i) all Income Tax Liabilities of any member of
the Spinco Group for all taxable periods (including taxable periods or portions
thereof during which any member of the Spinco Group was a member of the Old
Company Group or the Parent Group but excluding all Income Tax Liabilities
arising from the Transfer and Distribution (other than amounts described in
clause (iii) hereof); (ii) all Income Tax Liabilities incurred pursuant to
Treasury Regulation Section 1.1502-6 or any comparable state, local or other
provision providing for joint and several liability as a result of any member of
the Spinco Group having been a member of any consolidated, combined, unitary or
other group (other than the Old Company Group and the Parent Group); and (iii)
the excess, if any, of (A) all Income Tax Liabilities arising, directly or
indirectly, from the transactions set forth in Section 2.1(a) of the
Distribution Agreement and the Distribution minus (B) the hypothetical amount of
all Income Tax Liabilities that would have arisen, directly or indirectly, from
a distribution by Aerospace to Holdings of all of the shares of capital stock
owned by Aerospace in LGP and SSL, followed by a distribution by Holdings to the
Company of all of the shares of capital stock owned by Holdings in LGP, SSL and
Continental, followed by a transfer by the Company to Spinco of all of the
shares of capital stock owned by the Company in LGP, SSL, K&F and Continental
and the transfer to Spinco of the other Spinco Assets described in Section
2.1(a)(viii) of the Distribution Agreement, followed by the Distribution. For
purposes of clause (i) of this subsection (a), the Income Tax Liabilities of any
member or members of the Spinco Group for any taxable period during which such
member or members joined with members of the Old Company Group, the Parent
Group, or any other group in the filing of a consolidated, unitary, combined or
other group Tax Return shall be determined as if each of such Spinco Group
member or members filed its Tax Returns for such period on a stand-alone basis.
(b) Old Company Group and Parent Group Income Taxes. The Parent
Group shall pay, and shall indemnify and hold the Spinco Group harmless against,
(i) all Income Tax Liabilities of any member of the Old Company Group or the
Parent Group (other than Income Tax Liabilities of any member of the Spinco
Group for any taxable period); (ii) all Income Tax Liabilities incurred pursuant
to Treasury Regulation Section 1.1502-6 or any
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comparable state, local or other provision providing for joint and several
liability as a result of any member of the Old Company Group or the Parent Group
(other than any member of the Spinco Group) having been a member of any
consolidated, combined, unitary or other group; and (iii) any Income Tax
Liabilities arising from the Transfer and the Distribution (other than amounts
described in subsection (a)(iii) hereof), regardless of when recognized.
(c) Other Taxes. The Parent Group shall pay, and shall indemnify
and hold the Spinco Group harmless against, all liabilities for all Other Taxes
attributable to the income, property or activities of any member of the Old
Company Group or the Parent Group (other than, in both cases, a member of the
Spinco Group), including all Other Taxes, if any, arising from the Transfer and
the Distribution. Except as provided in the preceding sentence, the Spinco Group
shall pay, and shall indemnify and hold the Parent Group harmless against, all
liabilities for all Other Taxes attributable to the income, property or
activities of any member of the Spinco Group. Without limiting the generality of
the foregoing, and notwithstanding any other provision of this Agreement, the
Company shall prepare and file, or cause to be prepared and filed, any Tax
Return required under the New York Real Property Transfer Gains Tax, the New
York Real Property Transfer Tax and the New York City Real Property Transfer Tax
in connection with the Offer, the Merger, or the Transfer (other than amounts
described in clause (iii) of subsection (a) hereof) and the Parent Group shall
timely pay and indemnify the Spinco group against any taxes due and payable on
such returns; and Spinco shall prepare and file, or cause to be prepared and
filed, any Tax Return required under the New York Real Property Transfer Gains
Tax, the New York Real Property Transfer Tax and the New York City Real Property
Transfer Tax in connection with the Distribution and the Spinco Group shall
timely pay and indemnify the Parent group against any taxes due and payable on
such returns.
(d) To the extent that the Indemnifying Party is required to
indemnify another party pursuant to this Section 5, the Indemnifying Party shall
pay to the Indemnified Party, no later than 10 days prior to the due date of the
relevant Tax Return or estimated Tax Return or 10 days after the Indemnifying
Party receives the Indemnified Party's calculations, whichever occurs later,
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the amount that the Indemnifying Party is required to pay the Indemnified Party
under this Section 5. The Indemnified Party shall submit its calculations of
the amount required to be paid pursuant to this Section 5, showing such
calculations in sufficient detail so as to permit the Indemnifying Party to
understand the calculations. If the Indemnifying Party disagrees with such
calculations, it must notify the Indemnified Party of its disagreement in
writing within 15 days of receiving such calculations. Any dispute regarding
such calculations shall be resolved in accordance with Section 8 of this
Agreement.
6. Carryovers. In the event that any member of the Spinco Group
realizes any loss or credit for tax purposes for any taxable period beginning on
or after the Distribution Date, such member may elect to carry back such loss or
credit only with the written consent of Parent (which consent shall not be
unreasonably withheld).
7. Refunds of Income Taxes or Other Taxes. The Spinco Group shall be
entitled to all Refunds attributable to the Spinco Group, and the Parent Group
shall be entitled to all Refunds attributable to the Company Group or the Old
Company Group (other than those attributable to the Spinco Group).
Notwithstanding the foregoing, the Parent Group shall be entitled to Refunds
attributable to the Spinco Group that result from the carryback of a tax
attribute by the Company Group, and the Spinco Group shall be entitled to
Refunds attributable to the Company Group that result from the carryback of a
tax attribute by the Spinco Group. A party receiving a Refund to which another
party is entitled pursuant to this Agreement shall pay the amount to which such
other party is entitled within ten days after the receipt of the refund. The
amount of any Refund attributable to the Spinco Group shall be determined
according to the principles set forth in the last sentence of Section 5(a)
hereof.
8. Disputes. If the parties disagree as to the amount of any payment
to be made under, or any other matter arising out of, this Agreement, the
parties shall attempt in good faith to resolve such dispute, and any agreed-upon
amount shall be paid to the appropriate party. If such dispute is not resolved
within 15 days, the parties shall jointly retain the Independent Accoun-
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ting Firm to resolve the dispute. If and to the extent that the dispute
presents legal issues, the Independent Accounting Firm shall have the authority
to consult the Independent Law Firm. The fees of the Independent Accounting
Firm and the Independent Law Firm shall be borne equally by the Spinco Group and
the Parent Group, and the decision of such Independent Accounting Firm and
Independent Law Firm shall be final and binding on all parties. Following the
decision of the Independent Accounting Firm and/or the Independent Law Firm, the
parties shall each take or cause to be taken any action that is necessary or
appropriate to implement such decision of the Independent Accounting Firm and
the Independent Law Firm, including, without limitation, the prompt payment of
underpayments or overpayments, with interest calculated on such overpayments and
underpayments at the Overpayment Rate from the date such payment was due through
the date such underpayment or overpayment is paid or refunded.
9. Control of Proceedings. In the case of any Proceeding with
respect to Income Taxes or Other Taxes for which a party is or may be liable
pursuant to this Agreement, Parent or Spinco, as the case may be, shall promptly
give notice to the other party, informing such other party of the Proceeding in
reasonable detail, and Parent or Spinco, as the case may be, shall execute or
cause to be executed any powers of attorney or other documents necessary to
enable the party that may be so liable to take all actions desired by such party
with respect to such Proceeding. Such party shall have the right to control any
such Proceeding and, to initiate any claim for refund, file any amended return
or take any other action that it deems appropriate with respect to such Income
Taxes or Other Taxes, provided, however, that if such Proceeding relates to a
Tax Return for which the other party is Responsible, the Responsible party shall
have the right, within a reasonable time after such notice is given, to deny the
non-Responsible party control of such Proceeding. In the event that a
Responsible party denies control of a Proceeding to a non-Responsible party, the
parties shall agree upon the amount of such Income Taxes of Other Taxes for
which the non-Responsible party is liable pursuant to this Agreement or, if the
parties cannot so agree, shall submit the amount of such liability to
arbitration for resolution (in a manner consistent with the procedures set forth
in Section 8 hereof), which resolution shall determine the amount of
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the payment to be made pursuant to this Agreement, taking into account the risks
of litigation and the other practical considerations associated with the
settlement of such a Proceeding, and the Responsible party shall have the sole
discretion to defend, settle or take any action that it deems appropriate with
respect to such Proceeding. For purposes of this Section 9, a party is
Responsible for any Tax Return that it is required to file pursuant to Section 4
hereof, and Parent is Responsible for any Tax Returns of any member of the Old
Company Group (excluding Tax Returns involving solely members of the Spinco
Group).
10. Timing Adjustment.
(a) If an audit or other examination of any Income Tax Return of
the Parent Group or a Proceeding for any period for which Parent is responsible
shall result (by settlement or otherwise) in any adjustment that (A) decreases
deductions, losses or tax credits or increases income, gains or recapture of tax
credits for such period and (B) will permit the Spinco Group to increase
deductions, losses or tax credits or decrease income, gains or recapture of tax
credits that would otherwise (but for such adjustment) have been taken or
reported with respect to the Spinco Group for one or more taxable periods,
Parent shall notify Spinco (Parent and Spinco, for purposes of this subsection
(a), shall be deemed to include, where appropriate, the affiliated, unitary,
combined or other group of which such party is a member) and provide it with
adequate information so that it can reflect on the Income Tax Returns of the
Spinco Group such increases in deductions, losses or tax credits or decreases in
income, gains, or recapture of tax credits. With respect to such increases or
decreases on Income Tax Returns, Spinco shall, and shall cause the Spinco Group
to, pay to Parent the amounts of any Tax Benefits that result therefrom, within
ten days of the date on which such Tax Benefits are realized.
