SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 7, 1996
LOCKHEED MARTIN CORPORATION
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(Exact name of registrant as specified in its charter)
MARYLAND
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(State or other jurisdiction of incorporation)
1-11437 52-1893632
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(Commission File Number) (IRS Employer Identification No.)
6801 Rockledge Drive Bethesda, Maryland 20817
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 301-897-6000
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Not applicable
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(Former name or former address, if changed since last report)
ITEM 5. OTHER EVENTS
On January 7, 1996, the Registrant and Loral Corporation entered into a
definitive Agreement and Plan of Merger (the "Merger Agreement") among the
Registrant, Loral Corporation and LAC Acquisition Corporation, a wholly-owned
subsidiary of the Registrant ("LAC"), providing for the transactions that will
result in Loral Corporation becoming a subsidiary of the Registrant and the
spin-off by Loral Corporation to Loral Corporation shareholders (the "Spin-Off")
of shares of stock in Loral Space & Communications Ltd., a newly-formed Bermuda
company ("Loral Space") that will then own substantially all of the space and
satellite telecommunications interests of Loral Corporation. Under the terms of
the Merger Agreement, LAC will commence a cash tender offer on or before January
12, 1996 for all outstanding shares of common stock, par value $.25 per share,
of Loral (the "Loral Common Stock") at a price of $38.00 per share. Consummation
of the tender offer is subject to, among other things, at least two-thirds of
the shares of Loral Common Stock, determined on a fully-diluted basis, being
validly tendered and not withdrawn prior to the expiration of the tender offer,
applicable regulatory approvals and the occurrence of the Spin-Off Record Date
(as defined below). A copy of each of the Merger Agreement and the joint press
release of the Registrant and Loral Corporation announcing the transaction is
filed herewith as an exhibit and incorporated by reference herein.
Also filed herewith as an exhibit and incorporated by reference herein is a
copy of the Restructuring, Financing and Distribution Agreement among the
Registrant, Loral Corporation, Loral Telecommunications Acquisition, Inc., a
wholly-owned subsidiary of Loral Corporation (to be reorganized as Loral
Space), and certain other wholly-owned subsidiaries of Loral Corporation,
concurrently with the execution of the Merger Agreement, which provides, among
other things, for (i) the transfer of substantially all of the space and
satellite telecommunications interests of Loral Corporation and certain other
assets of Loral Corporation to Loral Space, (ii) the distribution of all of the
shares of Loral Space common stock to holders of Loral Common Stock and persons
entitled to acquire shares of Loral Common Stock, each as of a record date (the
"Spin-Off Record Date") to be declared by the Board of Directors of Loral
Corporation and to be a date on or immediately prior to the consummation of the
tender offer, and (iii) Loral Corporation to retain a 20% equity interest in
Loral Space through the ownership of Loral Space preferred stock convertible
into common stock.
The Registrant cautions that certain forward looking statements contained
in the press release including, without limitation, the effect of the merger of
the Registrant and Loral Corporation on the Registrant's earnings and cash
flows, are qualified by important factors that could cause actual operating
results to differ materially from those described in the press release,
including among others, the following: (i) unanticipated events and
circumstances may occur rendering the transaction less beneficial to the
Registrant than projected; (ii) the Registrant and Loral Corporation face
intense competition in their markets, a substantial portion of their business is
obtained through the submission of competitive proposals, and there is,
accordingly, no guarantee that after consummation of the merger the Registrant
will achieve the expected financial and operating results and synergies; (iii)
the Registrant and Loral Corporation rely heavily upon government contracts,
particularly national security and defense related contracts,
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and there can be no assurance that government programs from which these
contracts are derived will not be reduced in scope or terminated at the
convenience of the government, rendering the merger less advantageous than
projected; and (iv) in order to secure the requisite antitrust and other
approvals for the merger, the Registrant may be required to divest or hold
separate certain assets which would render the merger less beneficial than
predicted. Results actually achieved thus may differ materially from the
expected results described in the press release.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
Exhibit 2.1 Agreement and Plan of Merger dated as of January 7, 1996
among the Registrant, LAC Acquisition Company and Loral
Corporation.
Exhibit 99.1 Restructuring, Financing and Distribution Agreement, dated
as of January 7, 1996 among the Registrant, Loral
Corporation, Loral Telecommunications Acquisition, Inc. and
certain other wholly-owned subsidiaries of Loral
Corporation.
Exhibit 99.2 Press release of the Registrant and Loral Corporation dated
January 8, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LOCKHEED MARTIN CORPORATION
/s/ FRANK H. MENAKER
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Frank H. Menaker, Jr.
Vice President and General Counsel
12 January 1996
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EXHIBIT INDEX
Exhibit 2.1 Agreement and Plan of Merger dated as of January 7, 1996
among the Registrant, LAC Acquisition Corporation and Loral
Corporation.
Exhibit 99.1 Restructuring, Financing and Distribution Agreement, dated
as of January 7, 1996 among the Registrant, Loral
Corporation, Loral Telecommunications Acquisition, Inc. and
certain other wholly-owned subsidiaries of Wings
Corporation.
Exhibit 99.2 Press release of the Registrant and Loral Corporation dated
January 8, 1996.
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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.
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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.
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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.
12
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
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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.
26
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.
27
(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.
28
(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.
32
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
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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.
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"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,
A-11
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-
A-12
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
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(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.
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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.
C-6
(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
C-11
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)
D-1
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
D-4
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
D-5
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.
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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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EXHIBIT 99.1
Restructuring, Financing and Distribution Agreement, dated as of January 7, 1996
among the Registrant, Loral Corporation, Loral Telecommunications Acquisition,
Inc. and certain other wholly-owned subsidiaries of Wings Corporation.
Execution Copy
RESTRUCTURING, FINANCING
AND DISTRIBUTION AGREEMENT
dated as of January 7, 1996
by and among
LORAL CORPORATION,
LORAL AEROSPACE HOLDINGS, INC.,
LORAL AEROSPACE CORP.,
LORAL GENERAL PARTNER, INC.,
LORAL GLOBALSTAR, L.P.,
LORAL GLOBALSTAR LIMITED,
LORAL TELECOMMUNICATIONS ACQUISITION, INC.
(TO BE RENAMED "LORAL SPACE & COMMUNICATIONS CORPORATION")
and
LOCKHEED MARTIN CORPORATION
TABLE OF CONTENTS
Page
RECITALS................................................................... 1
ARTICLE I DEFINITIONS...................................................... 2
Section 1.1. General..................................................... 2
Section 1.2. References to Time.......................................... 19
ARTICLE II THE RESTRUCTURING AND RELATED TRANSACTIONS....................... 19
Section 2.1. Transfers of Assets......................................... 19
Section 2.2. Methods of Transfer and Assumption.......................... 23
Section 2.3. Company Approval of Certain Spinco
Actions; Formation of Spinco............................... 24
Section 2.4. Issuance of Spinco Stock to the Company..................... 25
Section 2.5. Treatment of Globalstar Bank Guarantee...................... 25
Section 2.6. Transfers of Spinco Capital Stock
Subject to Rights of First Offer, Etc...................... 29
Section 2.7. Exchange of Lehman Preferred Stock.......................... 32
ARTICLE III THE DISTRIBUTION................................................. 32
Section 3.1. Cooperation Prior to the Distribution....................... 32
Section 3.2. The Distribution............................................ 35
Section 3.3. Termination of Certain Claims............................... 38
ARTICLE IV INTERCOMPANY BUSINESS RELATIONSHIPS.............................. 39
Section 4.1. Settlement of Intercompany Accounts......................... 39
Section 4.2. Settlements for Cash Collections and
Disbursements After the Distribution Date.................. 40
Section 4.3. Transition Services......................................... 41
Section 4.4. Termination of Intercompany Arrangements.................... 42
ARTICLE V SURVIVAL AND INDEMNIFICATION..................................... 43
Section 5.1. Survival of Agreements...................................... 43
Section 5.2. Spinco's Agreement to Indemnify............................. 43
Section 5.3. The Company's Agreement to Indemnify........................ 45
Section 5.4. Procedure for Indemnification............................... 47
Section 5.5. Miscellaneous Indemnification Provisions.................... 50
Section 5.6. Pending Litigation.......................................... 53
Section 5.7. Construction of Agreements.................................. 54
ARTICLE VI CERTAIN ADDITIONAL MATTERS....................................... 54
Section 6.1. Representations or Warranties; Disclaimers.................. 54
Page
----
Section 6.2. Further Assurances; Subsequent Transfers.................... 56
Section 6.3. The Spinco Board............................................ 59
Section 6.4. Use of Names................................................ 59
Section 6.5. Litigation Relating to Transaction.......................... 60
Section 6.6. Spinco Equity Arrangements.................................. 61
Section 6.7. Post-Closing Business Relationships......................... 61
Section 6.8. No Restrictions on Post-Closing
Competitive Activities..................................... 64
Section 6.9. CCD Lawsuit................................................. 65
ARTICLE VII ACCESS TO INFORMATION AND SERVICES............................... 66
Section 7.1. Provision of Corporate Records.............................. 66
Section 7.2. Access to Information....................................... 66
Section 7.3. Production of Witnesses..................................... 67
Section 7.4. Retention of Records........................................ 67
Section 7.5. Confidentiality............................................. 68
ARTICLE VIII EMPLOYEE MATTERS................................................. 69
Section 8.1. Officers and Employees...................................... 69
Section 8.2. Employee Benefits........................................... 69
Section 8.3. Other Liabilities and Obligations........................... 75
Section 8.4. Preservation of Rights to Amend or Terminate Plans.......... 76
Section 8.5. Reimbursement; Indemnification.............................. 76
Section 8.6. Actions By Spinco........................................... 76
ARTICLE IX INSURANCE........................................................ 77
Section 9.1. General..................................................... 77
Section 9.2. Certain Insured Claims...................................... 77
ARTICLE X CONDITIONS; TERMINATION; AMENDMENTS; WAIVERS..................... 78
Section 10.1. Condition to Restructuring and Distribution................. 78
Section 10.2. Termination................................................. 80
Section 10.3. Amendments; Waivers......................................... 80
ARTICLE XI MISCELLANEOUS.................................................... 80
Section 11.1. Survival of Indemnities; Release............................ 80
Section 11.2. Entire Agreement............................................ 81
Section 11.3. Fees and Expenses........................................... 82
Section 11.4. Governing Law............................................... 82
Section 11.5. Notices..................................................... 82
Section 11.6. Successors and Assigns; No Third Party Beneficiaries........ 84
Section 11.7. Counterparts................................................ 85
Section 11.8. Interpretation.............................................. 85
Page
----
Section 11.9. Schedules................................................... 85
Section 11.10. Legal Enforceability........................................ 85
Section 11.11. Consent to Jurisdiction..................................... 85
Section 11.12. Specific Performance........................................ 86
Exhibits
- --------
Exhibit A Form of Spinco Stockholders Agreement
Exhibit A-1 Globalstar Warrant Term Sheet
Exhibit B Form of Spinco Preferred Stock Certificate of Designation
Exhibit C Form of Spinco By-Laws
Exhibit D Spinco Shareholder Rights Plan
Exhibit E Spinco Employment Arrangements
RESTRUCTURING, FINANCING
AND DISTRIBUTION AGREEMENT
--------------------------
RESTRUCTURING, FINANCING AND DISTRIBUTION AGREEMENT, dated as of
January 7, 1996, by and among Loral Corporation, a New York corporation
(the "Company"), Loral Aerospace Holdings, Inc., a Delaware corporation and
a wholly-owned subsidiary of the Company ("Holdings"), Loral Aerospace
Corp., a Delaware corporation and a wholly-owned subsidiary of Holdings
("Aerospace"), Loral General Partner, Inc., a Delaware corporation and a
wholly-owned subsidiary of Aerospace ("LGP"), Loral Globalstar, L.P., a
Delaware limited partnership and a wholly-owned, indirect subsidiary of LGP
("LG"), Loral Globalstar Limited, a Cayman Islands corporation and a
wholly-owned subsidiary of LGP ("Cayman"), Loral Telecommunications
Acquisition, Inc. (to be renamed "Loral Space & Communications
Corporation"), a Delaware corporation and a wholly-owned subsidiary of the
Company ("Spinco"), and Lockheed Martin Corporation, a Maryland corporation
("Parent").
RECITALS:
--------
WHEREAS, each of the Boards of Directors of the Company,
Holdings, Aerospace, LGP and Cayman, and the general partner of LG have
determined to cause certain of the transfers and other transactions
contemplated in connection with the Restructuring (as hereafter defined);
WHEREAS, the Board of Directors of the Company has also
determined to cause the distribution of shares of Spinco Common Stock (as
hereafter defined) to the holders as of the Record Date (as hereafter
defined) of the Company Common Stock (as hereafter defined) and to the
holders of certain Cancelled Company Options (as hereafter defined);
WHEREAS, the Company and Spinco and the other parties hereto have
determined that it is desirable to set forth the principal corporate
transactions required to effect such transfers, share issuances and
distribution and to set forth certain other agreements that will govern
certain other matters prior to or following such distribution;
WHEREAS, the Company has entered into an Agreement and Plan of
Merger, dated as of the date hereof (the "Merger Agreement"), with Parent
and LAC Acquisition Corporation, a New York corporation and a wholly-owned
subsidiary of Parent (the "Purchaser"), providing for the Offer and the
Merger (each as hereafter defined), as a result of which the Company, as
the corporation surviving the Merger, will become a wholly-owned subsidiary
of Parent; and
WHEREAS, in order to induce the parties to enter into this
Agreement and in consideration of the Company's willingness to enter into
the Merger Agreement, the parties hereto and certain other parties are
entering or will enter into the Tax Sharing Agreement and the Stockholders
Agreement (such capitalized terms, as hereafter defined) providing for
certain ongoing relationships among the parties;
NOW, THEREFORE, in consideration of the foregoing and the
agreements, provisions and covenants contained herein, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.1. General. For convenience and brevity, certain
terms used in various parts of this Agreement (including the Schedules) are
listed in alphabetical order and defined or referred to below (such terms
to be equally applicable to both singular and plural forms of the terms
defined or referred to):
"Action" means any action, claim, suit, arbitration, inquiry,
proceeding or investigation by or before any court, any governmental or
other regulatory or administrative agency or commission or any arbitration
tribunal.
"Adjusted GAAP" means, except as otherwise set forth in Section
1.1(a) of the Disclosure Schedule, U.S. generally accepted accounting
principles as in effect on the date hereof, applied on a basis consistent
with the Company Financial Statements.
2
"Aerospace" shall have the meaning set forth in the recitals to
this Agreement.
"Affiliate" of any specified person or entity means (x) any
director or officer of, or any person or entity that beneficially owns at
least 50% of the capital stock or other equity interests of, such specified
person or entity, or (y) any other person or entity directly or indirectly
controlling, controlled by, or under common control with, such specified
person or entity, at any time during the period for which the determination
of affiliation is being made; provided that the Company and the Retained
Subsidiaries, on the one hand, and Spinco and the Spinco Companies, on the
other hand, shall not, after giving effect to the Restructuring, be deemed
to be Affiliates of each other for purposes of this Agreement.
"Agent" means the distribution agent appointed by the Company
(subject to the prior written consent of Parent, which may not be
unreasonably withheld) to distribute shares of Spinco Common Stock pursuant
to the Distribution.
"Agreement" means this Restructuring, Financing and Distribution
Agreement, together with all exhibits and schedules hereto, as the same may
be amended from time to time in accordance with the terms hereof.
"Asset" means, with respect to any party, except as otherwise
provided herein, any and all of such party's right, title and interest in
and to all of the rights, properties, assets, claims, contracts and
businesses of every kind, character and description, whether real, personal
or mixed, whether accrued, contingent or otherwise, and wherever located,
owned or used primarily by such party and its subsidiaries, including,
without limitation, the following: (i) all cash, cash equivalents, notes
and accounts receivable (whether current or non-current); (ii) all
certificates of deposit, banker's acceptances and other investment
securities; (iii) all registered and unregistered trademarks, service
marks, service names, trade styles and trade names (including, without
limitation, trade dress and other names, marks and slogans) and all
associated goodwill; all statutory, common law and registered copyrights;
all patents; all applications for any of the foregoing together with all
rights to use all of the foregoing and all other rights
3
in, to, and under the foregoing; all know-how, inventions, discoveries,
improvements, processes, formulae (secret or otherwise), specifications,
trade secrets, whether patentable or not, licenses and other similar
agreements, confidential information, and all drawings, records, books or
other indicia, however evidenced, of the foregoing; (iv) all rights
existing under all Contracts and other business arrangements; (v) all real
estate and all plants, buildings and other improvements thereon; (vi) all
leasehold improvements and all machinery, equipment (including all
transportation and office equipment), fixtures, trade fixtures and
furniture; (vii) all office supplies, production supplies, spare parts,
other miscellaneous supplies and other tangible property of any kind;
(viii) all raw materials, work-in-process, finished goods, consigned goods
and other inventories; (ix) all computer hardware, software, computer
programs and systems and documentation relating thereto; all databases and
reference and resource materials; (x) all prepayments or prepaid expenses;
(xi) all claims, causes of action, choices in action, rights of recovery
and rights of set-off of any kind; (xii) the right to receive mail,
accounts receivable payments and other communications; (xiii) all customer
lists and records pertaining to customers and accounts, personnel records,
all lists and records pertaining to suppliers and agents, and all books,
ledgers, files and business records of every kind; (xiv) all advertising
materials and all other printed or written materials; (xv) all permits,
licenses, approvals and authorizations of governmental authorities or third
parties relating to the ownership, possession or operation of the Assets;
(xvi) all capital stock, partnership interests and other equity or
ownership interests or rights, directly or indirectly, in any subsidiary or
other entity; (xvii) all goodwill as a going concern and all other
intangible properties; and (xviii) all employee contracts, including,
without limitation, the right thereunder to restrict the employee from
competing in certain respects.
"Business Day" means any calendar day which is not a Saturday,
Sunday or public holiday under the Laws of New York.
"Cancelled Company Option" means any option or other right to
acquire shares of Company Common Stock which (i) has been granted by the
Company to any employee
4
or director of the Company or any of its Subsidiaries, (ii) is outstanding
immediately prior to, and remains unexercised as of, the Record Date, and
(iii) will be cancelled pursuant to Section 2.10 of the Merger Agreement.
"Capital Contribution" shall mean any capital or other investment
in the Spinco Business, Spinco or any Spinco Company (including, without
limitation, (x) the acquisition of any equity or other interests in Spinco
or any Spinco Company during such time period (except as otherwise
expressly contemplated pursuant to the provisions of Article II hereof),
(y) any contribution of cash, cash equivalents, marketable securities,
receivables, inventory, prepaid expenses, real or personal property or any
other assets to the Spinco Business, Spinco or any Spinco Company (except
as otherwise expressly contemplated pursuant to the provisions of Article
II hereof) and (z) the assumption of or payment by the Company or any
Company Subsidiary of any Spinco Liabilities, and any prepayment,
redemption, purchase or defeasance of Spinco Indebtedness (if any) or any
other Spinco Liabilities) by the Company or any Company Subsidiary;
provided that the term "Capital Contribution" shall not include (1) any
amounts which are transferred following the date hereof and prior to the
Offer Purchase Date and which are either (i) in connection with
administrative and other similar services which are provided to any of the
Spinco Companies in the ordinary course of the Company's business and which
are consistent with the past practices of the Company (provided that the
cost of any such services may only be allocated in a manner consistent with
the past practices of the Company), or (ii) (A) pursuant to the express
terms and conditions of any Existing Intercompany Agreement and (B) in the
ordinary course of business and in a manner consistent with past practice,
(2) the Spinco Guarantee Warrants, or (3) the DBS Investment (as defined in
the definition of Spinco Liabilities).
"Casualty Program" means collectively, the series of programs
pursuant to which various insurance carriers provide insurance coverage to
the Company and its subsidiaries in respect of claims or occurrences
relating to workers' compensation liability, general liability, products
liability, automobile liability and
5
employer's liability for all periods up to the Distribution Date.
"Cayman" shall have the meaning set forth in the recitals to this
Agreement.
"CCD Lawsuit" means the litigation entitled Loral Fairchild Corp.
vs. Sony Corporation, et al.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" shall have the meaning set forth in the recitals to
this Agreement.
"Company Common Stock" means the common stock of the Company, par
value $0.25 per share.
"Company Financial Statements" means the audited consolidated
financial statements of the Company and its subsidiaries for the fiscal
year ending March 31, 1995 (a copy of which is set forth in the Company's
Annual Report on Form 10K for the year ended March 31, 1995).
"Confidentiality Agreement" means the confidentiality agreement
dated as of December 4, 1995 between Parent and the Company.
"Continental" means Continental Satellite Corporation, a
California corporation.
"Contract" means any contract, agreement, lease, license, sales
order, purchase order, instrument or other commitment that is binding on
any person or entity or any part of its property under applicable Law.
"Court Order" means any judgment, decree, injunction, order or
ruling of any Governmental Entity that is binding on any person or its
property under applicable Law.
"Disclosure Schedule" means the disclosure schedule dated as of
the date hereof and attached hereto. References to a particular section of
the Disclosure Schedule shall only refer or modify the specific Section of
this Agreement to which such Schedule relates (i.e.,
6
Section 6.2(c) of the Disclosure Schedule shall refer to or modify only
Section 6.2(c) of this Agreement), unless otherwise expressly set forth
herein.
"Distribution" means the distribution of the shares of Spinco
Common Stock owned by the Company to holders of Company Common Stock and to
holders of Cancelled Company Options pursuant to the provisions of this
Agreement (including, without limitation, the provisions of Section 3.2(b)
hereof).
"Distribution Conditions" means each of the conditions set forth
in clauses (i) through (ix) of Section 10.1(a) hereof.
"Distribution Date" means the date as of which the Distribution
shall be effected as determined by the Board of Directors of the Company,
subject to the terms and conditions of this Agreement (including, without
limitation, the provisions of Section 3.2(a) hereof).