(b) If an audit or other examination of any Income Tax Return of
the Spinco Group or a Proceeding for any period for which Spinco is responsible
shall result (by settlement or otherwise) in any adjustment that (A) decreases
deductions, losses or tax credits or increases income, gains or recapture of tax
credits for such period, and (B) will permit the Parent Group to in-
A-14
crease deductions, losses or tax credits or decrease income, gains or recapture
of tax credits that would otherwise (but for such adjustment) have been taken or
reported with respect to the Parent Group for one or more taxable periods,
Spinco will notify Parent (Spinco and Parent, for purposes of this subsection
(b), shall be deemed to include, where appropriate, the affiliated, unitary,
combined or other group of which such party is a member) and provide it with
adequate information so that it can reflect on the Income Tax Returns of the
Parent Group such increases in deductions, losses or tax credits or decreases in
income, gains, or recapture of tax credits. With respect to such increases or
decreases on Income Tax Returns, Parent shall, and shall cause the Parent Group
to, pay to Spinco the amounts of any Tax Benefits that result therefrom, within
ten days of the date such Tax Benefits are realized.
(c) No later than 30 days after the date on which Spinco or
Parent, as the case may be, receives notice pursuant to subsections (a) or (b)
that a Tax Benefit may be available to the Spinco Group or Parent Group,
respectively, Spinco or Parent, as the case may be, shall, and shall cause such
members of the Parent Group or the Spinco Group or, in the case of Spinco, such
members of the Old Company Group, as the case may be, to, as promptly as
practicable, take such steps (including, without limitation, the filing of
amended returns or claims for refunds where the amount of the Tax Benefit for
any company in the aggregate exceeds $100,000) necessary or appropriate to
obtain such Tax Benefit. Thereafter, Spinco or Parent, as the case may be,
shall, and shall cause the Parent Group or the Spinco Group or, in the case of
Spinco, the Old Company group, as the case may be, to, file all Income Tax
Returns to obtain at the earliest possible time such Tax Benefit to the maximum
extent available. Notwithstanding anything to the contrary in this Section 10,
either party may, at its election, pay the amount of any Tax Benefit to the
other party rather than filing amended returns or otherwise reflecting
adjustments or taking positions on its Tax Returns. If such an election is made
by a party, the party will be treated as having realized a Tax Benefit at the
time such Tax Benefit would have been realized if such party had chosen to file
amended returns or otherwise to reflect adjustments or to take positions on its
Tax Returns; provided, however, that such party shall pay
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to the other party, no later than 20 days after such party receives notice from
the other party that a Tax Benefit may be available, the amount of Tax Benefit
that such party would have obtained if such party had filed an amended Tax
Return. Notwithstanding the foregoing, a party shall not be required to take
steps to obtain a Tax Benefit or to pay the other party, if, in the opinion of
such party's counsel, which counsel shall be reasonably acceptable to the other
party, there is not substantial authority to seek such Tax Benefit.
(d) For purposes of this Agreement, a Tax Benefit shall be deemed
to have been realized at the time any refund of Taxes is received or applied
against other Taxes due, or at the time of filing of an Income Tax Return
(including any relating to estimated Taxes) on which a loss, deduction or credit
is applied in reduction of Taxes which would otherwise be payable; provided,
however, that, where a party has other losses, deductions, credits or similar
items available to it, deductions, credits or items for which the other party
would be entitled to a payment under this Agreement shall be treated as the last
items utilized to produce a Tax Benefit. In accordance with the provisions of
this subsection (d), Spinco and Parent agree that where a Tax Benefit may be
realized that may result in a payment to, or reduce a payment by, the other
party hereto, each party will as promptly as practicable take or cause its
affiliate to take such reasonable or appropriate steps (including, without
limitation, the filing of an amended return or claim for refund) to obtain at
the earliest possible time any such reasonably available Tax Benefit. In the
event that after payment of a Tax Benefit under this subsection (d), such Tax
Benefit is reduced or eliminated because of a final decree or agreement of a
taxing authority or the carryback of losses or credits, then the party to whom
the Tax Benefit was paid shall pay to the other party the amount by which the
Tax Benefit was reduced or eliminated plus interest on the amount returned at
the Overpayment Rate from the date of payment to the date of repayment.
11. Payments.
(a) Any payment required by this Agreement that is not made on or
before the date provided hereunder shall bear interest after such date at the
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Overpayment Rate. In the case of any payment required hereunder to be made
"promptly," such payment shall be considered late for purposes of this Agreement
if not made 20 days after notice that such payment is due is provided. All
payments made pursuant to this Agreement shall be made in immediately available
funds.
(b) All payments made pursuant to this Agreement shall be treated
as an adjustment (increase or decrease) in the amount contributed by Parent to
the Company and by the Company to Spinco, and the parties shall not file any Tax
Returns or Information Returns inconsistent with this position.
12. Termination of Prior Tax Sharing Agreements. This Agreement
shall take effect on the Distribution Date and shall replace all other
agreements, whether or not written, in respect of any Income Taxes or Other
Taxes between or among any members of the Old Company Group, or their respective
predecessors or successors, other than any such agreements made exclusively
between or among any members of the Spinco Group. All such replaced agreements
shall be cancelled as of the Distribution Date, and any rights or obligations
existing thereunder thereby shall be fully and finally settled without any
payment by any party thereto.
13. Notices. All notices, requests, demands and other communications
required or permitted under this Agreement will be made in the manner provided
in Section 11.5 of the Distribution Agreement.
14. Construction. The provisions of this Agreement shall be
construed such that no increase or decrease in Income Taxes or Other Taxes or
Tax Benefit is taken into account more than once.
15. Entire Agreement; Amendments. This Agreement constitutes the
entire agreement of the parties concerning the subject matter hereof and
supersedes all prior agreements, whether or not written, concerning such subject
matter. This Agreement may not be amended except by an agreement in writing,
signed by the parties.
16. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York regardless of the laws that
might
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otherwise govern under applicable New York principles of conflicts of law.
17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which shall
constitute together the same document.
18. Effective Date. This Agreement shall become effective only
upon the occurrence of the Distribution Date and shall terminate and be null and
void and of no force and effect upon any termination of the Merger Agreement.
19. Successors and Assigns. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties and their
respective successors and permitted assigns.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
LORAL CORPORATION
By:_______________________________
Name:
Title:
LORAL TELECOMMUNICATIONS
ACQUISITION, INC.
By:_______________________________
Name:
Title:
LOCKHEED MARTIN CORPORATION
By:_______________________________
Name:
Title:
LAC ACQUISITION CORPORATION
By:________________________________
Name:
Title:
A-19
EXHIBIT B
CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, Purchaser shall not be
required to accept for payment or pay for, and may delay the acceptance for
payment of (whether or not the Shares have theretofore been accepted for
payment), or the payment for, any Shares tendered, and may terminate or extend
the Offer and not accept for payment any Shares, if:
(i) immediately prior to the expiration of the Offer (as extended in
accordance with the terms of the Offer), (A) any applicable waiting period
under the Antitrust Laws shall not have expired or been terminated or any
approvals required under the EC Merger Regulations shall not have been
received, (B) the Record Date for the distribution of shares of Spinco
common stock to stockholders of the Company pursuant to the Distribution
Agreement shall not have been set by the Company's Board of Directors, (C)
the Public Indenture Merger Opinions shall not have been delivered to
Purchaser and the applicable Public Indenture trustees, or (D) the number
of Shares validly tendered and not withdrawn when added to the Shares then
beneficially owned by Parent does not constitute two-thirds of the Shares
then outstanding and represent two-thirds of the voting power of the Shares
then outstanding on a fully diluted basis on the date of purchase; OR
(ii) on or after the date of this Agreement and prior to the acceptance
for payment of Shares, any of the following conditions exist:
(a) any of the representations or warranties of the Company contained
in the Merger Agreement shall not have been true and correct at the
date when made or (except for those representations and warranties made
as of a particular date which need only be true and correct as of such
date) shall cease to be true and correct at any time prior to
consummation of the Offer, except where the failure to be so true and
correct would not, individually or in the aggregate, have a Material
Adverse Effect; provided, that if any such failure to be so true and
correct is curable by the Company through the exercise of its
reasonable efforts, then Purchaser may not terminate the Offer under
this subsection (a) until 10 Business Days after written notice thereof
has been given to the Company by Parent or Purchaser and unless at such
time the matter has not been cured; or
(b) any of the representations or warranties of Spinco contained in
the Distribution Agreement shall not have been true and correct at the
date when made or (except for those representations and warranties made
as of a particular date which need only be true and correct as of such
date) shall cease to be true and correct at any time prior to
consummation of the Offer, except where the failure to be so true and
correct would not individually or in the aggregate, have a Material
Adverse Effect; provided that, if any such failure to be so true and
correct is curable by Spinco through the exercise of its reasonable
efforts, then Purchaser may not terminate the Offer under this
subsection (b) until 10 Business Days after written notice thereof has
been given to the Company by Parent or Purchaser and unless at such
time the matter has not been cured; or
(c) the Company shall have breached any of its covenants or
agreements contained in the Merger Agreement, except for any such
breaches that, individually or in the aggregate, would not have a
Material Adverse Effect; provided that, if any such breach is curable
by the Company through the exercise of its reasonable efforts, then
Purchaser may not terminate the Offer under this subsection (c) until
10 Business Days after written notice thereof has been given to the