"Distribution Declaration Date" means the date on which the Board
of Directors of the Company takes action to declare the Distribution and
establish the Record Date.
"Existing Intercompany Agreement" means any written Intercompany
Agreement or regular, established accounting practice, consistently
applied, which is in existence prior to December 31, 1995.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"FCC" means the U.S. Federal Communications Commission.
"Final Order" means any consent, approval or other action of the
FCC (a) relating to any of the transactions contemplated pursuant to either
this Agreement or the Merger Agreement and (b) (i) which has not been
vacated, reversed, stayed, set aside, annulled or suspended, (ii) with
respect to which no timely appeal, request for stay or petition for
rehearing, reconsideration or review by any party or by the FCC on its own
motion, is pending, (iii) as to which the time for filing any such appeal,
request, petition or other similar
7
document has expired, and (iv) as to which the time for reconsideration or
review by the FCC on its own motion under the Communications Act (as
defined in the Merger Agreement) and the rules and regulations of the FCC
has expired.
"Form 10" means the registration statement on Form 10 to be filed
by Spinco with the SEC to effect the registration of the Spinco Common
Stock pursuant to the Exchange Act.
"Globalstar" means Globalstar, L.P., a Delaware limited
partnership.
"Globalstar Bank Guarantee" means the Guarantee, dated as of
December 15, 1995, made by Loral in favor of Chemical Bank, as agent for
the lenders from time to time parties to the Globalstar Credit Agreement.
"Globalstar Credit Agreement" means the Credit Agreement, dated
as of December 15, 1995 (as amended, supplemented or otherwise modified
from time to time in accordance with the provisions of Section 2.5 hereof),
among Globalstar, Chemical Bank, as agent for the lenders from time to time
parties thereto and the other parties thereto.
"Globalstar Partners" means those Persons (or any Affiliates
thereof) holding direct or indirect partnership interests in either
Globalstar, LQSS or LQP.
"Guarantee Warrants" means those warrants to purchase shares of
common stock of GTL (or warrants to purchase partnership interests in
Globalstar, as the case may be), which warrants are to be issued in
connection with the Globalstar Bank Guarantee to the Company and, under
certain circumstances, to certain parties which hold partnership interests
in Globalstar, as more fully described in the Globalstar Warrant Memorandum
and the term sheet set forth on Exhibit A-1 attached hereto.
"Globalstar Warrant Memorandum" means the December 21, 1995
memorandum from Michael B. Targoff to Enrique Fernandez relating to, among
other things, the Globalstar Bank Guarantee and the Globalstar Credit
Agreement.
8
"Governmental Entity" means any United States or any foreign,
federal, state or local government, court, administrative agency or
commission or other governmental or regulatory body or authority.
"GTL" means Globalstar Telecommunications Limited, a company
organized under the laws of Bermuda.
"Holdings" shall have the meaning set forth in the recitals to
this Agreement.
"Indemnifiable Losses" means, with respect to any claim by an
Indemnified Party for indemnification pursuant to Articles II, V, VI or
VIII hereof, any and all damages, losses, deficiencies, Liabilities,
obligations, penalties, judgments, settlements, claims, payments, fines,
interest, costs and expenses (including, without limitation, the costs and
expenses of any and all Actions, demands, assessments, judgments,
settlements and compromises relating thereto and the costs and expenses of
attorneys', accountants', consultants' and other professionals' fees and
expenses incurred in the investigation or defense thereof or the
enforcement of rights hereunder), including direct and consequential
damages, but excluding punitive damages (other than punitive damages
awarded to any third party against an Indemnified Party) suffered by such
Indemnified Party with respect to such claim.
"Indemnified Party" means any party which is seeking
indemnification from an Indemnifying Person pursuant to the provisions of
Articles II, V, VI or VIII hereof.
"Indemnifying Party" means any party hereto from which any
Indemnified Party is seeking indemnification pursuant to the provisions of
Articles II, V, VI or VIII hereof.
"Information" shall have the same meaning as defined in Section
7.2 hereof.
"Information Statement" means the information statement to be
sent to the holders of the Company's equity securities in connection with
the Distribution.
9
"Intellectual Property Rights" means all right, title, interest
and all license and other rights, to the extent held by the Company and its
Subsidiaries immediately prior to the Restructuring, with respect to each
of the following items: all patents, patent applications, copyrights,
copyright applications, trademarks, trademark applications and trade names,
in each case as used in the business of the Company and its Subsidiaries as
conducted immediately prior to the Restructuring.
"Intercompany Agreements" means any Contracts between any
entities included within the Retained Business (including, without
limitation, the Company and the Retained Subsidiaries), on the one hand,
and any entities included within the Spinco Business (including, without
limitation, Spinco and the Spinco Companies), on the other hand.
"K&F" means K&F Industries, Inc., a Delaware corporation.
"LG" shall have the meaning set forth in the recitals to this
Agreement.
"LGP" shall have the meaning set forth in the recitals to this
Agreement.
"LQP" means Loral/QUALCOMM Partnership, L.P., a Delaware limited
partnership.
"LQSS" means Loral/QUALCOMM Satellite Services, L.P., a Delaware
limited partnership.
"Law" means any statute, law, rule, regulation, ordinance, order,
decree or judgment of any Governmental Entity, including, without
limitation, those covering environmental, energy, safety, health,
transportation, telecommunications, recordkeeping, zoning,
antidiscrimination, antitrust, wage and hour, and price and wage control
matters.
"Lehman Partnerships" means each of Shearson Lehman Brothers
Capital Partners II, L.P., Lehman Brothers Merchant Banking Portfolio
Partnership L.P., Lehman Brothers Offshore Investment Partnership L.P. and
Lehman Brothers Offshore Investment Partnership-Japan L.P.
10
"Lehman Preferred Stock" means the shares of Series S Redeemable
Preferred Stock, par value $.10 per share, of Holdings which are held by
any of the Lehman Partnerships, any of their respective transferees or any
other persons.
"Liability" means, with respect to any party, except as otherwise
expressly provided herein, any direct or indirect liability (whether
absolute, accrued, contingent, reflected on a balance sheet (or in the
notes thereto) or otherwise, and whether known or unknown), indebtedness,
obligation, expense, claim, deficiency, guarantee or endorsement of or by
any person (including, without limitation, those arising under any Law or
Action or under any award of any court, tribunal or arbitrator of any kind,
and those arising under any contract, commitment or undertaking).
"Lien" means any mortgage, pledge, lien, encumbrance, charge,
adverse claim (whether pending or, to the knowledge of the person against
whom the adverse claim is being asserted, threatened), defect of title or
restriction of any nature whatsoever on any property or property interest
(regardless of whether such property or property interest is real or
personal, tangible or intangible, or otherwise), or a security interest of
any kind, including, without limitation, any conditional sale or other
title retention agreement, any third party option or other agreement to
sell and any filing of or agreement to give, any financing statement under
the Uniform Commercial Code (or equivalent statute) of any jurisdiction
(other than a financing statement which is filed or given solely to protect
the interest of a lessor).
"Merger" shall have the meaning set forth in the Merger
Agreement.
"Merger Agreement" shall have the meaning set forth in the
recitals to this Agreement.
"NYSE" means the New York Stock Exchange, Inc.
"Offer" shall have the meaning set forth in the Merger Agreement.
11
"Offer Purchase Date" means the date on which the Purchaser accepts for
payment and pays for Shares tendered pursuant to the Offer.
"Parent" shall have the meaning set forth in the recitals to this
Agreement.
"Parent Indemnified Parties" shall have the same meaning as defined in
Section 5.2(a) hereof.
"Person" or "person" means and includes any individual, partnership, joint
venture, corporation, association, joint stock company, trust, unincorporated
organization or similar entity and any Governmental Entity.
"Purchaser" shall have the meaning set forth in the recitals to this
Agreement.
"Record Date" means the date determined by the Board of Directors of the
Company as the record date for the Distribution, subject to the terms and
conditions of this Agreement (including, without limitation, the provisions of
Section 3.2(a) hereof).
"Restructuring" means collectively, the transactions contemplated pursuant
to the provisions of Article II hereof.
"Retained Action" shall have the same meaning as defined in Section 5.6
hereof.
"Retained Assets" means all Assets of the Company and each Retained
Subsidiary (including, without limitation, (A) all shares of capital stock,
partnership interests and other equity or ownership interests or ownership
rights in all subsidiaries and other entities owned directly or indirectly by
the Company or any of the Retained Subsidiaries, (B) all rights to Assets held
by such subsidiaries and entities, (C) except as provided in Sections 4.1 and
4.2 hereof, all cash and cash equivalents held by the Company or any of the
Retained Subsidiaries, (D) the Company Names and Company Proprietary Names (such
terms, as defined in Section 6.4 hereof), (E) the Retained Actions and all other
Actions commenced by the Company or any Retained Subsidiary (to the extent such
Actions constitute Assets), and (F) the licenses of
12
Intellectual Property Rights referred to in Section 6.7 hereof to be granted to
Parent, the Company and each of their respective Affiliates), other than the
Spinco Assets.
"Retained Business" means all businesses of the Company and the Retained
Subsidiaries and all businesses included within the Retained Assets (including,
without limitation, the Company's electronic combat business, the Company's
training and simulation business, the Company's tactical weapons business, the
Company's command, control, communications and intelligence (C3I)/reconnaissance
business and the Company's systems integration business (each as described in
the Company's Annual Report on Form 10K for the year ended March 31, 1995)), as
conducted by the Company and its subsidiaries as of the Distribution Date and
all former businesses of the Company and the Retained Subsidiaries; provided
that the term "Retained Business" shall not include the SpincoBusiness.
"Retained Employees" shall mean all current and former officers and
employees of the Company and its subsidiaries, other than the Spinco Employees.
"Retained Liabilities" means all of the Liabilities of the Company and
each of the Retained Subsidiaries, other than the Spinco Liabilities.
"Retained Subsidiaries" means all of the Subsidiaries of the Company,
other than the Spinco Companies.
"SEC" means the U.S. Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Severance Agreement" means any Contract which provides for the payment of
any cash or other consideration to an officer, director or employee of the
Company or any of its Subsidiaries upon the consummation of either the Offer,
the Merger, the Restructuring or the Distribution.
13
"Spinco" shall have the meaning set forth in the recitals to this
Agreement.
"Spinco Assets" means all right, title and interest, to the extent held by
the Company and its Subsidiaries or any of the other Spinco Companies
immediately prior to the Restructuring, with respect to each of the following
items: (a) all shares of capital stock of and all partnership interests in (as
the case may be) the Spinco Companies, (b) the Spinco Cash Amount, (c) the
Spinco Names and Spinco Proprietary Name Rights (such terms, as defined in
Section 6.4 hereof), (d) any Actions commenced by a Spinco Company the subject
matter of which is otherwise a Spinco Asset or any Action which relates
primarily to a Spinco Asset (to the extent such Actions constitute Assets), (e)
shares of capital stock of Loral Travel Services Inc. and Loral Properties Inc.,
(f) that portion of the leasehold interest relating to the office space on not
more than two floors reasonably designated by Spinco within 30 days after the
date hereof with respect to the building located at 600 Third Avenue, New York,
New York and such existing furniture, fixtures, and office equipment located on
such floors which is reasonably designated by Spinco within thirty (30) days
after the date hereof, (g) the licenses of Intellectual Property Rights referred
to in Section 6.7 hereof to be granted to Spinco or the Spinco Companies, (h)
the CCD Lawsuit, and (i) the FCC license applications and other Assets listed on
Section 1.1(b) of the Disclosure Schedule. The term "Spinco Assets" shall also
include (A) the Cash Guarantee Fees accruing to the benefit of the Company and
(B) the number of Guarantee Warrants equal to the product of (x) the aggregate
number of Guarantee Warrants which might be issued and (y) a ratio of the Spinco
Assumed Guarantee Amount (as defined in Section 2.5(d) hereof) to the total
amount of Obligations (as defined in Section 2.5 hereof) under the Globalstar
Bank Guarantee in connection with the Globalstar Bank Guarantee, but shall not
include any other Guarantee Warrants which may be issued from time to time to
the Company.
"Spinco Balance Sheet" means the unaudited, pro forma, consolidated balance
sheet (including the related notes) of the Spinco Business as of September 30,
1995 set forth in Section 1.1(d) of the Disclosure Schedule.
14
"Spinco Business" means each business and each former business which is or
was conducted by Spinco or a Spinco Company as of the Distribution Date or which
is or was included within the Spinco Assets.
"Spinco Cash Amount" means the cash amount referred to in Section
2.1(a)(xiv) hereof.
"Spinco Common Stock" means the common stock, par value $0.01 per share, of
Spinco, together with the associated preferred stock purchase rights to be
issued pursuant to a rights agreement to be entered into between Spinco and a
rights agent to be selected by Spinco.
"Spinco Companies" means (a) each of SSL, GTL, K&F, Globalstar, LGP, LG,
Cayman, LQSS, LQP, Continental and the companies referred to in paragraph (e) of
the definition of "Spinco Assets", and (b) all Subsidiaries of any of the
entities listed in paragraph (a) above after giving effect to the Restructuring.
"Spinco Employees" means (x) those persons who are employed as officers or
employees of Spinco and the Spinco Companies or otherwise employed in the
Spinco Business immediately prior to or effective as of the Distribution Date,
and (y) all former officers and employees of Spinco, any Spinco Company or the
Spinco Business who, immediately prior to the termination of their employment,
were employed by Spinco, any Spinco Company or the Spinco Business. In the event
any person shall have been employed by Spinco or any of the Spinco Companies, as
well as by the Company or any of the Retained Subsidiaries, such person shall be
considered a Spinco Employee if at the Distribution Date such person's primary
employment shall be with Spinco, any of the Spinco Companies or the Spinco
Business.
"Spinco Indebtedness" means (a) any and all of the following items which
are incurred or entered into by Spinco or any Spinco Company or otherwise
incurred or entered into in connection with the Spinco Business: (i)
indebtedness for money borrowed, (ii) indebtedness which is evidenced by notes,
debentures, bonds or other similar instruments; (iii) any lease of any property
(whether real, personal or mixed) that, in accordance with generally accepted
accounting principles, either would be required to be classified and accounted
for as a capital
15
lease on a balance sheet or otherwise be disclosed as such in a note to any such
balance sheet; (iv) all obligations issued or assumed as the deferred purchase
price of property, all conditional sale obligations and all obligations under
any title retention agreement; and (v) all obligations for the reimbursement of
any obligor on any letter of credit, banker's acceptance or similar credit
transaction; (b) all obligations of the type referred to in clauses (i), (ii),
(iii), (iv) and (v) of paragraph (a) above of which Spinco, any Spinco Company
or the Spinco Business is responsible or liable, directly or indirectly, as
obligor, guarantor or otherwise, including any guarantees of such obligations;
and (c) all obligations of the type referred to in clauses (i), (ii), (iii),
(iv) and (v) of paragraph (a) above or referred to in paragraph (b) above, which
are secured by any Lien on any property or asset of Spinco, any Spinco Company,
any Affiliate of Spinco or the Spinco Business.
"Spinco Indemnified Parties" shall have the same meaning as defined in
Section 5.3(a) hereof.
"Spinco Liabilities" means (a) all of the Liabilities of Spinco and the
Spinco Companies to third parties and all Liabilities relating to or arising out
of the Spinco Assets or the conduct of the Spinco Business (in all cases,
whether arising before or after the date hereof); (b) all Liabilities reflected
or reserved against in the Spinco Balance Sheet and all similar Liabilities
arising after the date thereof; (c) any Actions commenced by a Spinco Company
the subject matter of which is otherwise a Spinco Asset or any Action which
relates primarily to a Spinco Asset (to the extent such Actions constitute
Liabilities); (d) except as otherwise provided in Article VIII hereof, the
Liabilities of the Company and its subsidiaries, including, without limitation,
Spinco and the Spinco Companies, in respect of Spinco Employees (in all cases,
whether arising before or after the date hereof) (excluding, however, all wages,
salary, bonus and other similar amounts accrued prior to the Distribution Date
in respect of Spinco New York Employees); (e) all Liabilities relating to or
arising out of the Spinco Assets or the conduct of the Spinco Business (in all
cases, whether arising before or after the date hereof) with respect to which
the Company or any Retained Subsidiary has agreed, prior to the Distribution
Date, to indemnify any third party in any manner with re-
16
spect thereto or has agreed to otherwise be, or is otherwise, liable with
respect thereto; (f) all Company Transfer Expenses (as defined in Section 2.6
hereof) and all other Indemnifiable Losses referred to in Section 2.6 hereof;
(g) all Spinco Excess Costs (as defined in Section 11.3 hereof); and (h) the
amount of any and all consideration paid, and any and all Liabilities incurred,
by the Company, Spinco, any Spinco Company or any Retained Subsidiary or any of
their respective Affiliates, following the date hereof but prior to the
consummation of the Restructuring, in connection with the acquisition of any
securities issued by Continental (whether held by any third party or otherwise)
or any Assets of Continental, but only to the extent that the aggregate fair
market value of such consideration and Liabilities exceeds in the aggregate
$7,500,000.00 (for purposes of this clause (h), the term "Continental" shall
include any other Person, program or business which conducts direct broadcast
satellite operations similar in nature to those operations conducted or proposed
to be conducted by Continental) (the parties hereto acknowledge and agree that,
if the Company acquires any such securities or Assets, that all amounts paid or
Liabilities incurred in connection therewith not in excess of such $7,500,000.00
threshold (the "DBS Investment"), shall not otherwise be included within the
term "Spinco Liabilities"). Notwithstanding the foregoing, the term "Spinco
Liabilities" shall not include any Liabilities of the Company arising pursuant
to the express provisions of the Globalstar Bank Guarantee (as amended pursuant
to the provisions of Section 2.5 hereof), except as otherwise expressly
provided in Section 2.5 hereof.
"Spinco New York Employees" means those Spinco Employees who are located
prior to the date hereof at the office building located at 600 Third Avenue, New
York, New York; provided that the term "Spinco New York Employees" shall not
include any employees whose primary employment is with the Spinco Business and
shall not include senior executive officers of the Company.
"Spinco Preferred Stock" means the Series A Non-Voting Convertible
Preferred Stock, par value $0.01 per share, of Spinco, having the rights,
powers, privileges and other terms set forth in the Certificate of Incorporation
of Spinco (which, pursuant to Section 2.3(a) hereof, shall be in substantially
the same form as
17
the provisions set forth on Exhibit B attached hereto (with such changes thereto
as Parent and the Company may approve prior to the Offer Purchase Date)).
"SSL" means Space Systems/Loral, Inc., a Delaware corporation.
"SSL Lawsuit" means the litigation entitled "Space Systems/Loral, Inc. v.
Martin Marietta Corporation."
"SSL Stockholders Agreements" means each of (a) the Stockholders Agreement
by and among the Company, Holdings, SSL, Aerospatiale Societe Nationale
Industrielle, Alcatel Espace and Alenia Aeritalia & Selenia S.p.A., dated as of
April 22, 1991 (as amended by Amendment No. 1, dated as of November 10 1992),
and (b) the Stockholders Agreement by and among Holdings, Aerospace, the Company
and the Lehman Partnerships, dated as of November 13, 1992.
"Stockholders Agreement" means the Stockholders Agreement to be entered
into between the Company and Spinco following the date hereof, the material
terms of which are set forth on Exhibit A to this Agreement.
"Subsidiary" or "subsidiary" of any party means (a) a corporation, a
majority of the voting or capital stock of which is as of the time in question
directly or indirectly owned by such party and (b) any other partnership, joint
venture, association, joint stock company, trust, unincorporated organization or
similar entity, in which such party, directly or indirectly, owns a majority of
the equity interest thereof or has the power to elect or direct the election of
a majority of the members of the governing body of such entity or otherwise has
control over such entity (e.g., as the managing partner of a partnership).
"Tax Sharing Agreement" means the Tax Sharing Agreement, in the form of
Exhibit A to the Merger Agreement, pursuant to which the Company and Spinco have
provided for certain tax matters, including, without limitation,
indemnification, allocation of tax benefits and filing of tax returns.
18
Section 1.2. References to Time. All references in this Agreement to times
of the day shall be to New York City time.
ARTICLE II
THE RESTRUCTURING AND RELATED TRANSACTIONS
------------------------------------------
Section 2.1. Transfers of Assets.
(a) Subject to the terms and conditions of this Agreement:
(i) prior to the Distribution Date, LG shall transfer to Cayman all of
its right, title and interest in and to all shares of capital stock owned
by LG in GTL, by means of a distribution to Cayman of such equity
securities;
(ii) immediately following the actions referred to in the immediately
preceding clause, Cayman shall transfer to LGP all of its right, title and
interest in and to all shares of capital stock of GTL owned by Cayman and
may transfer all, or a portion of, the partnership interests in LG owned by
Cayman, by means of a dividend to LGP of such equity securities;
(iii) immediately following the actions referred to in the immediately
preceding clause, LGP shall transfer to Aerospace all of its right, title
and interest in and to all shares of capital stock of Cayman and GTL owned
by LGP and may transfer all, or a portion of, the partnership interests in
LG owned by LGP, by means of a dividend to Aerospace of such equity
securities;
(iv) immediately following the actions referred to in the immediately
preceding clause, Aerospace shall transfer to Holdings all of its right,
title and interest in and to all shares of capital stock owned by Aerospace
in Cayman, GTL, LGP and SSL and all partnership interests in LG owned by
it, by means of a dividend to Holdings of such equity securities;
19
(v) immediately following the actions referred to in the immediately
preceding clause, Holdings shall transfer to the Company all of its right,
title and interest in and to (x) all shares of capital stock owned by
Holdings in Cayman, GTL, LGP and Continental, (y) 64.125 percent (64.125%)
of the shares of capital stock owned by Holdings in SSL, and (z) all
partnership interests in LG owned by Holdings, by means of a dividend of
such equity securities;
(vi) immediately following the actions referred to in the immediately
preceding clause, LGP may transfer to Spinco or to any Spinco Subsidiary
designated by Spinco, all (or any other portion thereof reasonably
designated by Spinco) of LGP's right, title and interest in the partnership
interests in LG and LQP;
(vii) immediately following the actions referred to in the preceding
clauses, the Company shall transfer to Spinco all of its right, title and
interest in and to all shares of capital stock owned by the Company in
Cayman, GTL, K&F, LGP, SSL and Continental and all partnership interests in
LG owned by the Company, in exchange for, among other things, the issuance
by Spinco to the Company of the shares of Spinco Common Stock;
(viii) immediately following the actions referred to in the
immediately preceding clause, the Company shall transfer to Spinco (and the
Company shall cause each of its subsidiaries to transfer to Spinco) all of
their right, title and interest in and to all Spinco Assets not otherwise
transferred to Spinco pursuant to the provisions of this Section 2.1(a), in
the case of assets not held directly by the Company, by a distribution to
the Company and, in each case by means of a contribution by the Company to
the capital of Spinco of such Spinco Assets (provided that the foregoing
provisions shall not be construed to constitute a transfer by the Company
to Spinco of any capital stock of Spinco owned at that time by the
Company);
(ix) immediately following the actions referred to in the immediately
preceding
20
clause, Spinco shall transfer to the Company (and Spinco shall cause each
of its Subsidiaries to transfer to the Company) all of its right, title and
interest in and to all Retained Assets not otherwise transferred to the
Company pursuant to the provisions of this Section 2.1(a) (if any), in each
case by means of a dividend of such Retained Assets (provided that the
foregoing provisions shall not be construed to constitute a transfer by the
Spinco to Company of the rights of Spinco under this Agreement);
(x) immediately following the actions referred to in the immediately
preceding clause, the Company shall assume and shall in due course pay,
perform and discharge (or shall cause to be assumed and cause in due course
to be paid, performed and discharged), all of the Retained Liabilities to
which the Spinco Business or the Spinco Assets are then subject or
otherwise liable;
(xi) immediately following the actions referred to in the immediately
preceding clause, Spinco shall assume and shall in due course pay, perform
and discharge (or shall cause to be assumed and cause in due course to be
paid, performed and discharged), all of the Spinco Liabilities to which the
Retained Business or the Retained Assets are then subject or otherwise
liable;
(xii) following, or prior to, the actions referred to in the preceding
clauses, Holdings shall transfer all its right, title and interest in its
shares of capital stock of SSL owned by it that are not transferred
pursuant to clause (v), above, either to Spinco or, pursuant to Section
2.7, to the Lehman Partnerships;
(xiii) in connection with the actions referred to in the preceding
clauses, Spinco shall issue to the Company the shares of Spinco Common
Stock referred to in Section 2.4 hereof; and
(xiv) following the actions referred to in the preceding clauses and
following Parent's acceptance for payment of Shares of Company Common Stock
in connection with the Offer, on or prior to
21
the Distribution Date and prior to the Distribution, Parent shall transfer
to the Company, as a contribution to capital, $712,400,000 in immediately
available funds, less any amount which the parties hereto have at such
time agreed is owed to Parent pursuant to the provisions of Sections
4.1(a) and 4.1(c) hereof (the aggregate of such cash amount being
hereinafter referred to as the "Spinco Cash Amount"), and the Company
shall then immediately contribute the Spinco Cash Amount to Spinco, as a
contribution to capital, of which $344,000,000.00 shall be in exchange for
the Spinco Preferred Stock and the balance shall be treated as additional
consideration for the Spinco Common Stock.
(b) Notwithstanding anything else in this Agreement to the contrary but
subject to the provisions of Section 2.6 hereof, this Agreement shall not
constitute an agreement to assign, convey or transfer any Action, Liability,
Asset or Contract or any claim or right or any benefit arising thereunder or
resulting therefrom as to which (x) a prior right of assignment, conveyance or
transfer exists (including, without limitation, a Third Party Call Right (as
defined in Section 2.6 hereof)) which has not been waived as of the Distribution
Date or (y) consent to assignment, conveyance or transfer thereof is required
but has not been obtained as of the Distribution Date (including, without
limitation, any Asset which has been pledged to any third party creditor and
with respect to which such pledge has not been released prior to the
Distribution Date). Subject to the preceding sentence and the provisions of
Section 6.2 hereof, to the extent that any such contributions and transfers
shall not have been so consummated prior to the Distribution Date, the parties
shall cooperate to effect such consummation as promptly thereafter as shall be
practicable, and as between the Company and Spinco, as of the Distribution Date,
(i) the Company shall be deemed to have contributed to Spinco, and Spinco shall
have and be deemed to have obtained, complete and sole beneficial ownership over
all of the Spinco Assets, together with all of the rights, powers and privileges
incident thereto which are held by the Company and the Retained Subsidiaries,
and Spinco shall be deemed to have assumed in accordance with the terms of this
Agreement all of the Spinco Liabilities and all of the duties, obligations and
22
responsibilities of the Company and the Retained Subsidiaries incident thereto,
whether or not all instruments of transfer and assumption shall have been
executed and delivered, and (ii) Spinco shall be deemed to have transferred to
the Company and the Retained Subsidiaries, and the Company and the Retained
Subsidiaries shall have and be deemed to have obtained, complete and sole
beneficial ownership over all of the Retained Assets which are being transferred
from Spinco and the Spinco Companies pursuant to the provisions of this Section
2.1(a), together with all of the rights, powers and privileges incident thereto
which are held by Spinco and the Spinco Companies, and the Company and the
Retained Subsidiaries shall be deemed to have assumed in accordance with the
terms of this Agreement all of the Retained Liabilities and all of the duties,
obligations and responsibilities of Spinco and the Spinco Companies incident
thereto, whether or not all instruments of transfer and assumption shall have
been executed and delivered.
Section 2.2. Methods of Transfer and Assumption. The parties hereto agree
that (a) the transfers of Assets contemplated pursuant to Section 2.1 hereof
shall be effected by delivery by Spinco to the Company, and by the Company to
Spinco, as the case may be, of (i) with respect to those Assets which are
evidenced by capital stock certificates or similar instruments, certificates
duly endorsed in blank or accompanied by stock powers or other instruments of
assignment executed in blank, (ii) with respect to any real property interest
and/or any improvements thereon, a quitclaim deed or the equivalent thereof in
accordance with local practice, and (iii) with respect to all other Assets, such
good and sufficient instruments of contribution, transfer and delivery, in form
and substance reasonably satisfactory to the Company, Parent and Spinco, as
shall be necessary to vest in the Company or Spinco, as the case may be, all of
the right, title and interest of Spinco or the Company, as the case may be, in
and to any such Assets, (b) the assumption of the Retained Liabilities
contemplated pursuant to Section 2.1(a)(x) hereof shall be effected by delivery
by the Company to Spinco of such good and sufficient instruments of assumption,
in form and substance reasonably satisfactory to the Company, Parent and Spinco,
as shall be necessary for the assumption by the Company of the Retained
Liabilities, and (c) the assumption of the Spinco Liabilities contemplated
pursuant to Section 2.1(a)(xi)
23
hereof shall be effected by delivery by Spinco to the Company of such good and
sufficient instruments of assumption, in form and substance reasonably
satisfactory to the Company, Parent and Spinco, as shall be necessary for the
assumption by Spinco of the Spinco Liabilities. Each of the parties hereto also
agrees to deliver to any other party hereto such other documents, instruments
and writings as may be reasonably requested by such other parties hereto in
connection with the transactions contemplated hereby. Notwithstanding any other
provisions of this Agreement to the contrary, (x) the instruments of transfer or
assumption referred to in this Section 2.2 shall not, without the prior written
consent of Parent, include any separate representations and warranties, and (y)
in the event and to the extent that there is any conflict between the provisions
of this Agreement and the provisions of any of the instruments of transfer or
assumption referred to in this Section 2.2, the provisions of this Agreement
shall prevail and govern.
Section 2.3. Company Approval of Certain Spinco Actions; Formation of
Spinco. Unless otherwise provided in this Agreement, the Company shall cooperate
with Spinco and the Spinco Companies in effecting, and if so requested by Spinco
the Company shall, as the sole stockholder of Spinco, ratify any actions that
are reasonably necessary or desirable to be taken by Spinco to effectuate the
transactions contemplated by this Agreement in a manner consistent with the
terms of this Agreement, including, without limitation, the following: (a)
amending the Certificate of Incorporation of Spinco so that the provisions
thereof shall at the Distribution Date have the provisions set forth on Exhibit
B attached hereto and such other terms and conditions as Parent and Spinco shall
reasonably approve (with such changes thereto as Parent and the Company may
approve prior to the Offer Purchase Date); (b) amending the By-Laws of Spinco so
that the provisions thereof shall at the Distribution Date have the provisions
set forth on Exhibit C attached hereto and such other terms and conditions as
Parent and Spinco shall reasonably approve (with such changes thereto as Parent
and the Company may approve prior to the Offer Purchase Date); (c) adopting a
shareholder rights plan of Spinco having substantially the same provisions, as
of the Distribution Date, as those set forth on Exhibit D attached hereto (with
such changes thereto as the Board of Directors of the Company may approve in its
24
reasonable discretion prior to the Offer Purchase Date); (d) adopting, preparing
and implementing appropriate plans, agreements and arrangements for Spinco
Employees and Spinco non-employee directors (including, without limitation,
employee benefit plans, agreements and arrangements substantially similar to
those set forth on Exhibit E attached hereto (with such changes thereto as the
Board of Directors of the Company may approve in its reasonable discretion prior
to the Offer Purchase Date)); and (e) electing to the Board of Directors of
Spinco those persons referred to in Section 6.3 hereof so that such persons
shall be able to serve as the sole members of Spinco's Board of Directors as of
the Distribution Date.
Section 2.4. Issuance of Spinco Stock to the Company. Spinco agrees to
issue to the Company, (a) contemporaneously with the transfers of Assets and
assumption of Liabilities contemplated in connection with the Restructuring, one
share of Spinco Common Stock for each share of Company Common Stock held of
record as of the Record Date and such number of shares of Spinco Preferred Stock
as may be necessary to satisfy the representations and warranties set forth in
Section 4.1(c) of the Stockholders Agreement (which shares of Spinco Preferred
Stock shall, in the aggregate, be convertible into such number of shares of
Spinco Common Stock as shall equal 20% of the total number of shares of Spinco
Common Stock to be outstanding on a fully-diluted basis, immediately after
giving effect to the Distribution and after giving effect to the conversion of
such Spinco Preferred Stock). In addition, Spinco agrees to issue to the Company
on or prior to the Record Date such additional shares of Spinco Common Stock as
may be required in order for the Company to fulfill its obligations pursuant to
Section 3.2 hereof.
Section 2.5. Treatment of Globalstar Bank Guarantee.
(a) Spinco shall, and prior to the Offer Purchase Date the Company shall,
use their respective reasonable efforts to amend the Globalstar Bank Guarantee
so that, following the Restructuring, (x) the provisions of Section 10 of the
Globalstar Bank Guarantee shall be deleted and shall have no force and effect
against the Company or any of its Affiliates (provided that, in the
25
event that the Globalstar Bank Guarantee is amended in the manner provided in
this Section 2.5, Parent agrees to assume the obligations of the Company as
guarantor under the Globalstar Bank Guarantee), and (y) the aggregate amount of
indebtedness being guaranteed by the Company (or Parent, as the case may be)
under the Globalstar Bank Guarantee shall not exceed $250,000,000; provided that
the amendments contemplated in this sentence shall be in such form and substance
as shall be reasonably acceptable to Parent. Notwithstanding anything to the
contrary contained in this Agreement, except as otherwise expressly provided in
this Section 2.5, neither the Company nor Spinco shall, nor shall they permit
any of their respective Affiliates to, (i) amend or in any way modify either the
Globalstar Bank Guarantee, the Globalstar Credit Agreement, the Guarantee
Warrants or any other Contract, in a manner which adversely affects any of the
benefits, rights or obligations of the Company with respect to either the
Globalstar Bank Guarantee, the Globalstar Credit Agreement or the Guarantee
Warrants, without obtaining the prior written consent of Parent (which consent
may not be unreasonably withheld), or (ii) waive or diminish any rights of
subrogation of the Company with respect to the Globalstar Bank Guarantee or take
any other action which adversely affects any of the benefits, rights or
obligations of the Company with respect to either the Globalstar Bank Guarantee,
the Globalstar Credit Agreement or the Guarantee Warrants, without obtaining the
prior written consent of Parent (provided that the consent of Parent need not be
obtained with respect to the diminution of any rights of subrogation held by the
Company and its Affiliates where (A) Globalstar determines within 90 days to
either issue to the Company subordinated indebtedness of Globalstar having an
aggregate principal amount (the repayment of which, together with interest
thereon, may be deferred for up to 3 years) equal to, or equity interests in
Globalstar having a fair market value equal to, the aggregate of the amounts
paid or incurred or Liabilities assumed by the Company or its Affiliates in
connection with the Globalstar Bank Guarantee, and (B) the Company and its
Affiliates are treated no less favorably with respect to the matters set forth
in this clause (ii) than the manner in which Spinco and those of the Globalstar
Partners who have assumed liability in connection with the Globalstar Bank
Guarantee are treated with respect to such matters.
26
(b) Spinco shall, and prior to the Offer Purchase Date the Company
shall, use its respective reasonable efforts to cause the Globalstar Partners to
assume the obligations of the Company (or Parent, as the case may be) as
guarantor under the Globalstar Bank Guarantee in an aggregate amount of up to
the Maximum Partner Assumed Guarantee Amount (as defined below), and to cause
the Company (or Parent, as the case may be) to be released in respect thereof.
The parties hereto acknowledge that the Guarantee Warrants will be initially
issued to the Company, Spinco and the Globalstar Partners in direct proportion
to the amount of liability in respect of the Globalstar Bank Guarantee for which
each such person has agreed to be liable, that is, 60% to the Company and 40% to
Spinco, and that 100% of the deferred cash fees payable in respect of the
Globalstar Bank Guarantee (the "Cash Guarantee Fee") will be initially payable
solely to Spinco, subject to reallocation to Globalstar Partners assuming such
obligations as provided in Section 2.6(d).
(c) Spinco agrees to indemnify, defend and hold harmless the Company
and each Parent Indemnified Party in accordance with the indemnification
provisions of Article V hereof, from and against any and all Indemnifiable
Losses of the Company and any such Parent Indemnified Party which both (i) arise
out of, relate to or result from the Globalstar Bank Guarantee or any failure by
Globalstar to pay when due any principal, interest or other amounts owing under
the Globalstar Credit Agreement or any failure by Globalstar to perform and
abide by all other obligations, covenants, conditions and agreements applicable
to it under such Globalstar Credit Agreement, and (ii) exceed in the aggregate
$150,000,000.00; provided that in no event shall Spinco's liability in
connection with the Globalstar Bank Guarantee exceed the Spinco Assumed
Guarantee Amount (as defined below). Spinco hereby pledges to the Company, and
grants the Company a security interest in, all Guarantee Warrants held at any
time by Spinco or its Subsidiaries (and all rights, benefits and proceeds in
respect thereof), as collateral in respect of Spinco's indemnity obligations set
forth in the immediately preceding sentence, and the Company shall be entitled
to exercise all of the rights, powers and remedies (whether arising pursuant to
this Agreement, statute, common law, equity or otherwise) for the protection and
enforcement of the Company's
27
rights under this Section 2.5. Spinco hereby agrees to deliver to the Company
all certificates representing Guarantee Warrants promptly following receipt
thereof. Upon receipt from Spinco of any certificates representing Guarantee
Warrants, the Company shall hold such certificates as pledgee thereof. The
Company shall have all rights with respect to the Guarantee Warrants owned by
Spinco and pledged to the Company hereunder as afforded a secured party under
the Uniform Commercial Code. The Company agrees to transfer to Spinco or as
Spinco shall direct and release its security interest in any Guarantee Warrants
of Spinco held by the Company which are required to be transferred pursuant to
Section 2.5(d) hereof. The Company shall also release the Guarantee Warrants
from the lien of the security interest granted hereunder at the later of (i) the
release of the Company from the Globalstar Bank Guarantee and (ii) the
satisfaction in full of Spinco's in full of Spinco's indemnification obligations
hereunder with respect to Globalstar Bank Guarantee. Upon delivery to the
Company by Spinco of the pledged Guarantee Warrants, the Company shall confirm
to Spinco in writing that the Company will be holding such Guarantee Warrants as
pledge thereof.
(d) For purposes of this Section 2.5, (i) the term "Maximum Partner
Assumed Guarantee Amount" shall mean the sum of (A) $150,000,000.00 in principal
amount of indebtedness, plus (B) sixty percent (60%) of the aggregate of all
interest amounts thereon in accordance with the Globalstar Credit Agreement
(other than unpaid principal) which are owed under the Globalstar Credit
Agreement, (ii) the term "Actual Partner Assumed Guarantee Amount" shall mean
the aggregate amount of guarantee obligations with respect to which all
Globalstar Partners have actually guaranteed pursuant to the provisions of this
Section 2.5, and (iii) the term "Spinco Assumed Guarantee Amount" shall mean the
sum of (A) $100,000,000.00 in principal amount of indebtedness, plus (B) forty
percent (40%) of the aggregate of all interest amounts and other Obligations
(such term, as defined in the Globalstar Bank Guarantee)(other than unpaid
principal) which are owed under the Globalstar Credit Agreement; provided that
the Spinco Assumed Guarantee Amount shall be reduced on a dollar-for-dollar
basis by the amount of the Actual Partner Assumed Guarantee Amount (if any)
(provided that the Spinco Assumed Guarantee Amount shall in no event be less
than zero), provided further
28
that (x) Spinco will convey to each Globalstar Partner which assumes a portion
of the Globalstar Bank Guarantee Obligation a pro rata share of the Cash
Guarantee Fees and, with respect to the first $100,000,000 of obligations so
assumed, a pro rata share of the Guarantee Warrants and (y) the Company will
convey to each such Globalstar Partner, with respect to the next $50,000,000 of
obligations so assumed, a pro rata share of the Guarantee Warrants.
Section 2.6. Transfers of Spinco Capital Stock Subject to Rights of
First Offer, Etc.
(a) Third Party Call Rights. In the event that any Spinco Assets
consist of shares of capital stock of a Spinco Company, which shares are subject
to any right of first offer, right of first refusal, call right, third party
option or other similar contractual right (including, without limitation, any
rights of first offer (if any) arising out of the SSL Stockholders Agreements)
on the part of any party (other than the Company, any Retained Subsidiary,
Spinco and any Spinco Company) (such third party, a "Third Party Transferee") to
require that such shares be sold or otherwise transferred to such Third Party
Transferee (any such right, a "Third Party Call Right", and any such shares
subject to such right, the "Restricted Spinco Shares"), then Spinco shall (x)
deliver or cause to be delivered all notice(s) which are required to be
delivered by the Company, Spinco, any Retained Subsidiary or any Spinco Company
in connection with any such Third Party Call Rights (unless delivery of such
notice(s) has been waived by the recipient(s) thereof), and (y) use its
reasonable efforts to cause each such Third Party Transferee to waive all Third
Party Call Rights held by such Third Party Transferee. In the event that Spinco
is unable to obtain any such waiver with respect to any Restricted Spinco Shares
prior to the Distribution Date, then such Restricted Spinco Shares shall not be
assigned, conveyed or transferred to Spinco pursuant to this Agreement unless
and until such Restricted Spinco Shares are no longer subject to acquisition by
any Third Party Transferee pursuant to any Third Party Call Rights (provided
that, prior to such assignment, conveyance or transfer to either the Third Party
Transferee pursuant to this Section 2.6 or to Spinco pursuant to this Agreement,
such Restricted Spinco Shares shall, to the extent applicable, be subject to the
provi-
29
sions of Section 2.1(b) hereof). In the event that a Third Party Transferee
exercises any Third Party Call Right with respect to any Restricted Spinco
Shares, then (i) such Restricted Spinco Shares shall be transferred to such
Third Party Transferee in accordance with the terms and conditions of the Third
Party Call Right relating thereto, and (ii) the Company shall turn over promptly
to Spinco all cash and other amounts if and when received by the Company or any
Retained Subsidiary from such Third Party Transferee in connection therewith.
The parties hereto acknowledge and agree that the amounts referred to in clause
(ii) of the preceding sentence shall be received and held in trust and may not
be set off or reduced by any amounts which may otherwise be owed to any of the
Parent Indemnified Parties pursuant to this Agreement.
(b) Third Party Put Rights. In the event that any party (other than
the Company, any Retained Subsidiary, Spinco and any Spinco Company) (such third
party, a "Third Party Transferor") has any put right or other similar
contractual right (including, without limitation, any put rights (if any)
arising out of the SSL Stockholders Agreements) to require that the Company or
any Retained Subsidiary acquire any shares of capital stock of a Spinco Company
which are then beneficially owned or held by such Third Party Transferor (any
such right, a "Third Party Put Right", and any such shares subject to such
right, the "Spinco Put Shares"), then Spinco shall (x) deliver or cause to be
delivered all notice(s) which are required to be delivered by the Company,
Spinco, any Retained Subsidiary or any Spinco Company in connection with any
such Third Party Put Rights (unless delivery of such notice(s) has been waived
by the recipient(s) thereof), and (y) use its reasonable efforts to cause such
Third Party Transferor to waive all Third Party Put Rights held by such Third
Party Transferor. In the event that Spinco is unable to obtain any such waiver
with respect to any Restricted Spinco Shares and any such Third Party Transferor
exercises any Third Party Put Right with respect to any Spinco Put Shares, then
(i) Spinco shall pay to the Company in immediately available funds (and without
any deductions or setoffs) prior to the date of such acquisition (but in no
event later than the third Business Day prior to the anticipated date of such
acquisition) the sum of (x) the entire amount which is required to be paid to
such Third Party
30
Transferor in connection with such Third Party Put Right, and (y) all Company
Transfer Expenses (as defined below) for which documentation evidencing such
Company Transfer Expenses has been provided to Spinco prior to such date
(except, in the case of either clause (x) or (y) above, for those amounts which
have already been paid in full by Spinco), (ii) the Company or the Retained
Subsidiary which is responsible for acquiring such Spinco Put Shares upon the
exercise of such Third Party Put Right shall acquire such Spinco Put Shares in
accordance with the terms and conditions of the Third Party Put Right relating
thereto, and (iii) following receipt of the amounts payable by Spinco to the
Company pursuant to clause (i) above and following receipt of the certificates
representing any Spinco Put Shares acquired pursuant to clause (ii) above, the
Company (or any Retained Subsidiary which received such certificates) shall
thereafter deliver promptly to Spinco (or any Spinco Company designated by
Spinco) such certificates, accompanied by such endorsements or instruments of
transfer as may be reasonably requested by Spinco.