Company by Parent or Purchaser and unless at such time the breach has
not been cured; or
(d) Spinco or the Company shall have breached any of its covenants or
agreements contained in the Distribution Agreement, except for any such
breaches that, individually or in the aggregate, would not have a
Material Adverse Effect; provided, that if any such breach is curable
by Spinco or the Company through the exercise of its reasonable
efforts, then Purchaser may not terminate the Offer under this
subsection (d) until 10 Business Days after written notice thereof has
been given to the Company or Spinco, as the case may be, by Parent or
Purchaser and unless at such time the breach has not been cured; or
B-2
(e) there shall have been any statute, rule, regulation, judgment,
order or injunction promulgated, enacted, entered, enforced or deemed
applicable to the Offer, or any other legal action shall have been
taken, by any state, federal or foreign government or governmental
authority or by any U.S. court, other than the routine application to
the Offer, the Merger or the Spin-Off of waiting periods under the HSR
Act, that presents a substantial likelihood of (1) making the
acceptance for payment of, or the payment for, some or all of the
Shares illegal or otherwise prohibiting, restricting or significantly
delaying consummation of the Offer, (2) imposing material limitations
on the ability of Purchaser or Parent to acquire or hold or to exercise
any rights of ownership of the Shares, or effectively to manage or
control the Retained Business, the Company, the Retained Subsidiaries,
Purchaser or any of their respective affiliates, which individually or
in the aggregate could constitute a Significant Adverse Effect; or
(f) any fact or circumstance exists or shall have occurred that has a
Material Adverse Effect; or
(g) there shall have occurred (1) any general suspension of trading
in, or limitation on prices for, securities on the New York Stock
Exchange, Inc., (2) the declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States
(whether or not mandatory), (3) the commencement of a war, armed
hostilities or other international or national calamity directly or
indirectly involving the United States and having a Material Adverse
Effect or materially adversely affecting (or materially delaying) the
consummation of the Offer, (4) any limitation or proposed limitation
(whether or not mandatory) by any U.S. governmental authority or
agency, or any other event, that materially adversely affects generally
the extension of credit by banks or other financial institutions, (5)
from the date of the Merger Agreement through the date of termination
or expiration of the Offer, a decline of at least 25% in the Standard &
Poor's 500 Index or (6) in the case of any of the situations described
in clauses (1) through (5) inclusive, existing at the date of the
commencement of the Offer, a material acceleration, escalation or
worsening thereof; or
(h) any person (which includes a "person" as such term is defined in
Section 13(d)(3) of the Exchange Act) other than Purchaser, any of its
affiliates, or any group of which any of them is a member shall have
acquired beneficial ownership of more than 20% of the outstanding
Shares or shall have entered into a definitive agreement or an
agreement in principle with the Company with respect to a tender offer
or exchange offer for any Shares or merger, consolidation or other
business combination with or involving the Company or any of its
Subsidiaries; or
(i) prior to the purchase of Shares pursuant to the Offer, the Board
of Directors of the Company shall have withdrawn or modified (including
by amendment of the Schedule 14D-9) in a manner adverse to Purchaser
its approval or recommendation of the Offer, this Agreement, the Merger
or the Spin-Off, shall have recommended to the Company's stockholders
another offer, shall have authorized the redemption of the Rights
(whether or not in accordance with Section 6.1(k) hereof) after the
Company has received an Acquisition Proposal or shall have adopted any
resolution to effect any of the foregoing which, in the sole judgment
of Purchaser in any such case, and regardless of the circumstances
(including any action or omission by Purchaser) giving rise to any such
condition, makes it inadvisable to proceed with such acceptance for
payment; or
(j) the Merger Agreement shall have been terminated in accordance
with its terms; or
(k) the Record Date shall not have occurred; or
(l) the conditions to the Spin-Off shall not have been satisfied or
waived; OR
(iii) Parent and Purchaser shall not have secured financing on terms
reasonably acceptable to Parent to finance the purchase of all of the
Shares at the Merger Price and to consummate the transactions contemplated
by this Agreement and the Ancillary Agreements; provided, that the
condition set forth in this clause (iii) shall be a condition to
Purchaser's obligations with respect to the Offer only if (A) the Offer has
not been consummated on or before April 30, 1996, (B) Parent has not taken
any significant action outside of the ordinary course of business, which
prevents Parent from obtaining sufficient financing to purchase all of the
Shares at the Merger Price and to consummate the transactions contemplated
by this Agreement and the Ancillary Agreements and (C) Parent and Purchaser
are in substantial compliance with their respective material obligations
under Sections 6.4, 6.5 and 6.6 of the Merger Agreement.
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The foregoing conditions are for the sole benefit of Purchaser and may be
asserted by Purchaser regardless of the circumstances giving rise to such
conditions, or may be waived by Purchaser in whole or in part at any time and
from time to time in its sole discretion; provided, that the condition set
forth in clause (ii)(j) above may be waived or modified only by the mutual
consent of Purchaser and the Company.
B-4
Exhibit C
[FORM OF]
EMPLOYMENT PROTECTION AGREEMENT
-------------------------------
THIS AGREEMENT between Loral Corporation, a New York corporation (the
"Company"), and ______________________ (the "Executive"), dated as of this 7th
day of January 1996.
W I T N E S S E T H :
---------------------
WHEREAS, the Company and the Executive have agreed to enter into an
agreement providing the Company and the Executive with certain rights upon the
occurrence of a Change of Control (as defined below) to assure the Company of
continuity of management;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is hereby agreed by and between the Company and the
Executive as follows:
1. Effective Date; Term. This Agreement shall be effective as of
January 7, 1996. The Company may terminate this Agreement upon five (5) days
advance written notice to the Executive; except that if this Agreement is in
effect immediately prior to the date of a Change of Control (the "Effective
Date"), it shall remain in effect for at least three (3) years following such
Change of Control, and such additional time as may be necessary to give effect
to the terms of this Agreement. This Agreement may also terminate as provided in
Section 2(b) hereof.
2. Change of Control. (a) Except as provided in Section 2(b) hereof,
for purposes of this Agreement, a "Change of Control" shall be deemed to have
occurred if: (i) any person (as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended from time to time (the "Exchange Act"), and as
used in Sections 13(d) and 14(d) thereof)), excluding the Company, any majority
owned subsidiary of the Company (a "Subsidiary") and any employee benefit plan
sponsored or maintained by the Company or any Subsidiary (including any trustee
of such plan acting as trustee), but including a "group" as defined in Section
13(d)(3) of the Exchange Act (a "Person"), becomes the beneficial owner of
shares of the Company having at least 50% of the total number of votes that may
be cast for the election of directors of the Company (the "Voting Shares")
provided, however, that such an event shall not constitute a Change of Control
if such acquisition has been approved by a majority of the Incumbent Directors
(as defined in subsection 2(a)(iii)); (ii) the shareholders of the Company shall
approve
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any merger or other business combination of the Company, sale of the Company's
assets or combination of the foregoing transactions (a "Transaction") other than
a Transaction involving only the Company and one or more of its Subsidiaries, a
Transaction approved by a majority of the Incumbent Directors, or a Transaction
immediately following which the shareholders of the Company immediately prior to
the Transaction, excluding for this purpose any shareholder owning directly or
indirectly more than 10% of the shares of the other company involved in the
Transaction, continue to have a majority of the voting power in the resulting
entity, or (iii) within any 24-month period beginning on or after January 7,
1996, the persons who were directors of the Company immediately before the
beginning of such period (the "Incumbent Directors") shall cease (for any reason
other than death) to constitute at least a majority of the Board of Directors of
the Company (the "Board") or the board of directors of any successor to the
Company, provided that any director who was not a director as of January 7, 1996
shall be deemed to be an Incumbent Director if such director was elected to the
Board by, or on the recommendation of or with the approval of, at least two-
thirds of the directors who then qualified as Incumbent Directors either
actually or by prior operation of this subsection 2(a)(iii).
(b) This Agreement shall terminate upon, and no Change of Control shall be
deemed to occur as a result of, the successful consummation of the "Offer" (as
defined in Section 1.1(a) of the Agreement and Plan of Merger Dated as of
January 7, 1996 By and Among the Company, Lockheed Martin Corporation and LAC
Acquisition Corporation), or upon the successful consummation of any transaction
which is approved by the Incumbent Directors and as a result of which Lockheed
Martin Corporation or a wholly owned subsidiary thereof acquires substantially
all of the Company's voting securities or substantially all of the Company's
defense businesses.
3. Retention Period. If the Executive is employed on the Effective
Date, the Company agrees to continue the Executive in its employ, and the
Executive agrees to remain in the employ of the Company, for the period (the
"Retention Period") commencing on the Effective Date and ending on the earliest
to occur of (i) the third anniversary of the Effective Date, and (ii) the date
of any termination of the Executive's employment in accordance with Section 6 of
this Agreement.
Position and Duties. (a) No Reduction in Position. During the
Retention Period, the Executive's position (including titles), authority and
responsibilities shall be at least commensurate with the highest of those held
or exercised by him at any time during the 90-day period immediately preceding
the Effective Date.
(b) Business Time. During the Retention Period, the Executive
shall devote his full business time during normal
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business hours to the business and affairs of the Company and use his best
efforts to perform faithfully and efficiently the responsibilities assigned to
him hereunder, to the extent necessary to discharge such responsibilities,
except for
(i) reasonable time spent in serving on corporate, civic or
charitable boards or committees of the nature similar to those on which the
Executive served prior to the Change of Control, or otherwise approved by
the Board, in each case only if and to the extent not substantially
interfering with the performance of such responsibilities, and
(ii) periods of vacation and sick leave to which he is entitled.