(c) Payment of Expenses; Indemnification. Spinco agrees that it shall
reimburse the Company and all Parent Indemnified Parties promptly with respect
to all costs and expenses incurred by the Company and all other Parent
Indemnified Parties (including, without limitation, all costs and expenses of
attorneys', accountants', consultants' and other similar persons) in connection
with any Actions relating to (x) the exercise or purported exercise of any Third
Party Call Right or any Third Party Put Right or (y) the consummation of any
transactions contemplated pursuant to the provisions of this Section 2.6 (all
such costs and expenses, the "Company Transfer Expenses"). Spinco agrees that
all Indemnifiable Losses (including, without limitation, all Company Transfer
Expenses) of the Company and all Parent Indemnified Parties arising out of,
relating to or resulting from, directly or indirectly, the performance or
failure to perform by any party hereto of the provisions of this Section 2.6 or
any of the transfers in any way relating thereto (other than as a result of any
willful breach, on or after the Offer Purchase Date, on the part of the Company
or any Retained Subsidiary) shall in each case be deemed to be Spinco
Liabilities, and, in each case, shall be subject to the indemnification
provisions set forth in Article V hereof.
31
Section 2.7. Exchange of Lehman Preferred Stock. Spinco shall, and
prior to the Offer Purchase Date the Company shall, use their respective best
efforts to cause the Lehman Partnerships and all other holders of the Lehman
Preferred Stock (if any) to exchange all issued and outstanding shares of
Lehman Preferred Stock for shares of capital stock or other equity securities of
either Spinco, any Spinco Company or any Subsidiary of Spinco. Spinco agrees to
indemnify, defend and hold harmless the Company and each Parent Indemnified
Party in accordance with the indemnification provisions of Article V hereof,
from and against any and all Indemnifiable Losses of the Company and any such
Parent Indemnified Party arising out of, relating to or resulting from the
ownership of any shares of Lehman Preferred Stock by the Lehman Partnerships and
all other holders of the Lehman Preferred Stock (if any).
ARTICLE III
THE DISTRIBUTION
----------------
Section 3.1. Cooperation Prior to the Distribution. As promptly as
practicable after the date hereof and prior to the Distribution Date:
(a) Subject to the provisions of paragraph (b) below, the Company and
Spinco shall prepare an Information Statement (which shall set forth appropriate
disclosure concerning Spinco and the Spinco Companies, the Spinco Business, the
Distribution and certain other matters) and Spinco shall file with the SEC the
Form 10 (which shall include or incorporate by reference the Information
Statement). The Company and Spinco shall use their respective reasonable efforts
to cause the Form 10 to be declared effective under the Exchange Act or, if
either the Company or Parent reasonably determines that the Distribution may not
be effected without registering the Spinco Common Stock pursuant to the
Securities Act, the Company shall use its best efforts to cause the Spinco
Common Stock to be registered pursuant to the Securities Act and thereafter
effect the Distribution in accordance with the terms of this Agreement,
including, without limitation, by preparing and filing on an appropriate form of
registration statement under the Securities Act covering the Spinco Common Stock
and using its
32
best efforts to cause such registration statement to be declared effective.
Following the effectiveness of such Form 10 (or registration statement, as the
case may be), the Company shall mail the Information Statement to the holders of
the Company Common Stock.
(b) Before filing with the SEC the Form 10, or the registration
statement referred to in Section 3.1(a), as the case may be, or any amendments
or supplements thereto, the Company shall furnish to Parent (or Parent's
counsel) copies of all such documents proposed to be filed, in order to give
Parent (or Parent's counsel) sufficient time to review such documents, and such
documents may thereafter be filed subject to any timely and reasonable comments
of Parent (or Parent's counsel). On or prior to the Offer Purchase Date, the
Company shall (i) deliver to Parent (or Parent's counsel) promptly, following
the receipt thereof, copies of all written communications between the Company
and the SEC relating to either the Information Statement or the Form 10 (or the
registration statement referred to in Section 3.1(a), as the case may be), and
(ii) advise Parent (or Parent's counsel) promptly of, and provide Parent (or
Parent's counsel) with the opportunity to participate in (to the extent
reasonably practicable), all telephonic and other non-written communications
between the Company and the SEC relating to either the Information Statement or
the Form 10 (or the registration statement referred to in Section 3.1(a), as the
case may be). The Company shall respond promptly to any comments from the SEC
with respect thereto, after consultation with Parent (or Parent's counsel), and
shall take such other actions as shall be reasonably required in order to have
the Form 10 declared effective under the Exchange Act, or the registration
statement referred to in Section 3.1(a) hereof declared effective under the
Securities Act, as the case may be, as soon as reasonably practicable following
the date hereof. Before filing with the SEC the Solicitation/Recommendation
Statement on Schedule 14D-9 of the Company to be filed by the Company in
connection with the Offer, and all amendments or supplements thereto, the
Company shall furnish to Parent (or Parent's counsel) copies of all such
documents proposed to be filed, in order to give Parent (or Parent's counsel)
sufficient time to review such documents, and such documents may thereafter be
filed subject to any timely and reasonable comments of Parent (or Parent's
counsel). Following the
33
date hereof, the Company shall, and shall cause its Affiliates to, provide
promptly to Parent, Purchaser and their respective counsel all such information
as such persons may reasonably request in connection with the Tender Offer
Statement on Schedule 14D-1 of the Purchaser or Parent to be filed in connection
with the Offer.
(c) The Company and Spinco shall cooperate in preparing, filing with
the SEC and causing to become effective any registration statements or
amendments thereto which are appropriate to reflect the establishment of, or
amendments to, any employee benefit and other plans contemplated by this
Agreement.
(d) The Company and Spinco shall take all such action as may be
necessary or appropriate under state securities or "Blue Sky" Laws in connection
with the transactions contemplated by this Agreement.
(e) The Company and Spinco shall prepare, and Spinco shall file and
seek to make effective, an application to permit listing of the Spinco Common
Stock either on the NYSE or any other national securities exchange or national
market system as may be selected by Spinco in its sole discretion (to the extent
permitted pursuant to the listing requirements of such exchange or national
market system).
(f) The Company and Spinco shall prepare and file an application with
the FCC (the "FCC Application") requesting the FCC's consent to the transfer of
control of any licenses, permits, approvals or other authorizations issued by
the FCC to the Company and its Subsidiaries in connection with their
telecommunications and space systems business, including those licenses,
permits, approvals and authorizations set forth in Section 3.1(f) of the
Disclosure Schedule.
(g) In addition to the actions specifically provided for elsewhere in
this Agreement and except as otherwise expressly set forth in this Agreement,
each of the parties hereto shall use its respective best efforts to take, or
cause to be taken, all actions, and, to execute and deliver, or cause to be
executed and delivered, such additional documents and instruments, and to do,
or cause to be done, all things, reasonably necessary, proper or advisable under
applicable Laws and
34
agreements to consummate and make effective the transactions contemplated by
this Agreement, including, without limitation, using its best efforts to obtain
the consents and approvals, to enter into any amendatory agreements and to make
the filings and applications necessary or desirable to have been obtained,
entered into or made in order to consummate the transactions contemplated by
this Agreement. Without limiting the generality of the foregoing sentence, each
of the parties hereto shall use its respective best efforts to ensure that the
conditions set forth in Article X hereof are satisfied (insofar as such matters
are within the control of such party). Notwithstanding any other provisions set
forth in this Agreement (including, without limitation, the provisions of this
Section 3.1(g)), neither the Company, nor Spinco nor any of their respective
Affiliates shall, without first obtaining the prior written consent of the
Parent, take or commit to take any action, in connection with obtaining any
consent, waiver or approval or effecting any of the transactions contemplated in
connection with the Closing or otherwise, (i) except as otherwise expressly
provided in this Agreement, that would result in the payment of any funds (other
than normal and usual filing fees) or the incurrence of any liability by the
Company or any Retained Subsidiary, (ii) that would result in the divestiture or
holding separate of any assets, businesses or operations of the Company or any
of the Retained Subsidiaries, (iii) that might materially limit or impair
Parent's or the Company's or any Retained Subsidiary's freedom of action with
respect to, or its ability to retain or exercise control over, any assets,
businesses or operations of the Company or any Retained Subsidiaries (other than
any limitations or restrictions expressly set forth in the Merger Agreement, the
Tax Sharing Agreement, the Stockholders Agreement or any other agreement to be
entered into pursuant to this Agreement or the Merger Agreement prior to the
Offer Purchase Date), or (iv) that might otherwise adversely affect Parent, or,
following the Offer Purchase Date, either the Company or any Retained
Subsidiary.
Section 3.2. The Distribution.
(a) Subject to the terms and conditions of this Agreement, the
Company's Board of Directors (or any duly appointed committee thereof) shall in
its reasonable discretion establish the Record Date and the
35
Distribution Date and any appropriate procedures in connection with the
Distribution (subject in each case to the provisions of applicable Law) as soon
as reasonably practicable following the date hereof or on such other dates as
Parent may reasonably request; provided that (x) the Record Date may not be
earlier than the twentieth day following the date on which the Offer is
commenced and also may not be earlier than the tenth day following the
Distribution Declaration Date and (y) the parties hereto shall use their
reasonable efforts to cause the Record Date to be established so as to occur
immediately prior to the acceptance for payment by the Purchaser of the shares
of Common Stock pursuant to the Offer (provided that in no event shall the
Record Date be established so as to occur as of or at any time after the
acceptance for payment by the Purchaser of the shares of Common Stock pursuant
to the Offer); provided further that if all conditions to the Offer have been
satisfied or waived prior to the date on which all of the Distribution
Conditions have been satisfied (or waived, to the extent expressly permitted by
the provisions of Section 10.1 hereof), then the Purchaser shall be permitted,
but not required, to accept for payment at such time the shares of Common Stock
pursuant to the Offer notwithstanding the fact that the Distribution Conditions
have not been satisfied or waived (provided that prior to such acceptance for
payment Purchaser first obtains the consent of the Company, which consent may
not be unreasonably withheld) (as further described in clause (a)(iii) below).
The parties hereto acknowledge and agree that payment of the Distribution shall
be conditioned on (x) the satisfaction (or waiver, to the extent expressly
permitted by the provisions of Section 10.1 hereof) of each of the Distribution
Conditions on a date which is prior to the fiftieth (50th) day following the
Record Date and (y) Parent and Purchaser not having taken any action, on or
after the Distribution Declaration Date, to extend or delay the expiration of
the Offer to a date which is later than the Record Date. The parties hereto
further acknowledge and agree that:
(i) if the Distribution Conditions are satisfied (or waived,
to the extent expressly permitted by the provisions of Section 10.1
hereof) prior to the fiftieth (50th) day following the Record Date,
the conditions to the Distribution shall be deemed to have been
satisfied and, if such
36
date is on or prior to the Offer Purchase Date, the Record Date shall
be deemed to have occurred immediately prior to the time at which the
Purchaser has accepted for payment the shares of Company Common Stock
pursuant to the Offer and the Distribution shall occur one Business
Day thereafter;
(ii) if the Offer Purchase Date has not yet occurred and the
Distribution Conditions are not satisfied or waived prior to the
fiftieth (50th) day following the Record Date, (A) the Distribution
shall not be paid, the declaration of the Distribution shall be null
and void, and no holder of Company Common Stock shall have any rights
whatsoever to receive any part of the Distribution, and (B) the
Company's Board of Directors shall establish a new Record Date in a
manner consistent with the provisions of the first sentence of this
Section 3.2(a); and
(iii) if the Offer Purchase Date has already occurred and
the Distribution Conditions are not expected to be satisfied or waived
prior to the fiftieth (50th) day following the Record Date, the
parties hereto agree to use their respective best efforts to
restructure the Distribution in a manner which shall permit the
holders of Company Common Stock of record immediately prior to the
consummation of the Offer to participate in a distribution of shares
of Spinco capital stock in order to preserve for such holders the
material economic benefits of the Distribution; provided that, in
connection with any such restructuring of the Distribution, the
parties hereto must first obtain the prior consent (which consent may
not be unreasonably withheld of a majority of the remaining
Continuing Directors (such term, as defined in Section 8.4 of the
Merger Agreement), if any (it being understood and agreed that the
consent of the remaining Continuing Directors may be reasonably
withheld by such remaining Continuing Directors in the event that
counsel to such remaining Continuing Directors advises such persons
that, in such counsel's reasonable opinion, any such restructuring of
the Distribution would adversely affect in any material respect the
holders of Company Common Stock of record immediately prior to the
consummation of the Offer
37
with respect to the income tax or securities law consequences of the
Distribution).
(b) Subject to Section 10.1 hereof, following the declaration by
the Company's Board of Directors of the Record Date but prior to the
Distribution Date, the Company shall deliver to the Agent one or more share
certificates representing all of the outstanding shares of Spinco Common Stock
(or other Spinco capital stock if necessary in the circumstances set forth in
paragraph (a)(iii) above) to be distributed in the Distribution and shall
instruct the Agent to distribute on the Distribution Date, (i) one share of
Spinco Common Stock (or other Spinco capital stock if necessary in the
circumstances set forth in paragraph (a)(iii) above) for each share of Company
Common Stock owned to holders of record of Company Common Stock on the Record
Date (subject to the provisions of any restricted stock or other benefit plan of
the Company) and (ii) one share of Spinco Common Stock (or other Spinco capital
stock if necessary in the circumstances set forth in paragraph (a)(iii) above)
for each share of Company Common Stock subject to a Cancelled Company Option to
the respective holders of such Cancelled Company Options (provided that the
Agent shall not distribute the shares referred to in the preceding clause (ii)
until promptly after the effective time of the Merger). Spinco agrees to provide
all share certificates that the Agent shall require in order to effect the
Distribution. All shares of Spinco Common Stock issued in the Distribution shall
be duly authorized, validly issued, fully paid, non-assessable and free of
preemptive rights.
(c) Each of the parties hereto agrees that, immediately upon
consummation of the Distribution, the Company shall not hold or beneficially own
directly or indirectly any shares of Spinco Common Stock.
Section 3.3. Termination of Certain Claims. Following the Distribution
Date, Spinco shall have no claims against the Company, any Retained Subsidiary
or any Affiliate of either based on any breach by the Company, and Retained
Subsidiary or any of their respective Affiliates of any obligations under this
Agreement that occurred on or prior to the Offer Purchase Date, all of such
claims being hereby irrevocably waived and terminated as of the Offer Purchase
Date; provided that the fore-
38
going shall not limit the Company's liability for any breach by the Company or
any Retained Subsidiary of any of their respective obligations under this
Agreement that occurs following the Offer Purchase Date.
ARTICLE IV
INTERCOMPANY BUSINESS RELATIONSHIPS
-----------------------------------
Section 4.1. Settlement of Intercompany Accounts.
(a) Except as expressly provided for in this Article IV, all
intercompany and interdivisional receivables, payables, loans, cash overdrafts
and other accounts in existence as of the Distribution Date between Spinco and
the Spinco Companies, on the one hand, and the Company and the Retained
Subsidiaries, on the other hand, under the Company's cash management program or
otherwise (other than accounts, if any, which (x) are owed to or by any Spinco
Company which is not an Affiliate of Spinco or the Company, (y) arose pursuant
to the express terms and conditions of any Existing Intercompany Agreement and
(z) are not yet payable pursuant to the provisions of such Intercompany
Agreement), shall be settled by payment in full of such amounts effective
immediately prior to the Restructuring. Following the date hereof, (i) no such
intercompany transactions shall be entered into except (x) pursuant to the
express terms and conditions of any Existing Intercompany Agreement and (y) in
the ordinary course of business and in a manner consistent with past practice,
and (ii) except with the prior written consent of the Parent, neither the
Company, any Retained Subsidiary, Spinco or any Spinco Company shall enter into
any Intercompany Agreement following the date hereof and prior to the Offer
Purchase Date, except for any Intercompany Agreement which (x) is on terms and
conditions entered into in the ordinary course of business and in a manner
consistent with past practices and (y) is not otherwise significantly adverse to
(i) the business, properties, operations, prospects, results of operations or
condition (financial or otherwise) of the Company, any Retained Subsidiary or
the Retained Business or (ii) the ability of the Company or any of the Retained
Subsidiaries to perform their respective obligations under this
39
Agreement, the Tax Sharing Agreement or the Stockholders Agreement.
(b) Following the Distribution Date, each of the Company and
Spinco shall give the other party and any independent auditors of such other
party full access at all reasonable times to the books and records of the
Company and Spinco (and each of their respective Subsidiaries) relating to
periods prior to the Distribution Date for purposes of verifying the amounts to
be paid immediately prior to the Restructuring pursuant to Section 4.1(a) above
and for resolving any disputes related thereto. The amounts settled shall, to
the extent applicable, be calculated in accordance with Adjusted GAAP.
(c) Except as otherwise expressly provided in Section 2.1(a)
hereof, the Company and Spinco covenant and agree that no Capital Contributions
may be made following the date hereof and prior to the Offer Purchase Date;
provided that the Company may make a Capital Contribution at any time after (i)
the Company notifies Parent in writing of the details of such Capital
Contribution, and (ii) the parties hereto agree to reduce the Spinco Cash Amount
otherwise payable by Parent as a result of such Capital Contribution (which
shall include interest thereon (calculated at a compounded rate of interest
equal to the commercial paper rate available to the Company as of the date
hereof) following the date of such Capital Contribution) and (iii) the parties
agree at such time as to the appropriate amount of such reduction in the event
of a Capital Contribution which is in a form other than cash.
Section 4.2. Settlements for Cash Collections and Disbursements After
the Distribution Date.
(a) For each calendar month commencing with the month in which
the Distribution Date occurs and, unless sooner terminated by agreement of the
parties, continuing for a period of two (2) years thereafter, (i) within 10
Business Days of the end of the month in question, the Company shall prepare,
and Spinco shall fully cooperate in preparing, a statement of transactions which
shall reflect a complete analysis of any cash collections and cash disbursements
by the Company and the Retained Subsidiaries on behalf of Spinco and the Spinco
Companies (including those relating to the Spinco Business) during
40
the relevant month and (ii) within 10 Business Days of the end of the month in
question, Spinco shall prepare, and the Company shall fully cooperate in
preparing, a statement of transactions which shall reflect a complete analysis
of any cash collections and cash disbursements by Spinco and the Spinco
Companies on behalf of the Company and the Retained Subsidiaries during the
relevant month (including those relating to the Retained Business); provided in
each case that, with respect to the first such monthly period such statement
shall not reflect any cash collections or disbursements occurring prior to the
Distribution Date.
(b) Not later than five Business Days following delivery of each
such monthly statement, Spinco shall pay to the Company or the Company shall pay
to Spinco, as the case may be, in cash an amount necessary to eliminate the
account balance as reflected in each such statement. Payments made pursuant to
this Section 4.2 shall not, for any purposes of this Agreement, constitute
Indemnifiable Losses or be set off against any other payments to be made,
Liabilities asserted or claims made pursuant to this Agreement, including but
not limited to Article V hereof, unless the Company and Spinco otherwise agree
in writing.
(c) Following the end of the two-year period referred to in
Section 4.2(a) above (or such earlier period as the parties hereto may agree),
(i) the Company shall promptly turn over to Spinco all cash and other similar
amounts received by the Company and the Retained Subsidiaries which properly
constitute Assets attributable to the Spinco Business and (ii) Spinco shall
promptly turn over to the Company all cash and other similar amounts received by
Spinco and the Spinco Companies which properly constitute Assets attributable to
the Retained Business.
Section 4.3. Transition Services. Following the Distribution Date and
ending on the later of (i) the sixth month anniversary of the Distribution Date
and (ii) December 31, 1996 (such period, the "Transition Services Period"), the
Company shall provide to Spinco, at such times and in such amounts as may be
reasonably requested by Spinco, those data processing, procurement support,
travel support, communications, tax, accounting, legal, insurance, employee
benefits and similar services which
41
have been customarily provided by the Company and the Retained Subsidiaries to
the Spinco Business during the twelve months prior to the date hereof
(collectively, the "Transition Services"). The Transition Services shall be
provided at a cost calculated in accordance with the cost the Company currently
assesses to the Spinco Companies and the Spinco Business for the same or similar
services. Following the end of the calendar month in which any such Transition
Services are performed, the Company shall provide to Spinco an invoice (the
"Transition Services Invoice") setting forth in summary detail the Transition
Services which were provided during such calendar month and the appropriate cost
thereof. Spinco shall pay to the Company in cash in immediately available funds,
in a reasonably prompt manner following the delivery by the Company of a
Transition Services Invoice, the amounts due with respect to the Transition
Services reflected on such Transition Services Invoice. The Transition Services
Period may be extended for up to two six-month periods in the event that Spinco
notifies the Company at least 30 days prior to the expiration of the then-
current Transition Services Period of its intention to so extend the Transition
Services Period.
Section 4.4. Termination of Intercompany Arrangements. Each of the
parties hereto agrees that, except as otherwise expressly provided in this
Article IV, all Existing Intercompany Agreements in effect immediately prior to
the Distribution Date shall not be deemed altered, amended or terminated as a
result of this Agreement or the consummation of the transactions contemplated
hereby and shall otherwise remain in effect immediately after giving effect to
the Restructuring (provided that nothing contained in this Agreement shall be
deemed to limit any party's ability to terminate any such Intercompany Agreement
following the Distribution Date in accordance with the provisions of such
Intercompany Agreement).