It is expressly understood and agreed that the Executive's continuing to serve
on any boards and committees on which he is serving or with which he is
otherwise associated immediately preceding the Effective Date shall not be
deemed to interfere with the performance of the Executive's services to the
Company.
5. Compensation. (a) Base Salary. During the Retention Period, the
Executive shall receive a base salary ("Base Salary") at a monthly rate at least
equal to the monthly salary paid to the Executive by the Company and any of its
affiliated companies immediately prior to the Effective Date. The Base Salary
shall be reviewed at least once each year after the Effective Date, and may be
increased (but not decreased) at any time and from time to time by action of the
Board or any committee thereof or any individual having authority to take such
action in accordance with the Company's regular practices. Neither payment of
the Base Salary nor payment of any increased Base Salary after the Effective
Date shall serve to limit or reduce any other obligation of the Company
hereunder. For purposes of the remaining provisions of this Agreement, the term
"Base Salary" shall mean Base Salary as defined in this Section 5(a) or, if
increased after the Effective Date, the Base Salary as so increased.
(b) Annual Bonus. In addition to the Base Salary, the Executive shall
be awarded for each fiscal year of the Company ending during the Retention
Period an annual bonus (either pursuant to a bonus plan or program of the
Company or otherwise) in cash at least equal to the greater of the two most
recent fiscal year bonuses (annualized, if awarded in respect of a partial year)
awarded to the Executive prior to the Effective Date under the bonus program of
the Company applicable to such Executive ("Annual Bonus"). If a fiscal year of
the Company begins, but does not end, during the Retention Period, the Executive
shall receive an amount with respect to such fiscal year at least equal to the
amount of the Annual Bonus multiplied by a fraction, the numerator of which is
the number of days in
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such fiscal year occurring during the Retention Period and the denominator of
which is 365. Each amount payable in respect of the Executive's Annual Bonus
shall be paid not later than 90 days after the fiscal year next following the
fiscal year for which the Annual Bonus (or pro-rated portion) is earned or
awarded, unless electively deferred by the Executive pursuant to any deferral
programs or arrangements that the Company may make available to the Executive,
in which event such deferred amount shall be payable in accordance with the
terms of such deferral program or arrangement. Neither the Annual Bonus nor any
bonus amount paid in excess thereof after the Effective Date shall serve to
limit or reduce any other obligation of the Company hereunder.
(c) Incentive and Savings Plans and Retirement Programs. In addition
to the Base Salary and Annual Bonus payable as hereinabove provided, during the
Retention Period, the Executive shall be entitled to participate in all
incentive and savings plans and programs, including stock option plans and other
equity based compensation plans, and in all retirement plans, on a basis
providing him with the opportunity to receive compensation (without duplication
of the amount payable as an Annual Bonus) and benefits equal to those provided
by the Company to the Executive on an annualized basis under such plans and
programs as in effect at any time during the 90-day period immediately preceding
the Effective Date. With respect to participation in stock option plans,
Executive shall receive annual grants during the Retention Period at least equal
to the average annual grants made to Executive during the two fiscal years
immediately preceding the Effective Date.
(d) Benefit Plans. During the Retention Period, the Executive and his
family shall be entitled to participate in or be covered under all welfare
benefit plans and programs of the Company and its affiliated companies,
including all medical, dental, disability, group life, accidental death and
travel accident insurance plans and programs, as in effect at any time during
the 90-day period immediately preceding the Effective Date.
(e) Expenses. During the Retention Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the policies and procedures of the Company as
in effect at any time during the 90-day period immediately preceding the
Effective Date.
(f) Vacation and Fringe Benefits. During the Retention Period, the
Executive shall be entitled to paid vacation and fringe benefits in accordance
with the policies of the Company as in effect at any time during the 90-day
period immediately preceding the Effective Date.
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(g) Office and Support Staff. During the Retention Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to secretarial and other assistance, at
least equal to the most favorable of the foregoing provided to the Executive at
any time during the 90-day period immediately preceding the Effective Date.
6. Termination. (a) Death or Disability. The Executive's employment
shall terminate automatically upon his death. The Company may terminate
Executive's employment during the Retention Period, after having established the
Executive's Disability, by giving the Executive written notice of its intention
to terminate his employment, and his employment with the Company shall terminate
effective on the 90th day after receipt of such notice if, within 90 days after
such receipt, the Executive shall fail to return to full-time performance of his
duties. For purposes of this Agreement, "Disability" means disability which,
after the expiration of more than 26 weeks after its commencement, is determined
to be total and permanent by a physician selected by the Company or its insurers
and acceptable to the Executive or his legal representatives (such agreement to
acceptability not to be withheld unreasonably).
(b) Voluntary Termination. Notwithstanding anything in this Agreement
to the contrary, the Executive may, upon not less than 30 days' written notice
to the Company, voluntarily terminate employment during the Retention Period
for any reason, provided that any termination by the Executive pursuant to
Section 6(d) of this Agreement on account of Good Reason (as defined therein)
shall not be treated as a voluntary termination under this Section 6(b).
(c) Cause. The Company may terminate the Executive's employment during
the Retention Period for Cause. For purposes of this Agreement, "Cause" means
(i) gross misconduct on the Executive's part which is demonstrably willful and
deliberate and which results in material damage to the Company's business or
reputation or (ii) repeated material violations by the Executive of his
obligations under Section 4 of this Agreement which violations are demonstrably
willful and deliberate.
(d) Good Reason. The Executive may terminate his employment during the
Retention Period for Good Reason. For purposes of this Agreement, "Good Reason"
means
(i) a good faith determination by the Executive that, without his
prior written consent, the Company or any of its officers has taken or failed
to take any action (including, without limitation, (A) exclusion of the
Executive from consideration of material matters within his area of
responsibility, other than an insubstantial or inadvertent exclusion remedied
by the Company promptly after receipt of notice thereof from the Executive, (B)
statements
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or actions which undermine the Executive's authority with respect to
persons under his supervision or reduce his standing with his peers, other
than an insubstantial or inadvertent statement or action which is remedied
by the Company promptly after receipt of the notice thereof from the
Executive, (C) a pattern of discrimination against or harassment of the
Executive or persons under his supervision and (D) the subjection of the
Executive to procedures not generally applicable to other similarly
situated executives) which changes the Executive's position (including
titles), authority or responsibilities under Section 4 of this Agreement or
reduces the Executive's ability to carry out his duties and
responsibilities under Section 4 of this Agreement;
(ii) any failure by the Company to comply with any of the
provisions of Section 5 of this Agreement, other than an insubstantial or
inadvertent failure remedied by the Company promptly after receipt of
notice thereof from the Executive;
(iii) the Company's requiring the Executive to be employed at any
location more than 35 miles further from his principal residence than the
location at which the Executive was employed immediately preceding the
Effective Date; or
(iv) any failure by the Company to obtain the assumption of and
agreement to perform this Agreement by a successor as contemplated by
Section 14(b) of this Agreement.
(e) Notice of Termination. Any termination by the Company for Cause or
by the Executive for Good Reason during the Retention Period shall be
communicated by Notice of Termination to the other party hereto given in
accordance with Section 15(c) of this Agreement. For purposes of this
Agreement, a "Notice of Termination" means a written notice given, in the case
of a termination for Cause, within 10 business days of the Company's having
actual knowledge of all of the events giving rise to such termination, and in
the case of a termination for Good Reason, within 180 days of the Executive's
having actual knowledge of the events giving rise to such termination, and
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated, and (iii) if the termination date is other than the
date of receipt of such notice, specifies the termination date of this
Agreement (which date shall be not more than 15 days after the giving of such
notice). The failure by the Executive to set forth in the Notice of Termination
any fact or circumstance which contributes to a showing of Good Reason shall
not waive any right of the Executive hereunder or preclude the Executive from
asserting such fact or circumstance in enforcing his rights hereunder.
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(f) Date of Termination. For purposes of this Agreement, the term
"Date of Termination" means (i) in the case of a termination for which a Notice
of Termination is required, the date of receipt of such Notice of Termination
or, if later, the date specified therein and (ii) in all other cases, the actual
date on which the Executive's employment terminates during the Retention Period.
7. Obligations of the Company upon Termination. (a) Death. If the
Executive's employment is terminated during the Retention Period by reason of
the Executive's death, this Agreement shall terminate without further
obligations to the Executive's legal representatives under this Agreement other
than those obligations accrued hereunder at the date of his death, including,
for this purpose (i) the Executive's full Base Salary through the Date of
Termination, (ii) the product of the Annual Bonus and a fraction, the numerator
of which is the number of days in the current fiscal year of the Company through
the Date of Termination, and the denominator of which is 365 (the "Pro-rated
Bonus Obligation"), (iii) any compensation previously deferred by the Executive
(together with any accrued earnings thereon) and not yet paid by the Company and
(iv) any other amounts or benefits owing to the Executive under the then
applicable employee benefit plans or policies of the Company (such amounts
specified in clauses (i), (ii), (iii) and (iv) are hereinafter referred to as
"Accrued Obligations"). Unless otherwise directed by the Executive (or, in the
case of any employee benefit plan qualified (a "Qualified Plan") under Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), as may be
required by such plan), all such Accrued Obligations shall be paid to the
Executive's legal representatives in a lump sum in cash within 30 days of the
Date of Termination. Anything in this Agreement to the contrary notwithstanding,
the Executive's family shall be entitled to receive benefits at least equal to
the most favorable level of benefits available to surviving families of
executives of the Company and its affiliates under such plans, programs and
policies relating to family death benefits, if any, of the Company and its
affiliates in effect at any time during the 90-day period immediately preceding
the Effective Date.
(b) Disability. If the Executive's employment is terminated by reason
of the Executive's Disability, the Executive shall be entitled, after the Date
of Termination until the date when the Retention Period would otherwise have
terminated, to continue to participate in or be covered under the benefit plans
and programs referred to in Section 5(d) of this Agreement or, at the Company's
option, to receive equivalent benefits by alternate means at least equal to
those provided in accordance with Section 5(d) of this Agreement. Unless
otherwise directed by the Executive (or, in the case of any Qualified Plan, as
may be required by such plan), the Executive shall also be paid all Accrued
Obligations in a lump sum in cash within 30 days of the
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Date of Termination. Anything in this Agreement to the contrary notwithstanding,
the Executive shall be entitled to receive disability and other benefits at
least equal to the most favorable level of benefits available to disabled
employees and/or their families in accordance with the plans, programs and
policies maintained by the Company or its affiliates relating to disability at
any time during the 90-day period immediately preceding the Effective Date.
(c) Cause and Voluntary Termination. If, during the Retention Period,
the Executive's employment shall be terminated for Cause or voluntarily
terminated by the Executive (other than on account of Good Reason), the Company
shall pay the Executive the Accrued Obligations other than the Pro-rated Bonus
Obligation. Unless otherwise directed by the Executive (or, in the case of any
Qualified Plan, as may be required by such plan), the Executive shall be paid
all such Accrued Obligations in a lump sum in cash within 30 days of the Date of
Termination and the Company shall have no further obligations to the Executive
under this Agreement.
(d) Termination by Company other than for Cause or Disability and
Termination by Executive for Good Reason. (i) Lump Sum Payment. If, during the
Retention Period, the Company terminates the Executive's employment other than
for Cause or Disability, or the Executive terminates his employment for Good
Reason, the Company shall pay to the Executive in a lump sum in cash within 15
days after the Date of Termination the aggregate of the following amounts:
(A) if not theretofore paid, the Executive's Base Salary through the
Date of Termination at the rate specified in Section 5(a) of this Agreement;
(B) a cash amount equal to three times the sum of
(1) the Executive's annual Base Salary at the rate specified in
Section 5(a) of this Agreement;
(2) the Annual Bonus; and
(3) an amount equal to the average annual compensation received by
the Executive (determined as the sum of the amount includable as
current income to the Executive for tax purposes plus any amount which
would have been so includable but for a deferral election) under the
Company's restricted stock plan over the three fiscal years prior to
the Change of Control; and
(4) the present value, calculated using the annual federal short-
term rate as determined under Section 1274(d) of the Code, of (without
duplication) (x) the annual cost to the Company (based on the
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premium rates or other costs to it) of obtaining coverage equivalent
to the coverage under the plans and programs described in Section 5(d)
of this Agreement, and (y) the annualized value of the fringe benefits
described under Section 5(f) of this Agreement;
provided, however, that with respect to the life and medical insurance
coverage referred to in Section 5(d) of this Agreement, at the Executive's
election made prior to the Date of Termination, the Company shall use its
best efforts to secure conversion coverage and shall pay the cost of such
coverage in lieu of paying the lump sum amount attributable to such life or
medical insurance coverage; and
(C) a cash amount equal to any amounts (other than amounts
payable to the Executive under any Qualified Plans) described in Sections
7(a)(iii) and (iv) of this Agreement.
(ii) Discharge of Company's Obligations. Subject to the performance of
its obligations under this Section 7(d), the Company shall have no further
obligations to the Executive in respect of any termination by the Executive for
Good Reason or by the Company other than for Cause or Disability, except to the
extent expressly provided under any of the plans referred to in Section 5(c) or
5(d) of this Agreement.
8. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plan or program provided by the Company or any of its
affiliated companies and for which the Executive may qualify, nor shall anything
herein limit or otherwise prejudice such rights as the Executive may have under
any stock option or other plans or agreements with the Company or any of its
affiliated companies. Amounts which are vested benefits or which the Executive
is otherwise entitled to receive under any plan or program of the Company or any
of its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan or program.
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9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the Company
to or for the benefit of the Executive (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code (or any successor provision) or any interest or penalties are incurred
by the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes with respect to the Gross-Up Payment (including any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by
Coopers & Lybrand or such other nationally recognized accounting firm then
auditing the accounts of the Company (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the event that
the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change of Control, or is unwilling or unable to
perform its obligations pursuant to this Section 9, the Executive shall appoint
another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, determined pursuant to
this Section 9, shall be paid by the Company to the Executive within five days
of the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a
result of the potential uncertainty in the application of Section 4999 of the
Code (or any successor provision) at the time of the initial determination by
the Accounting Firm hereunder, it is possible that Gross-Up Payments which will
not have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company
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exhausts its remedies pursuant to Section 9(c) and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than 20 business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which he gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate
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courts, as the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free basis,
and shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any extension of
the statute of limitations relating to payment of taxes for the taxable year of
the Executive with respect to which such contested amount is claimed to be due
is limited solely to such contested amount. Furthermore, the Company's control
of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled to settle
or contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 9(c), a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
10. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Executive or others whether by reason of the
subsequent employment of the Executive or otherwise. In no event shall the
Executive be obligated to seek other employment by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement,
and no amount payable under this Agreement shall be reduced on account of any
compensation received by the Executive from other employment. In the event that
the Executive shall in good faith give a Notice of Termination for Good Reason
and it shall thereafter be determined by mutual consent of the Executive and the
Company or by a tribunal having jurisdiction over the matter that Good Reason
did not exist, the employment of the Executive shall, unless the Company and the
Executive shall otherwise
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mutually agree, be deemed to have terminated, at the date of giving
such purported Notice of Termination, by mutual consent of the Company and the
Executive and, except as provided in the last preceding sentence, the Executive
shall be entitled to receive only those payments and benefits which he would
have been entitled to receive at such date otherwise than under this Agreement.
11. Disputes; Legal Fees and Expenses. (a) Any dispute or
controversy arising under or in connection with this Agreement shall be settled
exclusively and finally by expedited arbitration, conducted before a single
arbitrator in New York, New York, in accordance with the rules governing
employment disputes then in effect of the American Arbitration Association and
the procedures set forth on Exhibit A hereto. The arbitrator shall be approved
by both the Company and the Executive. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
(b) In the event that any claim by the Executive under this
Agreement is disputed, the Company shall pay all reasonable legal fees and
expenses incurred by the Executive in pursuing such claim, provided that the
Executive is successful as to at least part of the disputed claim by reason of
arbitration, settlement or otherwise.
12. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, (i) obtained by the Executive during
his employment by the Company or any of its affiliated companies and (ii) not
otherwise public knowledge (other than by reason of an unauthorized act by the
Executive). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company,
unless compelled pursuant to an order of a court or other body having
jurisdiction over such matter, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by it.
In no event shall an asserted violation of the provisions of this Section 12
constitute a basis for deferring or withholding any amounts otherwise payable to
the Executive under this Agreement.
13. Employment Contract or Severance Benefits. Notwithstanding
anything else in this Agreement to the contrary, any amount payment to the
Executive hereunder on account of his termination of employment shall be reduced
on a dollar for dollar basis by each dollar actually paid to the Executive with
respect to such termination under the terms of any employment contract between
the Executive and the Company or under any severance program or policy
applicable to the Executive. Nothing in this Agreement shall be construed to
require duplication of any compensation, benefits or other entitlements provided
to the
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Executive by the Company under the terms of any employment contract which may
address similar matters.
14. Successors. (a) This Agreement is personal to the Executive
and, without the prior written consent of the Company, shall not be assignable
by the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors. The Company shall require any successor to
all or substantially all of the business and/or assets of the Company, whether
direct or indirect, by purchase, merger, consolidation, acquisition of stock, or
otherwise, by an agreement in form and substance satisfactory to the Executive,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent as the Company would be required to perform if no such
succession had taken place.
15. Miscellaneous. (a) Applicable Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
applied without reference to principles of conflict of laws.
(b) Amendments. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(c) Notices. All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive: at the address listed below
(with a copy to )
--------------
If to the Company: _____________________________
_____________________________
_____________________________
Attention: Secretary
(with a copy to the attention
of the General Counsel)
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
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(d) Tax Withholding. The Company may withhold from any amounts
payable under this Agreement such Federal, State or local taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
(e) Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(f) Captions. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the
Company has caused this Agreement to be executed in its name on its behalf, and
its corporate seal to be hereunto affixed and attested by its Corporate Counsel,
all as of the day and year first above written.
LORAL CORPORATION
By
----------------------
Name:
Title:
EXECUTIVE:
-------------------------
Address:
-------------------------
-------------------------
C-15
LORAL CORPORATION
EMPLOYMENT PROTECTION PLAN
(Effective January 7, 1996)
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LORAL CORPORATION
EMPLOYMENT PROTECTION PLAN
(Effective January 7, 1996)
Loral Corporation (the "Company") believes that the best interests
of the Company and its shareholders will be served if certain key employees of
the Company are provided with certain rights upon a Change of Control (as
hereinafter defined). Accordingly, the Company hereby establishes this "Loral
Corporation Employment Protection Plan" (the "Plan") for the benefit of such key
employees.
SECTION 1. DEFINITIONS
----------------------
In addition to the terms defined in the preceding paragraph, the
following definitions shall apply for purposes of the Plan.
1.1. "Annual Bonus" means the greater of the two most recent fiscal year
bonuses (annualized, if awarded in respect of a partial year) awarded to an
Eligible Employee prior to a Change of Control under the bonus program of any
Loral Company applicable to such Executive.
1.2. "Annual Salary" means an Eligible Employee's annual rate of regular
salary as in effect immediately prior to the Change of Control.