42
ARTICLE V
SURVIVAL AND INDEMNIFICATION
----------------------------
Section 5.1. Survival of Agreements. The obligations under this
Article V of each of Spinco and the Spinco Companies, on the one hand, and the
Company and the Retained Subsidiaries, on the other hand, shall survive the sale
or other transfer by it of any Assets or businesses or the assignment by it of
any Liabilities. To the extent that Spinco or any of the Spinco Companies
transfers directly or indirectly to any other person all or substantially all of
the Spinco Assets or the Spinco Business, Spinco will cause the transferee of
such SpincoAssets or Spinco Business to assume specifically its obligations
under this Agreement with respect thereto and will cause such transferee to
fulfill its obligations related to such Spinco Liabilities. Such assumption will
not relieve Spinco of its obligations in respect thereof. To the extent that the
Company or any of the Retained Subsidiaries transfers directly or indirectly to
any other person all or substantially all of the Retained Assets or the Retained
Business the Company will cause the transferee of such Retained Assets or
Retained Business to assume specifically its obligations under this Agreement
with respect thereto and will cause such transferee to fulfill its obligations
related to such Retained Liabilities. Such assumption will not relieve the
Company of its obligations in respect thereof. Spinco, on the one hand, and the
Company, on the other hand, agree that such transferee may exercise all of
Spinco's or the Company's rights hereunder, as the case may be, with respect to
such Assets or businesses.
Section 5.2. Spinco's Agreement to Indemnify.
(a) In addition to any indemnification required by Articles II,
VI and VIII hereof, subject to the terms and conditions set forth in this
Agreement, from and after the Distribution Date, Spinco shall indemnify, defend
and hold harmless the Company, each Retained Subsidiary, the Purchaser and
Parent and each of their respective directors, officers, employees,
representatives, advisors, agents and Affiliates (collectively, the "Parent
Indemnified Parties") from, against and in respect of any and all Indemnifiable
Losses of the Parent Indemnified Parties arising out of, relating to or re-
43
sulting from, directly or indirectly, (i) any misrepresentation or breach of
warranty made by or on behalf of Spinco or, on or prior to the Offer Purchase
Date, made by or on behalf of the Company, which misrepresentation or breach of
warranty is contained in this Agreement or the Stockholders Agreement, (ii) any
breach of any agreement or covenant under this Agreement or the Stockholders
Agreement on the part of Spinco or, on or prior to the Offer Purchase Date, on
the part of the Company, (iii) any and all Spinco Liabilities, (iv) the conduct
of the Spinco Business or any part thereof on, prior to or following the
Distribution Date, (v) any transfer of Spinco Assets to, or assumption of Spinco
Liabilities by, Spinco or any Spinco Company in accordance with this Agreement
or otherwise in connection with the Restructuring (other than any costs and
expenses which have been expressly assumed by the Company pursuant to the
provisions of this Agreement), (vi) any Indemnifiable Loss resulting from any
claims that any statements or omissions relating to or describing, directly or
indirectly, Spinco, any Spinco Company, the Spinco Business, any Spinco Asset or
any Spinco Liability, and which occur on or prior to the Offer Purchase Date (A)
in the Information Statement, the Form 10 or in any registration statement filed
pursuant to Section 3.1 hereof (in each case other than with respect to any
statements or omissions made in reliance upon and in conformity with information
furnished in writing by Parent, the Purchaser or their Affiliates,
representatives or advisors and other than any statements or omissions which
relate solely to the Merger Agreement and this Agreement and the transactions
contemplated thereby and hereby), or (B) in any document(s) filed with the SEC
by Spinco or any Spinco Company after the date hereof pursuant to either the
Securities Act or the Exchange Act (in each case other than with respect to any
statements or omissions which relate solely to the Merger Agreement and this
Agreement and the transactions contemplated thereby and hereby), which, in the
case of either clause (A) or (B) above, are false or misleading with respect to
any 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, (vii) the failure of
the Company or Spinco to obtain any Final Order or other consent or approval of
the FCC with respect to any of the transactions contemplated pursuant to either
this Agreement or the Merger Agreement and (viii)
44
any Excluded Indemnifiable Losses (as defined below). Notwithstanding the
foregoing, Spinco's indemnification obligations pursuant to this Section 5.2
shall not in any event include any Indemnifiable Losses arising out of or
relating to Transaction Suits (as defined in Section 6.5), except to the extent
of any Indemnifiable Losses (such Indemnifiable Losses, the "Excluded
Indemnifiable Losses") which the Company is able to demonstrate resulted
directly from (a) any statement or omission on the part of Spinco or any of its
Affiliates in the documents referred to in Section 5.2(a)(vi) above or (b) any
business activities, Assets or Liabilities of Spinco, any of the Spinco
Companies or the Spinco Business.
(b) Notwithstanding Spinco's obligations to indemnify Parent
Indemnified Parties pursuant to Section 5.2(a) hereof, Spinco shall be obligated
to indemnify the Parent Indemnified Parties only for those Indemnifiable Losses
under clauses (i), (ii) or (vi) of Section 5.2(a) hereof as to which the Parent
Indemnified Parties have given Spinco written notice thereof on or prior to the
third anniversary of the Distribution Date (it being understood that there shall
be no corresponding time limitation with respect to any Indemnifiable Losses
arising under clauses (iii), (iv), (v), (vii) and (viii) of Section 5.2(a)
hereof); provided further that claims with respect to breaches of covenants and
agreements set forth in this Agreement or the Stockholders Agreement shall
survive for the applicable statute of limitations period. Notwithstanding the
foregoing, if on or before the expiration of such indemnification period any
Parent Indemnified Party has given notice to Spinco pursuant to Section 5.4
hereof of any matter which would be the basis for a claim of indemnification by
such Parent Indemnified Party pursuant to Section 5.2(a), such Parent
Indemnified Party shall have the right after the expiration of such
indemnification period to assert or to continue to assert such claim and to be
indemnified with respect thereto.
Section 5.3. The Company's Agreement to Indemnify.
(a) In addition to any indemnification required by Articles II,
VI and VIII hereof, subject to the terms and conditions set forth in this
Agreement, from and after the Distribution Date, the Company shall indemnify,
defend and hold harmless Spinco, each Spinco
45
Company and each of their respective directors, officers, employees,
representatives, advisors, agents and Affiliates (collectively, the "Spinco
Indemnified Parties") from, against and in respect of any and all Indemnifiable
Losses of the Spinco Indemnified Parties arising out of, relating to or
resulting from, directly or indirectly, (i) any breach of any agreement or
covenant set forth in this Agreement or in the Stockholders Agreement on the
part of Parent or the Purchaser or, following the Offer Purchase Date, on the
part of the Company, (ii) any and all Retained Liabilities, (iii) the conduct of
the Retained Business or any part thereof on, prior to or following the
Distribution Date, (iv) any Indemnifiable Loss resulting from any claims that
any statements or omissions (A) relating to or describing, directly or
indirectly, Parent or the Purchaser, and which occur on or prior to the Offer
Purchase Date in any Solicitation/Recommendation Statement on Schedule 14D-9 of
the Company filed in connection with the Offer, the Information Statement, the
Form 10 or in any registration statement filed pursuant to Section 3.1 or
Section 3.3 hereof (in each case only to the extent of any statements or
omissions made in reliance upon and in conformity with information furnished in
writing by Parent, the Purchaser or their Affiliates, representatives or
advisors), (B) in any Tender Offer Statement on Schedule 14D-1 of the Purchaser
or Parent filed in connection with the Offer (other than any statements or
omissions made in reliance upon and in conformity with information furnished in
writing by the Company, any Retained Subsidiary, Spinco, any Spinco Company or
any of their respective Affiliates, representatives or advisors), or (C) in any
other document(s) filed after the date hereof by Parent or the Purchaser with
the SEC pursuant to either the Securities Act or the Exchange Act (e.g.,
statements or omissions made in a Current Report on Form 8-K filed by either
Parent or the Purchaser after the date hereof pursuant to the Exchange Act),
which, in the case of either clauses (A), (B) or (C) above, are false or
misleading with respect to any 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 and (v) any Indemnifiable Loss arising out of or resulting from
Transaction Suits (other than Excluded Indemnifiable Losses). Notwithstanding
the foregoing and anything to the contrary in this Agreement or any other
agreement to
46
be entered into pursuant to this Agreement, the Company shall not be required to
indemnify, defend and hold harmless any Spinco Indemnified Party from and
against any Indemnifiable Loss resulting from any claims that the statements
included in the Information Statement, the Form 10 or in any registration
statement filed pursuant to Section 3.1 or Section 3.3 hereof (in each case
other than statements or omissions made in reliance upon and in conformity with
information furnished in writing by Parent, the Purchaser or their Affiliates,
representatives or advisors expressly for use therein) are false or misleading
with respect to any 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.
(b) Notwithstanding the Company's obligations to indemnify the
Spinco Indemnified Parties pursuant to Section 5.3(a) hereof, the Company shall
be obligated to indemnify the Spinco Indemnified Parties only for those
Indemnifiable Losses under Sections 5.3(a)(i) and 5.3(a)(iv) hereof as to which
the Spinco Indemnified Parties have given the Company written notice thereof on
or prior to the expiration of any applicable statute of limitations period (it
being understood that there shall be no corresponding time limitation with
respect to any Indemnifiable Losses arising under clauses (ii) and (iii) of
Section 5.3(a) hereof). Notwithstanding the foregoing, if on or before the
expiration of such indemnification period any Spinco Indemnified Party has given
notice to the Company pursuant to Section 5.4 hereof of any matter which would
be the basis for a claim of indemnification by such Spinco Indemnified Party
pursuant to Section 5.3(a), such Spinco Indemnified Party shall have the right
after the expiration of such indemnification period to assert or to continue to
assert such claim and to be indemnified with respect thereto.
Section 5.4. Procedure for Indemnification. All claims for
indemnification under this Article V shall be asserted and resolved as follows:
(a) In the event that any claim or demand, or other circumstance
or state of facts which could give rise to any claim or demand, for which an
Indemnifying Party may be liable to an Indemnified Party hereunder
47
is asserted against or sought to be collected by a third party (an "Asserted
Liability"), the Indemnified Party shall promptly notify the Indemnifying Party
in writing of such Asserted Liability, specifying the nature of such Asserted
Liability and the amount or the estimated amount thereof to the extent then
feasible (which estimate shall not be conclusive of the final amount of such
claim or demand) (the "Claim Notice"); provided that no delay on the part of the
Indemnified Party in giving any such Claim Notice shall relieve the Indemnifying
Party of any indemnification obligation hereunder unless (and then solely to the
extent that) the Indemnifying Party is materially prejudiced by such delay. The
Indemnifying Party shall have 20 days (or less if the nature of the Asserted
Liability requires) from its receipt of the Claim Notice (the "Notice Period")
to notify the Indemnified Party whether or not the Indemnifying Party desires,
at the Indemnifying Party's sole cost and expense and by counsel of its own
choosing, which shall be reasonably satisfactory to the Indemnified Party, to
defend against such Asserted Liability; provided that if, under applicable
standards of professional conduct a conflict on any significant issue between
the Indemnifying Party and any Indemnified Party exists in respect of such
Asserted Liability, then the Indemnifying Party shall reimburse the Indemnified
Party for the reasonable fees and expenses of one additional counsel to be
retained in order to resolve such conflict, promptly upon presentation by the
Indemnified Party of invoices or other documentation evidencing such amounts to
be reimbursed. If the Indemnifying Party undertakes to defend against such
Asserted Liability, the Indemnifying Party shall control the investigation,
defense and settlement thereof; provided that (i) the Indemnifying Party shall
use its reasonable efforts to defend and protect the interests of the
Indemnified Party with respect to such Asserted Liability, (ii) the Indemnified
Party, prior to or during the period in which the Indemnifying Party assumes
control of such matter, may take such reasonable actions as the Indemnified
Party deems necessary to preserve any and all rights with respect to such
matter, without such actions being construed as a waiver of the Indemnified
Party's rights to defense and indemnification pursuant to this Agreement, and
(iii) the Indemnifying Party shall not, without the prior written consent of the
Indemnified Party, consent to any settlement which (A) imposes any Liabilities
on the Indemnified Party (other than those Liabili-
48
ties which the Indemnifying Party agrees to promptly pay or discharge), and (B)
with respect to any non-monetary provision of such settlement, would be likely,
in the Indemnified Party's reasonable judgment, to have an adverse effect on
the business operations, assets, properties or prospects of Parent, the Company
or the Retained Business (in the case of a Parent Indemnified Party), Spinco or
the Spinco Business (in the case of a Spinco Indemnified Party), or such
Indemnified Party. Notwithstanding the foregoing, the Indemnified Party shall
have the right to control, pay or settle any Asserted Liability which the
Indemnifying Party shall have undertaken to defend so long as the Indemnified
Party shall also waive any right to indemnification therefor by the Indemnifying
Party. If the Indemnifying Party undertakes to defend against such Asserted
Liability, the Indemnified Party shall cooperate fully with the Indemnifying
Party and its counsel in the investigation, defense and settlement thereof. If
the Indemnified Party desires to participate in any such defense it may do so at
its sole cost and expense. If the Indemnifying Party does not undertake within
the Notice Period to defend against such Asserted Liability, then the
Indemnifying Party shall have the right to participate in any such defense at
its sole cost and expense, but the Indemnified Party shall control the
investigation, defense and settlement thereof (provided that the Indemnified
Party may not settle any such Asserted Liability without obtaining the prior
written consent of the Indemnifying Party (which consent shall not be
unreasonably withheld by the Indemnifying Party; provided that in the event that
the Indemnifying Party is in material breach at such time of the provisions of
this Section 5.4, then the Indemnified Party shall not be obligated to obtain
such prior written consent of the Indemnifying Party) at the reasonable cost and
expense of the Indemnifying Party (which shall be paid by the Indemnifying Party
promptly upon presentation by the Indemnified Party of invoices or other
documentation evidencing the amounts to be indemnified). The Indemnified Party
and the Indemnifying Party agree to make available to each other, their counsel
and other representatives, all information and documents available to them which
relate to such claim or demand (subject to the confidentiality provisions of
Section 7.5 hereof); provided that no party hereto shall be obligated to
disclose any information which would result in the waiver of any attorney-
client, attorney work product or other
49
similar privileges, if the disclosure of such information would be materially
prejudicial to such disclosing party. The Indemnified Party and the Indemnifying
Party and the Company and its employees also agree to render to each other such
assistance and cooperation as may reasonably be required to ensure the proper
and adequate defense of such claim or demand.
(b) In the event that an Indemnified Party should have a claim
against the Indemnifying Party hereunder which does not involve a claim or
demand being asserted against or sought to be collected from it by a third
party, the Indemnified Party shall send a Claim Notice with respect to such
claim to the Indemnifying Party. The Indemnifying Party shall have 20 days from
the date such Claim Notice is delivered during which to notify the Indemnified
Party in writing of any good faith objections it has to the Indemnified Party's
Claim Notice or claims for indemnification, setting forth in reasonable detail
each of the Indemnifying Party's objections thereto. If the Indemnifying Party
does not deliver such written notice of objection within such 20-day period, the
Indemnifying Party shall be deemed to have accepted responsibility for the
prompt payment of the Indemnified Party's claims for indemnification, and shall
have no further right to contest the validity of such indemnification claims. If
the Indemnifying Party does deliver such written notice of objection within such
20-day period, the Indemnifying Party and the Indemnified Party shall attempt
in good faith to resolve any such dispute within 30 days of the delivery by the
Indemnifying Party of such written notice of objection. If the Indemnifying
Party and the Indemnified Party are unable to resolve any such dispute within
such 30-day period, then either the Indemnifying Party or the Indemnified Party
shall be free to pursue any remedies which may be available to such party under
applicable Law.
Section 5.5. Miscellaneous Indemnification Provisions.
(a) The Indemnifying Party agrees to indemnify any successors of
the Indemnified Party to the same extent and in the same manner and on the same
terms and conditions as the Indemnified Party is indemnified by the Indemnifying
Party under this Article V. In the event that any claim for indemnification
under either
50
Articles II, V, VI or VIII hereof meets the criteria of more than one of the
types of claims for which indemnification is provided for under such provisions,
the Indemnified Party, in its sole discretion, shall classify such claim and
only be required to include such claim, and the recoveries for indemnification
therefrom, in one of such categories. No investigation made by any party hereto
shall affect any representation or warranty of the other party's hereto
contained in this Agreement or in the Schedules attached hereto or any
certificate, document or other instrument delivered in connection herewith. The
consummation by Parent of the Offer pursuant to the terms and conditions of the
Merger Agreement, either with or without knowledge of a breach of warranty or
covenant or misrepresentation by any party hereto, shall not constitute a waiver
of any claim by any Parent Indemnified Party for Indemnifiable Losses with
respect to such breach or misrepresentation. In determining the amount of
Indemnifiable Losses to which a Parent Indemnified Party or Spinco Indemnified
Party (as the case may be) is entitled to indemnification hereunder, an
arbitration panel, court or tribunal may take into consideration, where
appropriate and without duplication, any diminution in the aggregate value of
the Retained Business or the Spinco Business (as the case may be).
Notwithstanding anything to the contrary contained in this Agreement, the
assignment of any party's rights hereunder to any other person or entity shall
not limit, affect or prejudice the ability of the assigning party to continue to
enforce any rights of indemnification hereunder or other rights hereunder in
accordance with the terms and conditions of this Agreement.
(b) In determining the amount of any indemnity payable under this
Article V, such amount shall be reduced by (x) any related tax benefits if and
when actually realized or received (but only after taking into account any tax
benefits (including, without limitation, any net operating losses or other
deductions) to which the Indemnified Party would be entitled without regard to
such item), except to the extent such recovery has already been taken into
account in determining the amount of any indemnity payable under Articles II, V,
VI or VIII hereof, and (y) any insurance recovery if and when actually realized
or received, in each case in respect of such Asserted Liability. Any such
recovery shall be promptly repaid by the Indemnified Party to the Indemni-
51
fying Party following the time at which such recovery is realized or received
pursuant to the previous sentence, minus all reasonably allocable costs, charges
and expenses incurred by the Indemnified Party in obtaining such recovery.
Notwithstanding the foregoing, if (x) the amount of Indemnifiable Losses for
which the Indemnifying Party is obligated to indemnify the Indemnified Party is
reduced by any tax benefit or insurance recovery in accordance with the
provisions of the previous sentence, and (y) the Indemnified Party subsequently
is required to repay the amount of any such tax benefit or insurance recovery or
such tax benefit or insurance recovery is disallowed, then the obligation of the
Indemnifying Party to indemnify with respect to such amounts shall be reinstated
immediately and such amounts shall be paid promptly to the Indemnified Party in
accordance with the provisions of this Agreement.
(c) In the event that a dispute between any Indemnifying Party
and any Indemnified Party concerning the existence of a right or obligation to
indemnity under this Agreement is determined by any arbitration panel or any
court or tribunal, the reasonable fees and expenses of the attorneys for the
party which is principally prevailing in such action shall be paid by the party
which is not principally prevailing in such action.
(d) All amounts owing under this Article V shall bear interest at
a fluctuating rate of interest equal to the rate of interest from time to time
announced by Citibank, N.A. in New York, New York as its prime lending rate,
computed from the time such Damage, cost or expense was incurred or suffered to
the date of payment therefor.
(e) The remedies provided by this Article V shall be the parties'
sole and exclusive remedies for the recovery of any Indemnifiable Losses
resulting, from or arising out of or related to misrepresentations, breaches of
warranties, and non-fulfillment of obligations under this Agreement, except
those arising from or arising out of or related to fraud; provided that the
provisions of this Section 5.5(e) shall not limit the ability of any party to
seek injunctive or similar relief pursuant to Section 11.11 hereof.
52
(f) The parties hereto agree that, notwithstanding any other
provision in this Agreement to the contrary, in the event of any breach of
the representation and warranty set forth in Section 6.1(c)(i) hereof, in
addition to the indemnities provided for in this Article V, Spinco shall
either (a) secure the prompt release of the Company, the Retained
Companies, the Retained Business and any affected Parent Indemnified Party
from all obligations and Liabilities relating to those Spinco Liabilities
or Spinco Indebtedness for which the Company, the Retained Companies, the
Retained Business or any affected Parent Indemnified Party is or has become
liable, directly or indirectly, as borrower, surety, guarantor or otherwise
(or with respect to which any of the Retained Assets is or has become bound
by or subject to) or (b) promptly prepay, redeem, purchase or defease
(pursuant to a trust arrangement reasonably acceptable to Parent) in full
all such Spinco Liabilities or Spinco Indebtedness. Spinco shall take or
cause to be taken all actions, execute such agreements, documents or
instruments, and do or cause to be done all things, necessary, proper or
advisable under the terms of the agreements governing the Spinco Liability
or Spinco Indebtedness in question and under the provisions of applicable
Law, or as Parent may otherwise reasonably request, in connection with the
fulfillment of Spinco's obligations under this Section 5.5(f).
Section 5.6. Pending Litigation. Following the Distribution
Date, (a) Spinco shall have exclusive authority and control over the
investigation, prosecution, defense and appeal of all pending Actions
relating primarily to the Spinco Business, the Spinco Assets or the Spinco
Liabilities (each, a "Spinco Action"), and may settle or compromise, or
consent to the entry of any judgment with respect to, any such Action
without the consent of the Company, and (b) the Company shall have
exclusive authority and control over the investigation, prosecution,
defense and appeal of all pending Actions relating primarily to the
Retained Business, the Retained Assets or the Retained Liabilities (each, a
"Retained Action"), and may settle or compromise, or consent to the entry
of any judgment with respect to, any such Action without the consent of
Spinco; provided that if both the Company and Spinco are named as parties
to any Spinco Action or Retained Action, neither the Company nor Spinco
(nor any of their respective Subsidiaries) may settle or
53
compromise, or consent to the entry of any judgment with respect to, any
such Action without the prior written consent of the other party (which
consent may not be unreasonably withheld) if such settlement, compromise or
consent to such judgment includes any form of injunctive relief binding
upon such other party. Spinco shall indemnify, defend and hold harmless
each of the Parent Indemnified Parties, and the Company shall indemnify and
hold harmless each of the Spinco Indemnified Parties, in the manner
provided in this Article V, from and against all Indemnifiable Losses
arising out of or resulting from each such Action over which such
indemnifying party has authority and control pursuant to this Section 5.6.
Section 5.7. Construction of Agreements. Notwithstanding any
other provision in this Agreement to the contrary, in the event and to the
extent that there shall be a conflict between the provisions of this
Article V and the provisions of any other part of this Agreement or any
exhibit or schedule hereto, the provisions of this Article V shall control,
and in the event and to the extent that there shall be a conflict between
the provisions of this Agreement (including, without limitation, the
provisions of this Article V) and the provisions of the Tax Sharing
Agreement, the provisions of the Tax Sharing Agreement shall control.
ARTICLE VI
CERTAIN ADDITIONAL MATTERS
--------------------------
Section 6.1. Representations or Warranties; Disclaimers.
(a) It is the explicit intent of each party hereto that no party
to this Agreement or to the Merger Agreement is making any representation
or warranty whatsoever, express or implied, in this Agreement, the Merger
Agreement, the Tax Sharing Agreement or the Stockholders Agreement or in
any other agreement contemplated hereby or thereby, except those
representations and warranties expressly set forth in this Agreement.
Each of the parties hereto agrees, to the fullest extent permitted by Law,
that none of them nor any of their Affiliates, agents or representatives
shall have any liability or responsibility whatsoever to any such other
party
54
hereto or such other party's Affiliates, agents or representatives on any
basis (including, without limitation, in contract or tort, under federal or
state securities laws or otherwise) based upon any information provided or
made available, or statements made, to any such other party or such other
party's Affiliates, agents or representatives (or any omissions therefrom),
including, without limitation, in respect of the specific representations
and warranties set forth in this Agreement and the Merger Agreement and the
covenants and agreements set forth in the Merger Agreement, except (i) as
and only to the extent expressly set forth in the indemnification
provisions of Article V hereof and as otherwise expressly set forth herein
(subject to the limitations and restrictions contained herein), and (ii)
with respect to breaches of the covenants and agreements set forth in this
Agreement.
(b) Without limiting the generality of the foregoing, it is
understood and agreed (a) that neither Parent, the Company nor any of the
Retained Subsidiaries is, in this Agreement or in any other agreement or
document contemplated by this Agreement, representing or warranting in any
way as to the value or freedom from encumbrance of, or any other matter
concerning, any Spinco Assets, (b) that the Spinco Assets are being
transferred "as is, where is" and (c) that, subject to the obligations of
the Company set forth in Sections 2.1(b) and 6.2 hereof, Spinco shall bear
the risk that any conveyances of the Spinco Assets might be insufficient or
that Spinco's or any of the Spinco Company's title to any Retained Assets
shall be other than good and marketable and free from encumbrances.
Similarly, it is understood and agreed that neither Parent, the Company nor
any of the Retained Subsidiaries is, in this Agreement or in any other
agreement or document contemplated by this Agreement, representing or
warranting to Spinco or any Spinco Indemnified Party in any way that the
obtaining of the consents and approvals, the execution and delivery of any
amendatory agreements and the making of the filings and applications
contemplated by this Agreement shall satisfy the provisions of any or all
applicable agreements or the requirements of all applicable Laws or
judgments.
(c) Spinco represents and warrants to the Company that (i) except
as expressly provided in the
55
Globalstar Bank Guarantee (as amended pursuant to the provisions of Section
2.5 hereof), neither the Company nor any of the Retained Subsidiaries will,
after giving effect to the Restructuring, be liable directly or indirectly,
as borrower, surety, guarantor, indemnitor or otherwise, with respect to
(and that none of the Retained Assets shall be bound by or subject to) any
of the Spinco Liabilities or any Spinco Indebtedness, (ii) there are no
Intercompany Agreements in effect as of the date hereof, which, either
individually or in the aggregate, are materially adverse to (i) the
business, properties, operations, prospects, results of operations or
condition (financial or otherwise) of the Retained Business or (ii) the
ability of the Company or any of the Retained Subsidiaries to perform their
respective obligations under this Agreement, the Tax Sharing Agreement or
the Stockholders Agreement, (iii) there are no Spinco Assets which have
been used within the Retained Business within one year prior to the date
hereof, other than those Spinco Assets which are listed on Section 6.2(c)
of the Disclosure Schedule, (iv) except as set forth in Section 6.1(c)(iv)
of the Disclosure Schedule, neither Spinco nor any Spinco Company shall,
immediately after giving effect to the Restructuring and the Distribution,
own, hold or lease, in whole or in part, any of the assets, properties,
licenses and rights which are reasonably necessary to carry on the Retained
Business as presently conducted, and (v) prior to, on or shortly after the
Distribution Date, GTL or Globalstar (as the case may be) will issue to the
Company the Guarantee Warrants described in the Globalstar Warrant
Memorandum and the term sheet set forth on Exhibit A-1 attached hereto,
which warrants will be on the terms and conditions described in the
Globalstar Warrant Memorandum and shall otherwise be on such terms and
conditions as are customary to transactions of a similar nature.
Section 6.2. Further Assurances; Subsequent Transfers.
(a) To the extent that any of the transfers, distributions and
deliveries required to be made pursuant to Article II shall not have been
so consummated prior to the Distribution Date, the parties shall cooperate
and use their best efforts to effect such consummation as promptly
thereafter as reasonably practicable. Each of the parties hereto will
execute and deliver such
56
further instruments of transfer and distribution and will take such other
actions as any party hereto may reasonably request in order to effectuate
the purposes of this Agreement and to carry out the terms hereof. Without
limiting the generality of the foregoing, at any time and from time to time
after the Distribution Date, at the request of Spinco or any of its
Subsidiaries, each party hereto will, and will cause each of its
Subsidiaries to, execute and deliver such other instruments of transfer and
distribution, and take such action as any party hereto may reasonably
request in order to more effectively transfer, convey and assign to such
requesting party or to the Subsidiaries of such requesting party and to
confirm the right, title or interest held by such requesting party or any
of the Subsidiaries of such requesting party, in the Assets to be
transferred to such requesting party (or its Subsidiaries) pursuant to this
Agreement, to put such requesting party and its Subsidiaries in actual
possession and operating control thereof and to permit such requesting
party and its Subsidiaries to exercise all rights with respect thereto
(including, without limitation, rights under contracts and other
arrangements as to which the consent of any third party to the transfer
thereof shall not have previously been obtained) and to properly assume and
discharge the related Liabilities.
(b) Each of the parties hereto agrees to use its respective best
efforts, at the Company's reasonable expense, to obtain any consents
required to transfer and assign to (i) Spinco all agreements, leases,
licenses and other rights of any nature whatsoever relating to the Spinco
Assets, and (ii) the Company all agreements, leases, licenses and other
rights of any nature whatsoever relating to the Retained Assets. In the
event and to the extent that any party hereto or any of its Subsidiaries is
unable to obtain any such required consents, (i) such party (or any
Subsidiary that is a party to such agreements, leases, licenses and other
rights, as the case may be) shall continue to be bound thereby (such
person, the "Record Holder") and (ii) the party to which such Asset would
otherwise be transferred pursuant to this Agreement (the "Beneficial
Holder") shall pay, perform and discharge fully all the obligations of the
Record Holder thereunder from and after the Distribution Date and indemnify
such Record Holder for all Indemnifiable Losses arising out of such
performance by
57
such Record Holder. The Record Holder shall, without further consideration
therefor, pay, assign and remit to the Beneficial Holder promptly all
monies, rights and other consideration received in respect of such
performance. The Record Holder shall exercise or exploit its rights and
options under all such agreements, leases, licenses and other rights and
commitments referred to in this Section 6.2(b) only as reasonably directed
by the Beneficial Holder and at the Beneficial Holder's expense. If and
when any such consent shall be obtained or such agreement, lease, license
or other right shall otherwise become assignable, the Record Holder shall
promptly assign all its rights and obligations thereunder to the
Beneficial Holder without payment of further consideration and the
Beneficial Holder shall, without the payment of any further consideration
therefor, assume such rights and obligations.
(c) In the event that, subsequent to the Distribution Date, the
Company or any of the Retained Subsidiaries shall either (i) receive
written notice from Spinco or any of the Spinco Companies that certain
specified Assets of the Company or any of the Retained Subsidiaries which
properly constitute Spinco Assets were not transferred to it on or prior to
the Distribution Date or (ii) determine that certain Assets of the Company
or any of the Retained Subsidiaries which constitute Spinco Assets were not
transferred to Spinco or any of the Spinco Companies on or prior to the
Distribution Date, then as promptly as practicable thereafter, the Company
shall, and shall cause its Subsidiaries to, take all steps reasonably
necessary to transfer and deliver any and all of such Assets to Spinco or
its Subsidiaries at the recipient's reasonable expense. In the event that,
subsequent to the Distribution Date, Spinco or any of the Spinco Companies
shall either (i) receive written notice from the Company or any of the
Retained Subsidiaries that certain specified Assets were transferred to
Spinco or its Subsidiaries which properly constitute Retained Assets, or
(ii) determine that certain Assets of Spinco or the Spinco Companies which
constitute Retained Assets were transferred to Spinco or the Spinco
Companies, then as promptly as practicable thereafter, Spinco shall, and
shall cause the Spinco Companies to, take all steps reasonably necessary
to transfer and deliver any and all of such Assets to the Company or the
Company's Subsid-
58
iaries at the recipient's reasonable expense without the payment by the
Company of any consideration therefor.
Section 6.3. The Spinco Board. Spinco and the Company shall
take all actions which may be required to elect or otherwise appoint, on or
prior to the Distribution Date, those individuals that the Board of
Directors of the Company (as in effect prior to the consummation of the
Offer) may designate as directors of Spinco.
Section 6.4. Use of Names. Following the Distribution Date,
Spinco and each of the Spinco Companies shall have the sole and exclusive
ownership of and right to use, as between the Company and each of the
Retained Subsidiaries, on the one hand, and Spinco and each of the Spinco
Companies, on the other hand, the "Loral" name and each of the names used
(or formerly used) in the Spinco Business (the "Spinco Names"), and each of
the trade marks, trade names, service marks and other proprietary rights
related to such Spinco Names as set forth on Section 6.4 of the Disclosure
Schedule (the "Spinco Proprietary Name Rights"); provided that the Company,
the Retained Business and each of the Retained Subsidiaries is hereby
granted a perpetual, fully paid-up, worldwide, non-exclusive license with
respect to such Spinco Names and Spinco Proprietary Name Rights to the
extent necessary to enable the Company, the Retained Business and each of
the Retained Subsidiaries to continue to use such rights in their
respective businesses with respect to (x) those governmental Contracts of
the Retained Business (and any programs thereunder) in existence as of the
Offer Purchase Date or those governmental programs for which a bid has been
submitted prior to the Offer Purchase Date, and (y) those products and
services of the type manufactured or sold by them on the date hereof or at
any time during the last five years or under current development by them as
of the date hereof. Following the Distribution Date, the Company and each
of the Retained Subsidiaries shall have the sole and exclusive ownership of
and right to use, as between Spinco and each of the Spinco Companies, on
the one hand, and the Company and each of the Retained Subsidiaries, on the
other hand, all names used (or formerly used) by the Company or any of the
Retained Subsidiaries as of such date other than the Spinco Names (the
"Company Names"), and all other trade marks, trade names, service marks and
other proprietary rights owned or used by the Company or any of the Retai-
59
ned Subsidiaries as of such date other than the Spinco Proprietary Name
Rights (the "Company Proprietary Name Rights"). Notwithstanding the
foregoing, following the Distribution Date, (x) the Company shall, and
shall cause its Subsidiaries and other Affiliates to, take all action
reasonably necessary to cease using, and change as soon as commercially
practicable (including by amending any charter documents), any corporate or
other names which are the same as or confusingly similar to any of the
Spinco Names or any of the Spinco Proprietary Name Rights, and (y) Spinco
shall, and shall cause its Subsidiaries and other Affiliates to, take all
action reasonably necessary to cease using, and change as soon as
commercially practicable (including by amending any charter documents), any
corporate or other names which are the same as or confusingly similar to
any of the Company Names or any of the Company Proprietary Name Rights.
Section 6.5. Litigation Relating to Transaction.
(a) Following the date hereof, in the event that any Action is
commenced against the Company or any of its Subsidiaries challenging either
the Merger Agreement, this Agreement, the Tax Sharing Agreement or the
Stockholders Agreement or any of the transactions contemplated therein or
herein (any such Action, a "Transaction Suit"), then the Company shall
provide promptly to Parent copies of all material pleadings sent or
received after the date hereof by the Company or its counsel with respect
to any such Transaction Suit(s).
(b) Parent shall be entitled to participate in the defense of
each Transaction Suit and to employ counsel at its own expense to assist
in the handling of each such Transaction Suit. The Company shall not
settle or compromise any Transaction Suit or consent to the entry of any
judgment with respect to any such Transaction Suit, without the prior
written consent of Parent (which consent shall not be unreasonably
withheld).
(c) Following the Distribution Date, Spinco shall be entitled to
participate in the defense of each Transaction Suit to which it or any of
its Affiliates is a party, and to employ counsel at its own expense to
assist in the handling of each such Transaction Suit.
60
Following the Distribution Date, the Company shall not settle or compromise
any Transaction Suit to which Spinco or any of its Affiliates is a party or
consent to the entry of any judgment with respect to any such Transaction
Suit, without the prior written consent of Spinco (which consent shall not
be unreasonably withheld).
Section 6.6. Spinco Equity Arrangements. On or prior to the
Offer Purchase Date, Spinco, the Company and each Retained Subsidiary which
will be a holder of Spinco Preferred Stock immediately after giving effect
to the Restructuring, shall each execute and deliver to the other
counterparts of a stockholders agreement with respect to such Spinco
Preferred Stock in substantially the form set forth in Exhibit A hereto.
Section 6.7. Post-Closing Business Relationships.
(a) License of Existing Intellectual Property Rights. The
Company and the Retained Subsidiaries hereby grant to each of Spinco and
the Spinco Companies, effective as of the Distribution Date, a perpetual,
fully paid-up, worldwide, non-exclusive license with respect to the
Intellectual Property Rights to the extent necessary to enable Spinco and
the Spinco Companies to continue to use the Intellectual Property Rights in
their respective businesses with respect to those products and services
thereof of the type manufactured or sold by them on the date hereof or at
any time during the last five years or under current development by them as
of the date hereof; provided that neither Spinco nor any of the Spinco
Companies shall be permitted to sublicense or otherwise transfer any of the
Intellectual Property Rights referred to in this Section 6.7(a) to any
Person other than an Affiliate of Spinco. Each of Spinco and the Spinco
Companies acknowledges and agrees that neither the Company nor the Retained
Subsidiaries nor any of their respective Affiliates is making any
representations or warranties with respect to the ownership, validity,
efficacy or other matters relating to any of the Intellectual Property
Rights referred to in this Section 6.7(a).
(b) License of Certain Other Intellectual Property Rights.
During the period commencing after the Distribution Date and ending on the
third anniversary
61
thereof, the Company and the Retained Subsidiaries shall, at the request of
Spinco or any Spinco Company, grant to Spinco or such Spinco Company a non-
exclusive license for those applications reasonably related to the Spinco
Business with respect to any Intellectual Property Rights not already
covered by paragraph (a) above, which grant shall be made on terms and
conditions no less favorable than those terms and conditions which may from
time to time be extended generally by Parent to third parties with respect
to similar products, services or applications; provided that neither the
Company nor any of the Retained Subsidiaries shall be obligated to license
to Spinco or any Spinco Company any of the Intellectual Rights referred to
in this Section 6.7(b) if such Intellectual Property Rights relate to any
product or service which competes with or will compete with those products
or services of the type manufactured or sold by Parent, any Subsidiary of
Parent, the Company or any of the Retained Subsidiaries on the date thereof
or at any time during the previous five years or under current development
by them as of the date thereof.
(c) Certain General Licensing Provisions. The license of
Intellectual Property Rights granted pursuant to this Section 6.7 shall
not affect the rights of the Company or any of the Retained Subsidiaries to
use, disclose or otherwise freely deal with any Intellectual Property
Rights licensed hereunder and shall be subject to and limited by (x) all
Contracts and obligations, entered into prior to the date on which the
license in question was granted, in any way affecting the Company's ability
to license the Intellectual Property Rights and (y) the provisions of
applicable Law. Spinco agrees to indemnify, defend and hold harmless the
Company and each Parent Indemnified Party in accordance with the
indemnification provisions of Article V hereof, from and against any and
all Indemnifiable Losses of the Company and any such Parent Indemnified
Party arising out of, relating to or resulting from the license of any
Intellectual Property Rights to Spinco or any Spinco Company pursuant to
the provisions of Section 6.7(a) above or any failure by Spinco or any
Spinco Company to perform and abide by all obligations, restrictions,
conditions and agreements applicable to the Intellectual Property Rights
licensed to Spinco or any Spinco Company pursuant to the provisions of
Section 6.7(a) above.
62
(d) Technical Services. During the period commencing after the
Distribution Date and ending on the third anniversary thereof (and for
successive periods of three years provided that Spinco notifies the Company in
writing, no less than six months nor more than nine months prior to the end of
the three-year period in question, of Spinco's intention to continue seeking the
services set forth in this Section 6.7(d) during the following three-year
period), and subject to existing commitments, obligations and availability, and
upon reasonable notice, Parent and its Subsidiaries shall use their reasonable
efforts to make available to Spinco and the Spinco Companies those personnel and
facilities reasonably designated by Parent or the Company to provide such
research and development, technological and technical consulting and support
services and other similar consulting and support services (such services, the
"Technical Services"), to the extent reasonably requested by Spinco or the
Spinco Companies from time to time. The Technical Services shall be provided at
a cost calculated in accordance with the "fully-allocated" cost (which shall
include all direct and indirect expenses of Parent or the Company or any of
their respective Subsidiaries or any other entity which is providing the
Technical Services in question, and which shall be allocated in a manner
consistent with the Parent's or the Company's past practices (as the case may
be) with respect to the allocation of costs to its Subsidiaries. Following the
end of the calendar month in which any such Technical Services are performed,
the Company shall provide to Spinco or the Spinco Subsidiary in question an
invoice (the "Technical Services Invoice") setting forth in summary detail the
Technical Services which were provided during such calendar month and the
appropriate cost thereof. Spinco or the Spinco Subsidiary in question shall pay
to the Company in cash in a reasonably prompt manner following the delivery by
the Company of a Technical Services Invoice, the amounts due with respect to the
Technical Services reflected on such Technical Services Invoice. The parties
hereto acknowledge and agree that (x) the specific terms and conditions of the
Technical Services to be provided hereunder (to the extent not otherwise
specified and to the extent not inconsistent with the provisions of this Section
6.7(d)) shall be on terms and conditions similar to those terms and conditions
which may from time to time be extended generally by or to Parent to or from
third parties with respect to similar services (except as
63
the parties may otherwise mutually agree) and (y) any Intellectual Property
Rights created primarily in connection with the delivery of Technical Services
to Spinco or the Spinco Subsidiary (as the case may be) shall be the property of
Spinco or the Spinco Subsidiary (as the case may be); provided that Parent, the
Company and each of their respective Affiliates are hereby granted a perpetual,
fully paid-up, worldwide, non-exclusive license with respect to all such
Intellectual Property Rights (provided further that neither Parent nor any of
its Affiliates shall be permitted to sublicense or otherwise transfer any of the
Intellectual Property Rights referred to in this Section 6.7(d) to any Person
other than an Affiliate of such party). Notwithstanding anything to the contrary
contained in this Section 6.7(d), SSL shall not be entitled to request or to
receive, either directly or indirectly, any Technical Services or any
Intellectual Property Rights relating thereto (nor may Spinco, nor any Affiliate
of either Spinco or SSL, request or receive any such Technical Services or
Intellectual Property Rights on behalf of SSL) unless and until SSL shall have
entered into an unconditional release (which shall be in form and substance
reasonably acceptable to Parent) in favor of Parent and its Affiliates with
respect to any and all Liabilities relating to the SSL Lawsuit (provided that
in the event that SSL delivers to Parent a release which satisfies the
provisions of this sentence, Parent agrees to promptly deliver to SSL a similar
release with respect to such SSL Lawsuit).
Section 6.8. No Restrictions on Post-Closing Competitive
Activities. It is the explicit intent of each of the parties hereto that the
provisions of this Agreement shall not include any non-competition or other
similar restrictive arrangements with respect to the range of business
activities which may be conducted by the parties hereto. Accordingly, each of
the parties hereto acknowledges and agrees that nothing set forth in this
Agreement shall be construed to create any explicit or implied restriction or
other limitation on (a) the ability of any party hereto to engage in any
business or other activity which competes with the business of any other party
hereto, or (b) the ability of any party to engage in any specific line of
business or engage in any business activity in any specific geographic area.
64
Section 6.9. CCD Lawsuit.