1.3. "Board" means the Board of Directors of the Company.
1.4. "Cause" means any of the following, other than due to an Eligible
Employee's Permanent Disability or death:
(a) an Eligible Employee's gross misconduct which is demonstrably
willful and deliberate and which results in material damage to the Company's
business or reputation; or
(b) an Eligible Employee's repeated willful and deliberate
neglect of, or refusal to perform, the duties required or associated with the
Eligible Employee's employment.
1.5. "Change of Control" means the occurrence of any of the following
events: (i) any person (as defined in Section 3(a)(9) of the Securities Exchange
Act of 1934, as amended from time to time (the "Exchange Act"), and as used in
Sections 13(d) and 14(d) thereof)), excluding the Company, any majority owned
subsidiary of the Company (a "Subsidiary") and any employee benefit plan
sponsored or maintained by the Company or any Subsidiary (including any trustee
of such plan acting as trustee), but including a "group" as defined in Section
13(d)(3) of the Exchange Act (a "Person"), becomes the beneficial owner of
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shares of the Company having at least 50% of the total number of votes that may
be cast for the election of directors of the Company (the "Voting Shares")
provided, however, that such an event shall not constitute a Change of Control
if such acquisition has been approved by a majority of the Incumbent Directors
(as defined in subsection 1.4 (iii)); (ii) the shareholders of the Company shall
approve any merger or other business combination of the Company, sale of the
Company's assets or combination of the foregoing transactions (a "Transaction")
other than a Transaction involving only the Company and one or more of its
Subsidiaries, a Transaction approved by a majority of the Incumbent Directors,
or a Transaction immediately following which the shareholders of the Company
immediately prior to the Transaction, excluding for this purpose any shareholder
owning directly or indirectly more than 10% of the shares of the other company
involved in the Transaction, continue to have a majority of the voting power in
the resulting entity, or (iii) within any 24-month period beginning on or after
January 7, 1996, the persons who were directors of the Company immediately
before the beginning of such period (the "Incumbent Directors") shall cease (for
any reason other than death) to constitute at least a majority of the Board or
the board of directors of any successor to the Company, provided that any
director who was not a director as of January 7, 1996 shall be deemed to be an
Incumbent Director if such director was elected to the Board by, or on the
recommendation of or with the approval of, at least two-thirds of the directors
who then qualified as Incumbent Directors either actually or by prior operation
of this subsection 1.4 (iii); provided, however, that no Change of Control shall
be deemed to occur as a result of the successful consummation of the "Offer" (as
defined in Section 1.1(a) of the Agreement and Plan of Merger Dated as of
January 7, 1996 By and Among the Company, Lockheed Martin Corporation and LAC
Acquisition Corporation), or upon the successful consummation of any transaction
which is approved by the Incumbent Directors and as a result of which Lockheed
Martin Corporation or any wholly owned subsidiary thereof acquires substantially
all of the Company's defense businesses (the "Lockheed Martin Merger").
1.6. "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
1.7. "Committee" means the Compensation Committee of the Board.
1.8. "Common Stock" means the common stock of the Company, $.25 par value
per share.
1.9. "Company" means the Loral Corporation and any successor or successors
thereto.
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1.10. "Eligible Employee" means each full-time employee of either the
Company or another Loral Company whose name appears on Schedule A hereto.
1.11. "Eligible Termination" means an involuntary termination of
employment without Cause, or a resignation for Good Reason, which occurs as of
or within the three-year period following a Change of Control; provided,
however, that the transfer of employment to another employer that is a member of
the Loral Companies shall not in itself constitute an Eligible Termination (but
any such transfer will not preclude another or accompanying event or reason from
constituting or causing an Eligible Termination, and the protections of the Plan
and corresponding obligations of the Company will remain in effect following any
such transfer of employment).
1.12. "Good Reason" means any one or more of the following events, which
occurs without an Eligible Employee's express prior written consent or approval,
other than due to an Eligible Employee's Permanent Disability or death:
(i) a good faith determination by the Eligible Employee that the
Company or any of its officers has taken or failed to take any action
(including, without limitation, (A) exclusion of the Eligible Employee from
consideration of material matters within his area of responsibility, other
than an insubstantial or inadvertent exclusion remedied by the Company
promptly after receipt of notice thereof from the Eligible Employee, (B)
statements or actions which undermine the Eligible Employee's authority
with respect to persons under his supervision or reduce his standing with
his peers, other than an insubstantial or inadvertent statement or action
which is remedied by the Company promptly after receipt of the notice
thereof from the Eligible Employee, (C) a pattern of discrimination against
or harassment of the Eligible Employee or persons under his supervision and
(D) the subjection of the Eligible Employee to procedures not generally
applicable to other similarly situated executives) which changes the
Eligible Employee's position (including titles), authority or
responsibilities under Section 4 of this Agreement or reduces the Eligible
Employee's ability to carry out his duties and responsibilities under
Section 4 of this Agreement;
(ii) any reduction in an Eligible Employee's Annual Salary or
any material reduction in his annual bonus opportunity or employee benefits
from the level in effect immediately prior to the Change of Control, other
than an insubstantial or inadvertent failure remedied by the Company
promptly after receipt of notice thereof from the Eligible Employee; or
(iii) the Company's requiring the Eligible Employee to be
employed at any location more than 35 miles further
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from his principal residence than the location at which the Eligible
Employee was employed immediately preceding the Effective Date.
1.13. "Permanent Disability" means an Eligible Employee's inability, by
reason of any physical or mental impairment, to substantially perform the
significant aspects of his or her regular duties, which inability is reasonably
contemplated to continue for at least one (1) year from its incurrence.
1.14. "Plan" means the Loral Corporation Employment Protection Plan, as
set forth herein and as amended from time to time.
1.15. "Severance Period" means the period commencing on the date of an
Eligible Employee's Eligible Termination and continuing for a period of
twenty-four months.
1.16. "Loral Companies" means the Company and its subsidiaries and
affiliates, and any successor or successors thereto.
SECTION 2. EFFECT OF AN ELIGIBLE TERMINATION
2.1. If an Eligible Employee incurs an Eligible Termination, the Eligible
Employee shall be entitled to all applicable benefits provided hereafter in this
Section 2 or as otherwise set forth in this Plan.
(a) Salary and Bonus: Within two (2) business days after the date of his
or her Eligible Termination, the Company shall pay or cause to be paid to the
Eligible Employee a single lump sum amount, in cash, equal to two times the sum
of
(1) the Eligible Employee's Annual Salary,
(2) the Eligible Employee's Annual Bonus, and
(3) an amount equal to the average annual compensation received
by the Eligible Employee (determined as the sum of the amount
includable as current income to the Eligible Employee for tax
purposes plus any amount which would have been so includable
but for a deferral election) under the Company's restricted
stock plan over the three fiscal years prior to the Change of
Control.
(b) Continued Welfare Benefits: Until the earlier of the end of an
Eligible Employee's Severance Period or the date on which such Eligible
Employee becomes employed by a new employer, the Company shall, at its expense,
provide such Eligible Employee with medical, dental, life insurance, disability
and accidental death and dismemberment benefits at the highest level provided to
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such Eligible Employee during the period beginning immediately prior to the
Change of Control and ending on the date of such Eligible Employee's Eligible
Termination; provided, however, that if the Eligible Employee becomes employed
by a new employer which maintains a major medical plan (or its equivalent) that
either (i) does not cover the Eligible Employee with respect to a pre-existing
condition which was covered under the Company's major medical plan, or (ii) does
not cover the Eligible Employee for a designated waiting period, the Eligible
Employee's coverage under the Company's major medical plan shall continue (but
shall be limited in the event of noncoverage due to a preexisting condition, to
the preexisting condition itself) until the earlier of the end of the applicable
period of noncoverage under the new employer's plan or the end of the Severance
Period. Following such Severance Period or the date of new employment, if
earlier, the regular rights of an Eligible Employee to continuation of benefits
under COBRA coverage, if any, shall apply.
(c) Payment of Accrued But Unpaid Amounts: Within two (2) business days
after the date of his or her Eligible Termination, the Company shall pay the
Eligible Employee (i) any unpaid portion of the Eligible Employee's bonus
accrued with respect to the full calendar year ended prior to the date of the
Eligible Termination, and (ii) all compensation earned or previously deferred by
such Eligible Employee but not yet paid (including cash compensation for
vacation days accrued but not taken as of the date of the Eligible Termination,
based on the Annual Salary amount converted to a per diem equivalent in
accordance with the Company's normal payroll practices as in effect prior to
the change of Control).
(d) Payment for Other Reduced Severance Benefits. The amounts payable to an
Eligible Employee under this Section 2 are supplemental to any other severance
benefits to which the Eligible Employee is entitled under any severance plan or
Plan of the Loral Companies in effect as of the Change of Control (collectively,
"Other Severance Benefits"). In the event that an Eligible Employee's Other
Severance Benefits are reduced or eliminated after the Change of Control, the
amount otherwise payable to an Eligible Employee hereunder upon an Eligible
Termination shall be increased by the amount of such reduction or elimination.
2.2. Maximum Benefits: Anything in Section 2.1 to the contrary
notwithstanding, payments under Section 2.1 shall not exceed the maximum amount
which can be paid to an Eligible Employee without causing such payments to be
treated as "excess parachute payments" for purposes of Section 280G of the Code
taking into account all payments made to the Eligible Employee which constitute
"parachute payments" for purposes of Section 280G.
2.3. Mitigation: An Eligible Employee shall not be required to mitigate
damages or the amount of any payment provided for
D-6
under this Plan by seeking other employment or otherwise, and compensation
earned from such employment or otherwise shall not reduce the amounts otherwise
payable under this Plan. No amounts payable under this Plan shall be subject to
reduction or offset in respect of any claims which the Company or any member of
the Loral Companies (or any other person or entity) may have against the
Eligible Employee.