(a) The parties hereto acknowledge and agree that prior to the
Distribution Date, the Company shall have complete and exclusive control and
management over the CCD Lawsuit. On the Distribution Date, immediately prior to
the Distribution, Spinco shall acquire an interest in the CCD lawsuit pursuant
to the transfers set forth in Section 2.1(a)(viii), which transfers shall be
effected by the Company and its Subsidiaries, with the consent of Parent (which
shall not be unreasonably withheld), entering into any agreements or
stipulations, including, but not limited to, an assignment of the action to
Spinco, as may reasonably be required to (i) grant to Spinco complete and
exclusive control and management of the CCD Lawsuit (including, but not limited
to, the prosecution, defense or settlement of such action) and (ii) grant to
Spinco the exclusive right to any and all proceeds or awards resulting or
derived from the CCD Lawsuit; provided that Spinco shall pay all fees and
expenses relating to the CCD Lawsuit and Spinco hereby agrees to indemnify,
defend and hold harmless the Company and each Parent Indemnified Party in
accordance with the indemnification provisions of Article V hereof, from and
against any and all Indemnifiable Losses of the Company and any such Parent
Indemnified Party with respect to the CCD Lawsuit (including, without
limitation, with respect to any countersuit relating thereto). The Company
agrees that it shall provide reasonable cooperation to Spinco in connection with
the CCD Lawsuit, including, but not limited to, reasonable access to such
books, records and employees of the Company as may be reasonably necessary in
order for Spinco to prosecute or defend the CCD Lawsuit or any other Action
related thereto.
(b) Notwithstanding anything to the contrary contained in this
Section 6.9, Spinco shall not, without the prior written consent of Parent,
consent to any settlement which (A) imposes any Liabilities on Parent (other
than those Liabilities which Spinco agrees to promptly pay or discharge), and
(B) with respect to any non-monetary provision of such settlement, would be
likely, in Parent's reasonable judgment, to have an adverse effect on the
business operations, assets, properties or prospects of Parent, the Company or
the Retained Business. Nothing in this Section 6.9 shall be construed in any
manner to vitiate any of the collective
65
rights of the Company, the Retained Subsidiaries and Spinco under the CCD
Lawsuit and the rights being asserted thereunder in relation to any third
party, and the parties hereto shall take all reasonable actions necessary
to ensure the foregoing.
ARTICLE VII
ACCESS TO INFORMATION AND SERVICES
----------------------------------
Section 7.1. Provision of Corporate Records. Except as provided
in the following sentence, on the Distribution Date, the Company shall
deliver to Spinco all corporate books and records (including all active
agreements, active litigation files and government filings) which are
corporate records of Spinco or any of the Spinco Companies and which relate
primarily to the Spinco Assets, the Spinco Business or the Spinco
Liabilities, including, without limitation, original corporate minute
books, stock ledgers and certificates and corporate seals of each
corporation the capital stock of which is included in the Spinco Assets.
Notwithstanding the foregoing, the Company shall have the right to retain
the original copies of any such documents which also relate to the Retained
Assets, the Retained Business or the Retained Liabilities, provided that
it provides Spinco with copies of, and reasonable access to, such materials
after the Distribution Date. Also on the Distribution Date, the Company
shall provide to Spinco lists of trademarks, patents, copyrights and other
intellectual property set forth in clause (iii) of the definition of
"Assets" herein included in the Spinco Assets.
Section 7.2. Access to Information. Subject to the
confidentiality provisions of Section 7.5 hereof, from and after the
Distribution Date (i) Spinco shall afford to the Company and its authorized
accountants, counsel and other designated representatives reasonable access
(including, without limitation, using reasonable efforts to give access to
persons or firms possessing Information (as defined below)) and duplicating
rights during normal business hours to all records, books, contracts,
instruments, computer data and other data and information (collectively,
"Information") within Spinco's possession relating to the Spinco Assets,
the Spinco Business and the Spinco Liabilities, insofar as such
66
access is reasonably required by the Company, and (ii) the Company shall
afford to Spinco and its authorized accountants, counsel and other
designated representatives reasonable access (including, without
limitation, using reasonable efforts to give access to persons or firms
possessing Information) and duplicating rights during normal business hours
to all Information within the Company's possession relating to the
Retained Assets, the Retained Business and the Retained Liabilities,
insofar as such access is reasonably required by Spinco. Information may
be requested under this Article VII for, without limitation, audit,
accounting, claims, litigation and tax purposes, as well as for purposes of
fulfilling disclosure and reporting obligations.
Section 7.3. Production of Witnesses. From and after the
Distribution Date, each party shall use reasonable efforts to make
available to the other party, upon written request, its officers,
directors, employees and agents as witnesses to the extent that any such
person may reasonably be required in connection with any legal,
administrative or other proceedings in which the requesting party may from
time to time be involved.
Section 7.4. Retention of Records. Except as otherwise required
by Law or agreed to in writing, Spinco and the Company shall each retain,
for a period of at least seven years following the Distribution Date, all
significant Information relating to (i) in the case of the Company, the
Spinco Business and (ii) in the case of Spinco, the Retained Business.
Notwithstanding the foregoing, either Spinco or the Company may destroy or
otherwise dispose of any of such Information at any time, provided that,
prior to such destruction or disposal, (a) Spinco or the Company, as the
case may be, shall provide no less than 90 or more than 120 days' prior
written notice to the other party, specifying the Information proposed to
be destroyed or disposed of and (b) if the other party shall request in
writing prior to the scheduled date for such destruction or disposal that
any of the Information proposed to be destroyed or disposed of be delivered
to the other party, Spinco or the Company, as the case may be, shall
promptly arrange for the delivery of such of the Information as was
requested, at the expense of the other party.
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Section 7.5. Confidentiality.
(a) Each party shall hold, and shall cause its officers,
employees, agents, consultants and advisors to hold, in strict confidence,
unless compelled to disclose by judicial or administrative process or, in
the reasonable opinion of its counsel, by other requirements of Law, all
confidential, proprietary or other non-public information or trade secrets
concerning the other party (or such other party's business operations or
the business operations of such other party's Affiliates) which is
furnished it by such other party or its representatives pursuant to either
the Merger Agreement, this Agreement or the Confidentiality Agreement
(collectively, the "Confidential Information"). None of the parties hereto
nor any of their respective Affiliates shall use for their own benefit or
purposes, or release or disclose to any other person or entity, any such
Confidential Information (except, to the extent reasonably required, for
disclosure to those of such party's auditors, attorneys and other
representatives who agree to be bound by the provisions of this Section
7.5). Notwithstanding the foregoing, in the event any party hereto is
requested to disclose any Confidential Information to any third party
pursuant to any judicial or administrative process or, in the reasonable
opinion of its counsel, any other requirements of Law, the party from whom
such disclosure is sought shall (x) notify the other parties hereto as soon
as reasonably practicable of such request for disclosure, (y) disclose only
that portion of the Confidential Information which it reasonably believes,
following the advice of counsel, is necessary in order to comply with such
judicial or administrative process or other requirements of Law, and (z)
cooperate with the other parties hereto in seeking to narrow the scope of
any such third party request for disclosure).
(b) Notwithstanding the foregoing, the term "Confidential
Information" shall not include information (a) which is or becomes
generally available to the public other than as a result of disclosure of
such information by the disclosing party or any of its Affiliates or
representatives, (b) becomes available to the recipient of such information
on a non-confidential basis from a source which is not, to the recipient's
knowledge, bound by a confidentiality or other similar agreement, or by any
other legal, contractual or fiduciary obligation
68
which prohibits disclosure of such information to the other party hereto,
or (c) which can be demonstrated to have been developed independently by
the representatives of such recipient which representatives have not had
any access to any information which would otherwise be deemed to be
"Confidential Information" pursuant to the provisions of this Section 7.5.
ARTICLE VIII
EMPLOYEE MATTERS
----------------
Section 8.1. Officers and Employees. Except as otherwise
specified by Spinco prior to the Offer Purchase Date, the executive
officers of the Company shall be the executive officers of Spinco on and
after the Distribution Date. Effective as of the Distribution Date, (a)
those Retained Employees who are employed by the Company or any of its
subsidiaries immediately prior to the Distribution Date shall become
employees of the Company in the same capacities as then held by such
employees (or in such other capacities as the Company shall determine in
its sole discretion) and (b) those Spinco Employees, together with those
persons whose primary employment is with the Spinco Business, who are
employed by the Company or any of its subsidiaries immediately prior to the
Distribution Date shall become employees of Spinco in the same capacities
as then held by such employees (or in such other capacities as Spinco
shall determine in its sole discretion).
Section 8.2. Employee Benefits.
(a) As soon as practicable after, and in any event within 90
days after, and effective as of, the Distribution Date, Spinco shall
establish a defined benefit pension plan and trust intended to qualify
under Section 401(a) and Section 501(a) of the Code (the "Spinco Pension
Plan"). The Company shall, within 180 days following the Distribution
Date, but in no event prior to the receipt by the Company of written
evidence of the adoption of the Spinco Pension Plan and the trust
thereunder by Spinco and either (A) the receipt by the Company of a copy of
a favorable determination letter issued by the IRS with respect to the
Spinco Pension Plan or (B) an opinion, satisfactory to the Company's
counsel,
69
of Spinco's counsel to the effect that the terms of the Spinco Pension Plan
and its related trust qualify under Section 401(a) and Section 501(a) of
the Code, direct the Trustees of the Loral Corporation Pension Plan and the
Retirement Plan of Loral Aerospace Corp. (the "Company Pension Plans") to
transfer in cash or in kind, as agreed to by the Company and Spinco, from
the trusts under the Company Pension Plans to the trust under the Spinco
Pension Plan, an amount determined by the certified actuary of the Company
Pension Plans (the "Company Actuary") which shall be equal to, with respect
to each such Company Pension Plan, (A) the product of (i) the fair market
value of the assets held under such Company Pension Plan as of the last day
of the month prior to the month in which the transfer occurs (the
"Valuation Date") and (ii) a fraction, the numerator of which is equal to
the present value of all accrued benefits under such Company Pension Plan
as of the Distribution Date in respect of Spinco Employees and the
denominator of which is equal to the present value of all accrued benefits
under such Company Pension Plan less (B) the payments made by such Company
Pension Plan between the Distribution Date and the date of transfer in
respect of Spinco Employees. From the Valuation Date to the date of
transfer, the assets to be transferred will be credited with interest at
the interest rate available on a 30-day treasury note at the auction date
on or immediately preceding the Valuation Date.
The calculation of the present value of such benefits shall be in
accordance with Section 414(1) of the Code and the regulations promulgated
thereunder and in all cases utilizing the assumptions used by the Company
for reporting accrued benefit obligations under FAS No. 87 in its 1995
Annual Report. For purposes of this calculation, the present value of
accrued benefits shall be determined on a termination basis in accordance
with the standards of Section 414(l) of the Code. The determination by the
Company Actuary shall be final and binding, provided, however, that the
Company Actuary shall provide the actuary selected by Spinco with all the
documentation reasonably necessary for Spinco to verify such determination;
provided, further, that if the Spinco actuary certifies, in writing within
60 days of receiving such supporting documentation, that he disagrees with
the Company Actuary then, first the chief financial officers of the Company
and Spinco shall negotiate, in good faith,
70
to resolve such dispute, and if unable to come to an agreement, then the
Company and Spinco shall agree upon and engage an impartial actuary, who
shall be entitled to the privileges and immunities of an arbitrator, to
resolve any disagreement and whose determination as to any such
disagreement (if not contrary to ERISA) shall be conclusive, final and
binding. The parties shall share equally all costs and fees of such
impartial actuary. At the time of transfer of the amount set forth in this
Section 8.2, Spinco and the Spinco Pension Plan shall assume all
liabilities for all accrued benefits under the Company Pension Plans in
respect of Spinco Employees and each of the Company and the Company Pension
Plans shall be relieved of all liabilities for such benefits. As soon as
practicable after, and in any event within 90 days after, and effective as
of, the Distribution Date, Spinco shall cause SSL to establish a trust
intended to qualify under Section 501(a) of the Code ("Spinco SSL Trust")
and intended to hold the assets of the Retirement Plan of SSL (the "SSL
Plan"). The Company shall, within 180 days following the Distribution Date,
but in no event prior to the receipt by the Company of written evidence of
the adoption of the Spinco SSL Trust, direct the Trustees of the Loral
Master Pension Trust (the "Master Trust") to transfer in cash or in kind as
agreed to by SSL and the Company from the Master Trust to the Spinco SSL
Trust, the assets held by the Master Trust under the SSL Plan. Upon the
transfer of assets in accordance with this Section 8.2(a), Spinco agrees to
indemnify and hold harmless the Company, its officers, directors,
employees, agents and affiliates from and against any and all Indemnifiable
Losses arising out of or related to the Spinco Pension Plan and the SSL
Plan, including all benefits accrued by Spinco Employees prior to the
Distribution Date under the Company Pension Plans and the SSL Plan. Spinco
and the Company shall provide each other with such records and information
as may be necessary or appropriate to carry out their obligations under
this Section or for the purposes of administration of the Spinco Pension
Plan and the SSL Plan, and they shall cooperate in the filing of documents
required by the transfer of assets and liabilities described herein.
Notwithstanding anything contained herein to the contrary, no such transfer
shall take place until the 31st day following the filing of all required
Forms 5310-A in connection therewith.
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(b) Individual Account Plan. As soon as practicable after the
Distribution Date, but in no event later than 90 days after the
Distribution Date, Spinco shall establish a defined contribution plan and
trust intended to qualify under Section 401(a) and Section 501(a) of the
Code (the "Spinco Savings Plan"). The Company shall, within 180 days
following the Distribution Date, but in no event prior to the receipt by
the Company of written evidence of the adoption of the Spinco Savings Plan
and the trust thereunder by Spinco and either (A) the receipt by the
Company of a copy of a favorable determination letter issued by the IRS
with respect to the Spinco Savings Plan or (B) an opinion, satisfactory to
the Company's counsel, of Spinco's counsel to the effect that the terms of
the Spinco Savings Plan and its related trust qualify under Section 401(a)
and Section 501(a) of the Code, direct the trustee of the Loral Master
Savings Plan and the Loral Aerospace Savings Plan (the "Company Savings
Plans") to transfer to the trustee of the Spinco Savings Plan the account
balances under the Company Savings Plans as of the date of transfer in
respect of Spinco Employees in cash or in kind, as agreed to by the Company
and Spinco; provided, however, all outstanding loans shall be transferred
in kind. Upon such transfer, the Spinco Savings Plan shall assume all
liabilities for all accrued benefits under the Company Savings Plans in
respect of Spinco Employees that are transferred to the Spinco Savings Plan
and the Company Savings Plans shall be relieved of all liabilities for such
accrued benefits. The Company and Spinco shall cooperate in the filing of
documents required by the transfer of assets and liabilities described
herein. Notwithstanding anything contained herein to the contrary, no such
transfer shall take place until the 31st day following the filing of all
required Forms 5310-A in connection therewith. Upon the transfer of assets
in accordance with this section 8.2(b), Spinco agrees to indemnify and hold
harmless the Company, its officers, directors, employees, agents and
affiliates from and against any and all Indemnifiable Losses arising out of
or relating to the Spinco Savings Plan, including all benefits accrued by
Spinco Employees prior to the Distribution Date.
(c) Welfare Benefit Plans. As of the Distribution Date, Spinco
Employees shall cease to participate in the employee welfare benefit plans
(as such term
72
in defined in ERISA) maintained or sponsored by the Company (the "Prior
Welfare Plans") and shall commence to participate in welfare benefit plans
of Spinco (the "Replacement Welfare Plans") which Replacement Welfare Plans
shall, in the case of any such plan that is subject to the requirements of
Section 4980B of the Code, provide for substantially identical benefits on
substantially identical terms and conditions that were provided by Prior
Welfare Plans immediately prior to the Distribution Date. Spinco will, (i)
waive all limitations as to pre-existing condition exclusions and waiting
periods with respect to participation and coverage requirements applicable
to Spinco Employees under the Replacement Welfare Plans, other than
limitations or waiting periods that were in effect with respect to such
employees under the Prior Welfare Plans and that have not been satisfied as
of the Distribution Date, and (ii) provide each Spinco Employee with credit
for any co-payments and deductibles paid prior to the Distribution Date in
satisfying any deductible or out-of-pocket requirements under the
Replacement Welfare Plans. After the Distribution Date, Spinco shall be
responsible for any claims by Spinco Employees for benefits relating to
claims incurred but not reported prior to the Distribution Date. The
Company shall use its best efforts to ensure that, except as provided
otherwise in the Merger Agreement or Distribution Agreement, the
consummation of the transactions contemplated by this Distribution
Agreement shall not entitle any employee to severance benefits under any
severance plan or arrangement of the Company or any of its Subsidiaries.
(d) Collective Bargaining Agreements. As of the Distribution
Date, with respect to those collective bargaining agreements to which the
Company or any of its Affiliates is a party and which cover Spinco
Employees, Spinco shall assume all liabilities and obligations of the
Company and each of its Affiliates thereunder, but only to the extent that
such liabilities and obligations relate to any Spinco Employees.
(e) Certain Liabilities. Spinco hereby agrees to indemnify the
Company and its Affiliates against, and agrees to hold them harmless from
any and all Indemnifiable Losses incurred or suffered as a result of any
claim by any Spinco Employee which arises under federal, state or local
statute (including, without
73
limitation, Title VII of the Civil Rights Act of 1964, the Civil Rights Act
of 1991, the Age Discrimination in Employment Act of 1990, the Equal Pay
Act, the Americans with Disabilities Act of 1990, the Employee Retirement
Income Security Act of 1974 and all other statutes regulating the terms and
conditions of employment), regulation or ordinance, under the common law or
in equity (including any claims for wrongful discharge or otherwise), or
under any policy, agreement, understanding or promise, written or oral,
formal or informal, between the Company and the Spinco Employee, whether
arising out of actions, events or omissions that occurred (or, in the case
of omissions, failed to occur) prior to, or after, the Distribution Date.
The Company hereby agrees to indemnify Spinco and its Affiliates against,
and agrees to hold it harmless from any and all Indemnifiable Losses
incurred or suffered as a result of any claim by any Retained Employee
which arises under federal, state or local statute (including, without
limitation, Title VII of the Civil Rights Act of 1964, the Civil Rights Act
of 1991, the Age Discrimination in Employment Act of 1990, the Equal Pay
Act, the Americans with Disabilities Act of 1990, the Employee Retirement
Income Security Act of 1974 and all other statutes regulating the terms and
conditions of employment), regulation or ordinance, under the common law or
in equity (including any claims for wrongful discharge or otherwise), or
under any policy, agreement, understanding or promise, written or oral,
formal or informal, between the Company and the Retained Employee, whether
arising out of actions, events or omissions that occurred (or, in the case
of omissions, failed to occur) prior to, or after, the Distribution Date.
The indemnification provided for in this Section 8.2 shall be subject to
the terms and conditions of the indemnification provisions of Article V
hereof.
(f) As of the Distribution Date, with respect to any employee
liabilities or obligations arising under the Company's (i) split dollar
life insurance arrangements with certain executives, (ii) the Loral
Supplemental Executive Retirement Plan (the "SERP"), and (iii) retiree
welfare plans (including retiree medical plans), (all such liabilities in
(i), (ii) and (iii), "Enumerated Liabilities"):
(A) On or prior to the Distribution Date, the Company
shall establish one or
74
more grantor rabbi trusts (the "SERP Trust") of which the
participants in the SERP shall be the beneficiaries and
shall contribute to such trust an amount equal to the
present value of all accrued benefits under the SERP as of
the Distribution Date (the parties hereto acknowledge that
such amount shall not exceed $11 million).
(B) The Company shall retain and be solely responsible
for all liabilities and obligations whatsoever of both the
Retained Business and the Spinco Business for all
Enumerated Liabilities with respect to Retained Employees
and shall retain any assets relating to such liabilities.
(C) Spinco shall assume and be solely responsible for
all liabilities and obligations whatsoever of both the
Retained Business and the Spinco Business for all Enumerated
Liabilities with respect to Spinco Employees and the Company
shall transfer, or allocate, as applicable, to Spinco as
soon as practicable following the Distribution Date any
assets relating to such liabilities. The assets held in the
SERP Trust shall be allocated, to the extent practicable, in
accordance with the principles set forth in Section 8.2(a).
Section 8.3. Other Liabilities and Obligations. As of the
Distribution Date, with respect to claims relating to any employee
liability or obligation not otherwise provided for in this Agreement or
the Merger Agreement, including, without limitation, accrued holiday,
vacation and sick day benefits, (a) the Company shall assume and be solely
responsible for all liabilities and obligations whatsoever of both the
Retained Business and the Spinco Business for all such claims made by
Retained Employees and (b) Spinco shall assume and be solely responsible
for all liabilities and obligations whatsoever of both the Retained
Business and the Spinco Business for all such claims made by all Spinco
Employees. Notwithstanding the foregoing, wages and salary accrued prior
to the Distribution Date in respect of
75
Spinco New York Employees and deferred directors' fees shall be the sole
responsibility of the Retained Business.
Section 8.4. Preservation of Rights to Amend or Terminate Plans.
No provision of this Agreement, shall be construed as a limitation on the
right of the Company or Spinco to amend any plan or terminate its
participation therein which the Company or Spinco would otherwise have
under the terms of such plan or otherwise, and no provision of this
Agreement shall be construed to create a right in any employee or
beneficiary of such employee under a plan that such employee or beneficiary
would not otherwise have under the terms of such plan itself.
Section 8.5. Reimbursement; Indemnification. Spinco and the
Company acknowledge that the Company, on the one hand, and Spinco, on the
other hand, may incur costs and expenses (including, without limitation,
contributions to plans and the payment of insurance premiums) pursuant to
any of the employee benefit or compensation plans, programs or arrangements
which are, as set forth in this Agreement, the responsibility of the other
party. Accordingly, the Company and Spinco agree to reimburse each other,
as soon as practicable but in any event within 30 days of receipt from the
other party of appropriate verification, for all such costs and expenses
reduced by the amount of any tax reduction or recovery of tax benefit
realized by the Company or Spinco, as the case may be, in respect of the
corresponding payment made by it. All Liabilities retained, assumed or
indemnified by Spinco pursuant to this Article VIII shall in each case be
deemed to be Spinco Liabilities, and all Liabilities retained, assumed or
indemnified by the Company pursuant to this Article VIII shall in each case
be deemed to be Retained Liabilities, and, in each case, shall be subject
to the indemnification provisions set forth in Article V hereof.