2.4. Withholding: The Company may, to the extent required by law, withhold
applicable federal and state income, employment and other taxes from any
payments due to any Eligible Employee hereunder.
SECTION 3. LIMITS ON AMENDMENT OR TERMINATION; EFFECT ON
OTHER PLANS
3.1. This Plan shall terminate automatically and without further action by
the Board upon the successful consummation of the Lockheed Martin Merger.
3.2. The Board may amend or terminate this Plan at any time; provided,
however, that upon occurrence of a Change of Control, this Plan (expressly
including, but not limited to, this Section 3) shall remain in effect, and may
not be altered or amended in any way which would adversely affect the rights of
any Eligible Employee hereunder, for at least three (3) years following the
Change of Control, and for such additional time as may be necessary to give
effect to the terms of the Plan as in effect at the Change of Control.
Thereafter, the Board may amend or terminate this Plan in any manner which does
not adversely affect the rights of any Eligible Employee who has incurred an
Eligible Termination.
3.3 An Eligible Employee shall, after the date of his or her Eligible
Termination, retain all rights (to the extent any such rights existed at any
time prior to the Change of Control) to indemnification under applicable law or
under the applicable Loral Companies' Certificate of Incorporation or By-Laws,
as they may be amended or restated from time to time. In addition, to the extent
coverage had been otherwise available to the Eligible Employee prior to the
Change of Control, the Company shall maintain Director's and Officer's liability
insurance on behalf of the Eligible Employee, at the level in effect immediately
prior to the date of his or her Eligible Termination.
SECTION 4. ADMINISTRATION OF THE PLAN
4.1 The Committee shall be the Administrator of this Plan and shall have
the exclusive right, power and authority to:
(a) interpret, in its sole discretion, any and all of the
provisions of the Plan;
D-7
(b) establish a claims review procedure, if necessary and
advisable; and
(c) consider and decide conclusively any questions (whether of
fact or otherwise) arising in connection with the administration
of the Plan or any claim for a benefit arising under the Plan.
Any decision or action of the Committee pursuant to this Section 4.1 shall be
conclusive and binding.
4.2. The Company shall pay all costs and expenses, including attorneys'
fees and disbursements, at least monthly, of any Eligible Employee in connection
with any legal proceeding (including arbitration), whether or not instituted by
a member of the Loral Companies or an Eligible Employee, relating to the
interpretation or enforcement of any provision of this Plan, except that if such
Eligible Employee instituted the proceeding and the judge, arbitrator or other
individual presiding over the proceeding affirmatively finds that the Eligible
Employee instituted the proceeding in bad faith, the Eligible Employee shall pay
all costs and expenses, including attorney's fees and disbursements, of such
Eligible Employee.
SECTION 5. MISCELLANEOUS
---------- -------------
5.1 Neither the establishment of the Plan nor any action of the Company,
any other member of the Loral Companies, the Committee, or any fiduciary shall
be held or construed to confer upon any person any legal right to continued
employment with the Company or with any member of the Loral Companies.
Nothing in the Plan shall be construed to prevent the Company or any member
of the Loral Companies from terminating an Eligible Employee's employment for
Cause. If an Eligible Employee is terminated for Cause, the Company shall have
no obligation to make any payments under this Plan, except for payments that
may otherwise be payable under then existing Employee benefit plans, Plans and
arrangements of the Company or of any other member of the Loral Companies.
5.2. Benefits payable under the Plan shall be paid out of the general
assets of the Company. The Company is not required to fund the benefits payable
under this Plan; provided, however, nothing in this Section 5.2 shall be
interpreted as precluding the Company from funding or setting aside amounts in
anticipation of paying any such benefits.
5.3. Benefits payable under the Plan shall not be subject to assignment,
alienation, transfer, pledge, encumbrance, commutation or anticipation by any
Eligible Employee. Any attempt to assign, alienate, transfer, pledge, encumber,
commute or anticipate Plan benefits shall be void. In addition, no rights or
interest under the Plan shall be in any manner subject
D-8
to levy, attachment or other legal process to enforce payment of any claim
against any Eligible Employee except to the extent required by law.
5.4. Except as otherwise provided herein, this Plan shall be binding upon,
inure to the benefit of and be enforceable by the Company and the Eligible
Employees and their respective heirs, legal representatives, successors and
assigns. If the Company shall be merged into or consolidated with another
entity, the provisions of this Plan shall be binding upon and inure to the
benefit of the entity surviving such merger or resulting from such
consolidation, and such provisions shall also be binding upon and inure to the
benefit of any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business or
assets of the Company, and such successor shall assume and perform the
obligations, responsibilities and liabilities to which the Company or any member
of the Loral Companies is subject under this Plan in the same manner and to the
same extent that the Company or any member of the Loral Companies would be
required to perform if no such succession had taken place. The provisions of
this Section 5.4 shall continue to apply to each subsequent employer of any
Eligible Employee in the event of any subsequent merger, consolidation or
transfer of assets of any such subsequent employer.
5.5. This Plan shall be governed by and construed in accordance with the
laws of the State of New York (without reference to rules relating to conflicts
of laws), except to the extent superseded by applicable federal law.
5.6. Any action required or permitted to be taken by the Company under this
Plan shall be taken by the Board or by the Committee, or any designee of the
Committee pursuant to Section 4, in each case subject to the limits on amendment
and termination contained in Section 3 hereof.
5.7. Entitlement to any benefits under this Plan is expressly subject to
and conditioned upon the Eligible Employee agreeing to and signing (i) a
customary exit letter that may contain confidentiality, future cooperation and
other provisions, if requested, and (ii) the Company's standard form general
release of employment and other claims that the Eligible Employee may have.
D-9
Exhibit E
LORAL CORPORATION
SUPPLEMENTAL SEVERANCE PROGRAM
(Effective January 7, 1996)
E-1
LORAL CORPORATION
SUPPLEMENTAL SEVERANCE PROGRAM
(Effective January 7, 1996)
Loral Corporation (the "Company") believes that the best interests of the
Company and its shareholders will be served if certain key employees who have
historically been engaged in or associated with the operations of the Company
are encouraged to remain with the Company after the consummation of the Offer
for the Common Stock of the Company pursuant to the Agreement and Plan of Merger
Dated as of January 7, 1996 By and Among the Company, Lockheed Martin
Corporation and LAC Acquisition Corporation (the "Merger Agreement").
Accordingly, the Company hereby establishes this "Loral Corporation
Supplemental Severance Program" (the "Program") for the benefit of such key
employees.
SECTION 1. DEFINITIONS
In addition to the terms defined in the preceding paragraph, the following
definitions shall apply for purposes of the Program.
1.1. "Annual Salary" means an Eligible Employee's annual rate of base
salary as in effect immediately prior to the Effective Date.
1.2. "Board" means the Board of Directors of Lockheed Martin.
1.3. "Cause" means any of the following, other than due to an Eligible
Employee's Permanent Disability or death:
(a) an Eligible Employee's continuing willful neglect of, or refusal to
perform, the duties required or associated with the Eligible Employee's
employment;
(b) an Eligible Employee's willful disclosure of confidential information
or trade secrets of Lockheed Martin which results in material harm to the
business or reputation of Lockheed Martin;
(c) conviction of a felony, or a misdemeanor involving dishonesty, fraud,
theft, larceny, or embezzlement, or any Federal offense of the type described in
Article 14 of the Administrative Agreement between Lockheed Martin and the
United States Air Force dated June, 1995; or
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(d) a violation of Lockheed Martin's Standards of Conduct and Code of
Ethics, which shall be provided to each Eligible Employee.
1.4. "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
1.5. "Committee" means the Committee of the Board designated to
administer the Plan.
1.6. "Company" means the Loral Corporation and any successor or
successors thereto.
1.7. "Company Board" means the Board of Directors of the Company.
1.8. "Effective Date" means the date of the successful consummation of
the Offer as set forth in the Merger Agreement.
1.9. "Eligible Employee" means each full-time employee of either the
Company or another Loral Company selected by the Company Board prior to the
Effective Date for participation in the Program.
1.10. "Eligible Termination" means an involuntary termination of
employment without Cause (other than by reason of Permanent Disability or
death), or a resignation for Good Reason, which occurs on or within the two-year
period following the Effective Date; provided, however, that the transfer of
employment to another employer that is a member of the Lockheed Martin Companies
shall not in itself constitute an Eligible Termination (but any such transfer
will not preclude another or accompanying event or reason from constituting or
causing an Eligible Termination, and the protections of the Program and
corresponding obligations of the Company will remain in effect following any
such transfer of employment).
1.11. "Good Reason" means any one or more of the following actions,
without an Eligible Employee's express prior written consent or approval, other
than due to an Eligible Employee's Permanent Disability or death:
(a) any removal of the Eligible Employee from any of the positions he or
she holds immediately prior to a Change of Control or an elimination of any such
positions, when the effect of such removal or elimination is a material
diminution of status, responsibilities or duties, or any lowering of job grade,
excluding for this purpose a removal from responsibility for, or involvement
with, U.S. Government business affairs which removal is mandated by reason of an
indictment, suspension or proposed debarment of the type described in Article 14
of the
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Administrative Agreement between Lockheed Martin and the United States Air Force
dated June, 1995; or
(b) any reduction of an Eligible Employee's Annual Salary.
1.12. "Permanent Disability" means an Eligible Employee's inability, by
reason of any physical or mental impairment, to substantially perform the
significant aspects of his or her regular duties, which inability is reasonably
contemplated to continue for at least one (1) year from its incurrence.
1.13. "Offer" means the Offer as defined in Section 1.1(a) of the Merger
Agreement.
1.14. "Program" means the Loral Corporation Supplemental Severance
Program, as set forth herein and as amended from time to time.
1.15. "Severance Period" means the period commencing on the date of an
Eligible Employee's Eligible Termination and continuing for a period of twelve
months.
1.16. "Lockheed Martin" means Lockheed Martin Corporation.
1.17. "Lockheed Martin Companies" means Lockheed Martin and its
subsidiaries and affiliates, and any successor or successors thereto.
1.18. "Target Bonus" means the annual bonus which would be payable to an
Eligible Employee for the calendar year in which an Eligible Termination occurs,
calculated on the assumption that the Eligible Employee and one or more Loral
Companies or the Lockheed Martin Companies (or those entities or business units
within the Loral Companies or the Lockheed Martin Companies) on whose
performance the eligible Employee's bonus depends achieve the applicable target
performance goals established under the applicable bonus plan with respect to
that year. If no target performance goals for the year in which the Eligible
Termination occurs have been set prior to the Eligible Termination, the Target
Bonus shall be determined by substituting, in the previous sentence, the highest
annual bonus paid to the Eligible Employee during the three years immediately
preceding the year in which an Eligible Termination occurs.
1.19. "Loral Companies" means the Company and its subsidiaries and
affiliates, and any successor or successors thereto.
E-4
SECTION 2. EFFECT OF AN ELIGIBLE TERMINATION
2.1. If an Eligible Employee incurs an Eligible Termination, the Eligible
Employee shall be entitled to all applicable benefits provided hereafter in
this Section 2 or as otherwise set forth in this Program.
(a) Payment of Salary Amount: Within twenty (20) business days after the
date of his or her Eligible Termination, the Company shall pay or cause to be
paid to the Eligible Employee a single lump sum amount, in cash, equal to the
sum of (i) the Eligible Employee's Annual Salary, and (ii) the Eligible
Employee's Target Bonus.
(b) Welfare Benefits: Within thirty (30) days after the date of his or her
Eligible Termination, the Company shall pay to the Eligible Employee a single
lump amount equal to the full cost of coverage for such Eligible Employee
(taking into account any special medical or other conditions applicable to such
Eligible Employee) during the Severance Period (or, if the Eligible Employee
is provided with such coverage at no additional cost to him or her under any
other severance plan or arrangement, for the period from the date such coverage
terminates until the end of the Severance Period) for medical, dental, life
insurance, disability and accidental death and dismemberment benefits at the
level provided to such Eligible Employee immediately prior to such Eligible
Termination.
(c) Payment of Accrued But Unpaid Amounts: Within twenty (20) business days
after the date of his or her Eligible Termination, the Company shall pay the
Eligible Employee any unpaid portion of the Eligible Employee's bonus accrued
with respect to the full calender year ended prior to the date of the Eligible
Termination and all compensation earned by such Eligible Employee but not yet
paid (including cash compensation for vacation days accrued but not taken as of
the date of the Eligible Termination, based on the Annual Salary amount
converted to a per diem equivalent in accordance with the Company's normal
payroll practices as in effect prior to the Effective Date), except that any
compensation deferred by the Eligible Employee under any qualified or
non-qualified deferred compensation plans shall be paid in accordance with the
terms and provisions of such plans.
(d) Payment for Other Reduced Severance Benefits. The amounts payable to an
Eligible Employee under this Section 2 are supplemental to any other severance
benefits to which the Eligible Employee is entitled under any severance plan or
program of the Loral Companies in effect as of the Effective Date (collectively,
"Other Severance Benefits"). In the event that an Eligible Employee's Other
Severance Benefits are reduced or eliminated after the Effective Date without
his or her written
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consent, the amount otherwise payable to an Eligible Employee hereunder upon an
Eligible Termination shall be increased by the amount of such reduction or
elimination.
2.2. Maximum Benefits: Anything in Section 2.1 to the contrary
notwithstanding, payments under Section 2.1 shall not exceed the maximum amount
which can be paid to an Eligible Employee without causing such payments to be
treated as "excess parachute payments" for purposes of Section 280G of the Code
taking into account all payments made to the Eligible Employee which constitute
"parachute payments" for purposes of Section 280G.
2.3. Mitigation: An Eligible Employee shall not be required to mitigate
damages or the amount of any payment provided for under this Program by seeking
other employment or otherwise, and compensation earned from such employment or
otherwise shall not reduce the amounts otherwise payable under this Program. No
amounts payable under this Program shall be subject to reduction or offset in
respect of any claims which the Company or any member of the Loral Companies (or
any other person or entity) may have against the Eligible Employee.
2.4. Withholding: The Company may, to the extent required by law, withhold
applicable federal and state income, employment and other taxes from any
payments due to any Eligible Employee hereunder.
SECTION 3. LIMITS ON AMENDMENT OR TERMINATION; EFFECT ON OTHER PLANS
3.1. The Company Board may terminate this Program prior to the Effective
Date. As of the Effective Date, this Program (expressly including, but not
limited to, this Section 3) shall remain in effect, and may not be altered or
amended in any way which would adversely affect the rights of any Eligible
Employee hereunder, for at least two (2) years following the Effective Date, and
for such additional time as may be necessary to give effect to the terms of the
Program as in effect at the Effective Date. Thereafter, the Company may amend or
terminate this Program in any manner which does not adversely affect the rights
of any Eligible Employee who has incurred an Eligible Termination.
3.2. An Eligible Employee shall, after the date of his or her Eligible
Termination, retain all rights (to the extent any such rights existed at any
time prior to the Effective Date) to indemnification under applicable law or
under the applicable Loral Companies' Certificate of Incorporation or By-laws,
as they may be amended or restated from time to time. In addition, to the extent
coverage had been otherwise available to the Eligible
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Employee prior to the Effective Date, the Company shall maintain Director's and
Officer's liability insurance on behalf of the Eligible Employee, at the level
in effect immediately prior to the date of his or her Eligible Termination.
SECTION 4. ADMINISTRATION OF THE PROGRAM
4.1. The Committee shall be the Administrator of this Program and shall
have the exclusive right, power and authority to:
(a) interpret, in its sole discretion, any and all of the provisions of
the Program;
(b) establish a claim review procedure, if necessary and advisable; and
(c) consider and decide conclusively any questions (whether of fact or
otherwise) arising in connection with the administration of the Program or any
claim for a benefit arising under the Program.
Any decision or action of the Committee pursuant to this Section 4.1 shall be
conclusive and binding.
SECTION 5. MISCELLANEOUS
5.1. Neither the establishment of the Program nor any action of the
Company, any other member of the Loral Companies or the Lockheed Martin
Companies, the Committee, or any fiduciary shall be held or construed to confer
upon any person any legal right to continued employment with the Company or with
any member of the Loral Companies or the Lockheed Martin Companies.
Nothing in the Program shall be construed to prevent the Company or any
member of the Loral Companies or the Lockheed Martin Companies from terminating
an eligible Employee's employment for Cause. If an Eligible Employee is
terminated for Cause, the Company shall have no obligation to make any payments
under this Program, except for payments that may otherwise be payable under then
existing employee benefit plans, programs and arrangements of the Company or of
any other member of the Loral Companies or the Lockheed Martin Companies.
5.2 Benefits payable under the Program shall be paid out of the general
assets of the Company. The Company is not required to fund the benefits payable
under this Program; provided, however, nothing in this Section 5.2 shall be
interpreted as
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precluding the Company from funding or setting aside amounts in anticipation of
paying any such benefits.
5.3. Benefits payable under the Program shall not be subject to assignment,
alienation, transfer, pledge, encumbrance, commutation or anticipation by any
Eligible Employee. Any attempt to assign, alienate, transfer, pledge, encumber,
commute or anticipate Program benefits shall be void. In addition, no rights or
interest under the Program shall be in any manner subject to levy, attachment or
other legal process to enforce payment of any claim against any Eligible
Employee except to the extent required by law.
5.4. Except as otherwise provided herein, this Program shall be binding
upon, inure to the benefit of and be enforceable by the Company and the Eligible
Employees and their respective heirs, legal representatives, successors and
assigns. If the Company shall be merged into or consolidated with another
entity, the provisions of this Program shall be binding upon and inure to the
benefit of the entity surviving such merger or resulting from such
consolidation, and such provisions shall also be binding upon and inure to the
benefit of any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business or
assets of the Company, and such successor shall assume and perform the
obligations, responsibilities and liabilities to which the Company or any member
of the Loral Companies is subject under this Program in the same manner and to
the same extent that the Company or any member of the Loral Companies would be
required to perform if no such succession had taken place. The provisions of
this Section 5.4 shall continue to apply to each subsequent employer of any
Eligible Employee in the event of any subsequent merger, consolidation or
transfer of assets of any such subsequent employer.
5.5 This Program shall be governed by and construed in accordance with the
laws of the State of New York (without reference to rules relating to conflicts
of laws), except to the extent superseded by applicable federal law.
5.6. Any action required or permitted to be taken by the Company under this
Plan shall be taken by the Company Board, the Board or by the Committee, or any
designee of the Committee pursuant to Section 4, in each case subject to the
limits on amendment and termination contained in Section 3 hereof.
5.7. Entitlement to any benefits under this Program is expressly subject to
and conditioned upon the Eligible Employee agreeing to and signing (i) a
customary exit letter that may contain confidentiality, future cooperation and
other provisions, if requested, and (ii) the Company's standard form general
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release of employment and other claims that the Eligible Employee may have.
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