Section 8.6 Actions By Spinco. Any action required to be
taken under this Article VIII may be taken by a Subsidiary of Spinco, the
Spinco Companies, or a Subsidiary of the Spinco Companies.
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ARTICLE IX
INSURANCE
---------
Section 9.1. General. Except as otherwise agreed in writing between
the parties, the Company shall maintain until the Distribution Date all policies
of liability, fire, extended coverage, fidelity, fiduciary, workers'
compensation and other forms of insurance in effect as of the date hereof
insuring the products, properties, Assets and operations contemplated to be
transferred to Spinco and each of the Spinco Companies.
Section 9.2. Certain Insured Claims. The Company shall (a) use
reasonable efforts, upon Spinco's written request and at Spinco's sole expense,
to continue to maintain and renew for the benefit of Spinco and each of the
Spinco Companies the insurance policies under the Casualty Program with respect
to claims having an occurrence date (as the term "occurrence date" is
customarily defined) prior to the Distribution Date, relating to, or arising out
of the conduct of, the Spinco Business, the Spinco Assets or the Spinco
Liabilities, and (b) use reasonable efforts and cooperate with Spinco, upon
Spinco's written request and at Spinco's sole expense, to obtain coverage,
recoveries and other benefits under such policies for the benefit of Spinco and
each of the Spinco Companies, including, without limitation, by filing and
pursuing claims with respect to obtaining such coverage, recoveries and other
benefits; provided that in no event shall the Company be obligated to litigate
or pursue any other extra-contractual remedies against any insurer; provided
further that all claims pursuant to this Section 9.2 shall be submitted,
investigated, processed and paid in accordance with the claims handling
procedures used by the Company and its Affiliates from time to time with respect
to other like claims. The Company will reimburse Spinco and each of the Spinco
Companies for any recovery obtained by it pursuant to such claims. The Company
shall make available to Spinco such of its employees as Spinco may reasonably
request as witnesses or deponents in connection with Spinco's pursuit of claims.
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ARTICLE X
CONDITIONS; TERMINATION;
AMENDMENTS; WAIVERS
------------------------
Section 10.1. Condition to Restructuring and Distribution.
(a) The obligations of each of the Company, Holdings, Aerospace
LGP, LG, Cayman and Spinco to effect the Restructuring and the Distribution
(other than those obligations which are normally expected to precede the
Restructuring or the Distribution) shall be subject to the satisfaction of the
following conditions: (i) the Purchaser shall have notified the Company that it
is prepared to immediately accept for payment shares of Company Common Stock
pursuant to the terms and conditions of the Offer as set forth in the Merger
Agreement, (ii) the Record Date shall have been set by the Company's Board of
Directors, (iii) the Form 10 (or the registration statement referred to in
Section 3.1(a) hereof) shall have been declared effective by the SEC, (iv) the
Spinco Common Stock shall have been accepted for listing or quotation in
accordance with Section 3.1(e) hereof, (v) no Court Order or Law shall have been
enacted, promulgated, issued or entered against any of the parties hereto which
(x) prohibits or materially restricts consummation of any of the transactions
contemplated by this Agreement and (y) remains in effect as of the date on which
the satisfaction of this condition is determined, (vi) the Company and the
Retained Subsidiaries (other than Spinco and the Spinco Companies) shall have
obtained all consents required to be obtained by the Company as a result of or
in connection with the transactions contemplated by this Agreement in order to
avoid a material Default under any material Contract to or by which the Company,
Spinco or any of their respective Subsidiaries is a party or may be bound, or
otherwise necessary to permit the Company and each of the Retained Subsidiaries
to conduct their business in a manner consistent with its past practices, (vii)
all consents and approvals of, and notices to and filings with, any Governmental
Entity or any other person or entity arising out of or relating to the
consummation of the transactions contemplated by this Agreement, shall have been
obtained or made (as the case may be), (viii) the Globalstar Bank Guarantee
shall have been amended pursuant to Section 2.5 hereof so that the provisions
78
thereof shall, following the Restructuring, be amended in the manner
contemplated by Section 2.5 hereof (with such changes thereto as Parent and the
Company may approve prior to the Offer Purchase Date), and (ix) the Lehman
Partnerships and all other holders of the Lehman Preferred Stock (if any) shall
have exchanged all issued and outstanding shares of Lehman Preferred Stock for
shares of capital stock or other equity securities of either Spinco, any Spinco
Company or any Subsidiary of Spinco pursuant to Section 2.7 hereof.
(b) The parties hereto acknowledge and agree that (x) Parent may
waive, on behalf of all parties hereto, the conditions set forth in clauses
(viii) and (ix) of Section 10.1(a) above, (y) Parent may waive, on behalf of all
parties hereto, the condition set forth in clauses (v), (vi) and (vii) of
Section 10.1(a) above so long as (1) Parent reasonably believes that
consummation of the Distribution at such time will have no material adverse
effect on Spinco or the Spinco Business and (2) Parent agrees to indemnify
Spinco pursuant to the provisions of Article V hereof with respect to any
Indemnifiable Losses which result from any material adverse effect on Spinco or
the Spinco Business which results directly from such waiver, and (z) the Company
may not waive any of the conditions set forth in Sections 10.1(a)(i) through
10.1(a)(ix) above without first obtaining the prior written consent of Parent
(which may not be unreasonably withheld). In the event that all of the
Distribution Conditions have been satisfied (or waived, to the extent expressly
permitted by the provisions of the preceding sentence), the Company, Holdings,
Aerospace and Spinco shall consummate the Restructuring and the Distribution,
and all other transactions related thereto, on the date on the date on which
such Distribution Conditions have been so satisfied or waived (or as soon as
practicable following such date in the event that such parties are unable to
consummate the Restructuring and the Distribution, and all other transactions
related thereto, on such date). The respective obligations of each party hereto
to perform those of its obligations which are to be performed following
consummation of the Restructuring and the Distribution, shall be conditioned on
the consummation of the Restructuring and the Distribution in accordance with
the provisions of this Agreement.
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Section 10.2. Termination. This Agreement (i) may be terminated and
the Distribution abandoned at any time prior to the Offer Purchase Date by the
mutual written agreement of each of the parties hereto or (ii) shall be
terminated automatically and the Distribution abandoned upon any termination of
the Merger Agreement in accordance with the terms and conditions thereof. In the
event that this Agreement shall be terminated pursuant to this Section 10.2, all
obligations of the parties hereto under this Agreement shall terminate without
further liability or obligation of any party hereto to the other parties hereto
under this Agreement or otherwise, except (i) for any breach by such party of
the terms and provisions of this Agreement prior to the date of such termination
and (ii) as stated in Section 11.3 hereof.
Section 10.3. Amendments; Waivers. This Agreement may be amended,
modified or supplemented only by written agreement of each of the parties
hereto. Any term or provision of this Agreement may be waived at any time by the
party entitled to the benefit thereof by a written instrument executed by such
party. Except as provided in the preceding sentence, no action taken pursuant to
this Agreement, including, without limitation, any investigation by or on behalf
of any party, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representations, warranties, covenants, agreements
or conditions contained herein. The waiver by any party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any preceding or succeeding breach and no failure by any party to exercise any
right or privilege hereunder shall be deemed a waiver of such party's rights or
privileges hereunder or shall be deemed a waiver of such party's rights to
exercise the same at any subsequent time or times hereunder.
ARTICLE XI
MISCELLANEOUS
-------------
Section 11.1. Survival of Indemnities; Release. The representations
and warranties made in Section 6.1 of this Agreement shall survive for a period
of three years from the Distribution Date, but shall not survive any termination
of this Agreement; provided that
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claims with respect to breaches of covenants and agreements set forth in this
Agreement shall survive for the applicable statute of limitations period. Except
as otherwise expressly provided in this Agreement (including, without
limitation, the indemnification provisions of Article V hereof), each of the
parties (a) agrees that no claims or causes of action may be brought against the
Company, Holdings, Aerospace, Spinco, Parent or the Purchaser or any of their
Affiliates, agents or representatives based upon, directly or indirectly, any of
the representations and warranties contained in this Agreement after three years
following the Distribution Date (other than causes of actions commenced after
such three-year period to seek recourse for claims asserted during such three-
year period that are not resolved by the parties), and (b) hereby waives and
releases all other claims and causes of action, that may be asserted or brought
against the Company, Holdings, Aerospace, Spinco, Parent or the Purchaser or any
of their Affiliates, agents or representatives directly or indirectly based upon
or arising under this Agreement or the Merger Agreement, or the transactions
contemplated hereby or thereby. Notwithstanding the foregoing, this Section 11.1
shall not limit any covenant or agreement of the parties in this Agreement, the
Merger Agreement, the Tax Sharing Agreement or the Stockholders Agreement which
contemplates performance after the Distribution Date (including, without
limitation, the covenants and agreements set forth in Sections 2.1(b) and 6.2
hereof), except for the covenants and agreements in the Merger Agreement to the
extent of their performance prior to the Distribution Date.
Section 11.2. Entire Agreement. This Agreement (including the
schedules and exhibits and the agreements and other documents referred to
herein, including, without limitation, the Merger Agreement, the Tax Sharing
Agreement and the Stockholders Agreement) 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 (including, without limitation, the provisions of the Confidentiality
Agreement).
81
Section 11.3. Fees and Expenses. Except as otherwise provided in this
Agreement, the Merger Agreement, the Tax Sharing Agreement or the Stockholders
Agreement, and subject to the proviso below, all costs and expenses incurred by
the Company and each of the Retained Subsidiaries and by Spinco in connection
with (x) the preparation, execution and delivery of this Agreement, the Merger
Agreement, the Tax Sharing Agreement and the Stockholders Agreement and (y)
consummating such party's obligations hereunder and thereunder (including,
without limitation, investment banking, legal, accounting, audit and printing
costs and expenses), shall be paid by the Company, upon the submission to the
Company of appropriate documentation detailing such costs and expenses);
provided that the investment banking costs and expenses incurred by the Company
(including any legal or other costs and expenses but excluding any
indemnification-related costs and expenses) incurred by the Company relating to
the provision of such investment banking services) in connection with the
transactions contemplated by this Agreement and the Merger Agreement which
exceed $12,000,000 (such excess amount of such investment banking costs and
expenses, the "Spinco Excess Costs"), shall not be considered to be expenses of
the Company, but shall be deemed to be Spinco Liabilities and shall be paid by
Spinco on or promptly after the Distribution Date.
Section 11.4. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF
NEW YORK, WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES THEREOF.
Section 11.5. 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):
82
(a) If to the Company, or Aerospace, to:
Loral Corporation
600 Third Avenue
New York, NY 10016
Telephone: (212) 697-1105
Telecopy No.: (212) 602-9805
Attention: General Counsel
with a copy to:
Lockheed Martin Corporation
6801 Rockledge Drive
Bethedsa, MD 20817
Telephone: (301) 897-6125
Telecopy No.: (301) 897-6333
Attention: General Counsel
and to:
Skadden, Arps, Slate, Meagher
& Flom
919 Third Avenue
New York, New York 10022
Telephone: (212) 735-3000
Telecopy No.: (212) 735-2000
Attention: Peter Allan Atkins, Esq.
Lou R. Kling, Esq.
and to:
O'Melveny & Myers
153 E. 53rd Street
New York, New York 10022
Telephone: (212) 326-2000
Telecopy No.: (212) 326-2160
Attention: C. Douglas Kranwinkle, Esq.
Jeffrey J. Rosen, Esq.
(b) If to Spinco, to:
Loral Space & Communications Corporation
600 Third Avenue
New York, New York 10016
Telephone: (212) 697-1105
Telecopy No.: (212) 602-9805
Attention: General Counsel
83
with a copy to:
Willkie Farr & Gallagher
153 E. 53rd Street
New York, New York 10022
Telephone: (212) 821-8000
Telecopy No.: (212) 821-8111
Attention: Robert B. Hodes, Esq.
Bruce R. Kraus, Esq.
Section 11.6. 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 any party
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties hereto (which consent may not be unreasonably
withheld), except that any party shall have the right, without the consent
of any other party hereto, to assign all or a portion of its rights,
interests and obligations hereunder to one or more direct or indirect
subsidiaries, but no such assignment of obligation shall relieve the
assigning party from its responsibility therefor. Notwithstanding the
foregoing, Spinco shall be permitted to assign its rights and obligations
under this Agreement to one of its Affiliates (the "Spinco Transferee")
prior to the Record Date so long as (x) such assignment shall not relieve
Spinco from its joint responsibility therefor and (y) such assignment does
not adversely affect any of the rights, benefits or obligations of Parent
or any of the Parent Indemnified Parties under this Agreement or the Merger
Agreement; provided that in the event of any such assignment to the Spinco
Transferee, all references to Spinco shall be automatically deemed to be
references to Spinco. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and, except for the provisions
of Sections 8.1 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;
provided, however, that the Indemnified Parties are intended to be third
party beneficiaries of the provisions of Article V hereof, and shall have
the right to enforce such provisions as if they were parties hereto.
84
Section 11.7. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
Section 11.8. 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.
Section 11.9. 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 11.10. 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 11.11. Consent to Jurisdiction. Each of the parties
hereto irrevocably and unconditionally (a) agrees that all suits, actions
or other legal proceedings arising out of this Agreement or any of the
transactions contemplated hereby (a "Suit") shall be brought and
adjudicated solely in the United States District Court for the Southern
District of New York, or, if such court will not accept jurisdiction, in
any court of competent civil jurisdiction sitting in New York City, New
York, (b) submits to the non-exclusive jurisdiction of any such court for
the purpose of any such Suit and (c) waives and agrees not to assert by way
of motion, as a defense or otherwise in any such Suit, any claims that it
is not subject to the jurisdiction of the above courts, that such Suit is
brought in an inconvenient forum or that the venue of such Suit is
improper. Each of the parties hereto also irrevocably and unconditionally
consents to the service of any process, summons, pleadings, notices or
other papers in a manner permitted by the notice
85
provisions of Section 11.5 hereof and agrees that any such form of service
shall be effective in connection with any such Suit; provided that nothing
contained in this Section 11.11 shall affect the right of any party to
serve process, pleadings, notices or other papers in any other manner
permitted by applicable Law.
Section 11.12. 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 court referred to in Section 11.11 hereof.
86
IN WITNESS WHEREOF, each of the parties has caused this
Restructuring, Financing and Distribution Agreement to be executed on its
behalf by its officers thereunto duly authorized, all as of the day and
year first above written.
LORAL CORPORATION
/s/ MICHAEL B. TARGOFF
By:_____________________________
Name:
Title:
LORAL AEROSPACE HOLDINGS,
INC.
/s/ MICHAEL B. TARGOFF
By:______________________________
Name:
Title:
LORAL AEROSPACE CORP.
/s/ MICHAEL B. TARGOFF
By:______________________________
Name:
Title:
LORAL TELECOMMUNICATIONS
ACQUISITION, INC.
/s/ MICHAEL B. TARGOFF
By:______________________________
Name:
Title:
LOCKHEED MARTIN CORPORATION
/s/ MARCUS C. BENNETT
By:______________________________
Name:
Title:
LORAL GLOBALSTAR LIMITED
/s/ MICHAEL B. TARGOFF
By:______________________________
Name:
Title:
LORAL GENERAL PARTNER, INC.
/s/ MICHAEL B. TARGOFF
By:______________________________
Name:
Title:
LORAL GLOBALSTAR, L.P.
/s/ MICHAEL B. TARGOFF
By:______________________________
Name:
Title:
Exhibit A
---------
STOCKHOLDERS AGREEMENT
dated as of _________, 1996
by and among
LORAL CORPORATION,
and
LORAL SPACE & COMMUNICATIONS CORPORATION
STOCKHOLDERS AGREEMENT
----------------------
STOCKHOLDERS AGREEMENT, dated as of ________, 1996 (the "Agreement"),
by and among Loral Corporation, a New York corporation ("Loral"), and Loral
Space & Communications Corporation, a __________ corporation (the "Company").
Loral and those of its Affiliates who are transferees with respect to any of the
Equity Securities (as defined below), are sometimes collectively referred to
herein as the "Stockholders".
RECITALS:
--------
WHEREAS, the Company, Lockheed Martin Corporation, a Maryland
corporation ("LMC"), Loral and certain subsidiaries of Loral entered into a
Restructuring, Financing and Distribution Agreement, dated as of January 7, 1996
(the "Restructuring Agreement"; all capitalized terms used in this Agreement but
not otherwise defined herein, shall have the respective meanings assigned to
such terms in the Restructuring Agreement), pursuant to which, after giving
effect to the Restructuring and the Distribution, Loral acquired _______ shares
of Series A Non-Voting Convertible Preferred Stock, par value $0.01 per share,
of the Company (the "Preferred Stock"); and
WHEREAS, the Company and Loral desire to establish in this Agreement
certain conditions with respect to the relationship between the Stockholders and
the Company;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and in the Restructuring Agreement, the parties
hereto agree as follows:
ARTICLE I
STANDSTILL AND VOTING PROVISIONS
Section 1.1. Restrictions on Certain Actions by the Stockholders.
(a) During the Term (as defined in Article V below), each Stockholder will not,
and will cause each of its Affiliates (such term, as used in this Agreement, as
defined in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act) not to, singly or as part of a partnership, limited partnership, syndicate
or other group (as those terms are used in Section 13(d)(3) of the Exchange
Act), directly or indirectly:
(i) acquire, offer to acquire, or agree to acquire, by purchase,
gift or otherwise, any Equity Securities (as defined below in Section
1.1(c)), except pursuant to a stock split, stock dividend, rights offering,
recapitalization, reclassification, merger, consolidation, corporate
reorganization or similar transaction; provided that at any time in which
the Stockholders hold, in the aggregate, less than twenty percent (20%) of
the Total Voting Power, then the Stockholders may acquire Equity Securities
so that the Stockholders hold, in the aggregate, up to twenty percent (20%)
of the Total Voting Power;
(ii) make, or in any way actively participate in, any
"solicitation" of "proxies" to vote (as such terms are defined in Rule 14a-
1 under the Exchange Act), solicit any consent or communicate with or seek
to advise or influence any third party with respect to the voting of any
Equity Securities or become a "participant" in any "election contest" (as
such terms are defined or used in Rule 14a-11 under the Exchange Act), in
each case with respect to the Company;
(iii) form, join or encourage the formation of, any "person"
within the meaning of Section 13(d)(3) of the Exchange Act with respect to
any Equity Securities; provided that this Section 1.1(a)(iii) shall not
prohibit any such arrangement solely among the Stockholders and any of
their respective Affiliates;
2
(iv) deposit any Equity Securities into a voting trust or
subject any such Equity Securities to any arrangement or agreement with
respect to the voting thereof; provided that this Section 1.1(a)(iv) shall
not prohibit any such arrangement solely among the Stockholders and any of
their respective Affiliates;
(v) initiate, propose or otherwise solicit stockholders for the
approval of one or more stockholder proposals with respect to the Company
as described in Rule 14a-8 under the Exchange Act, or induce or attempt to
induce any other third party to initiate any stockholder proposal;
(vi) except as otherwise contemplated or permitted by this
Agreement (including, without limitation, pursuant to Section 1.2 hereof),
seek to place a representative on the Board of Directors of the Company or
seek the removal of any member of the Board of Directors of the Company,
except with the approval of the Board of Directors or management of the
Company;
(vii) except with the approval of the Board of Directors or
management of the Company, call or seek to have called any meeting of the
stockholders of the Company;
(viii) except through its representatives on the Board of
Directors (or any committee thereof) of the Company (if any) and except as
otherwise contemplated by this Agreement or the Restructuring Agreement
(including the agreements and other documents referred to therein,
including, without limitation, the Tax Sharing Agreement), otherwise act to
seek to control the management or policies of the Company, except with the
approval of the Board of Directors or management of the Company;
(ix) sell or otherwise transfer in any manner any Equity
Securities to any "person" (within the meaning of Section 13(d)(3) of the
Exchange Act) who, immediately following such sale or transfer, would, to
the best of the Stockholder's knowledge, own more than four percent (4%) of
any class of Equity Securities or who, without the approval of
3
the Board of Directors of the Company, (A) has publicly proposed a business
combination or similar transaction with, or a change of control of, the
Company or who has publicly proposed a tender offer for Equity Securities
or (B) who has discussed with Loral or any of its respective Affiliates the
possibility of proposing a business combination or similar transaction
with, or a change in control of, the Company;
(x) sell or otherwise transfer in any manner to any person (as
defined in clause (ix) above) in any single transaction or series of
related transactions more than 2% of the outstanding Equity Securities;
(xi) solicit, seek to effect, negotiate with or provide any
information to any other party with respect to, or make any statement or
proposal, whether written or oral, to the Board of Directors of the Company
or any director or officer of the Company or otherwise make any public
announcement or proposal whatsoever with respect to, any form of business
combination transaction involving the Company, including, without
limitation, a merger, exchange offer or liquidation of the Company's
assets, or any corporate reorganization or similar transaction with respect
to the Company, except in each case with the approval of the Board of
Directors or management of the Company; or
(xii) instigate or encourage any third party to do any of the
foregoing.
Notwithstanding clauses (ix) and (x) above, the Stockholders may
effect any transaction contemplated by Article III hereof.
(b) Notwithstanding the provisions of this Section 1.1, nothing
herein shall apply with respect to any Equity Securities acquired from any
person other than a Stockholder (x) held by any pension, retirement or other
benefit plan managed by any Stockholder or any of its subsidiaries or other
Affiliates or (y) held in any account managed for the benefit of another person,
by any subsidiary or other Affiliate of any of the Stockholders which is engaged
in the financial services business. In
4
addition, notwithstanding the provisions of this Section 1.1, nothing herein
shall prohibit or restrict any transfer of Equity Securities to or among any of
the subsidiaries or other Affiliates of any of the Stockholders (provided that
such subsidiary or Affiliate agrees to be bound to the provisions of this
Agreement, upon which such subsidiary or Affiliate shall be entitled to all
rights and benefits, and shall be subject to all obligations, of a Stockholder
under this Agreement).
(c) For the purposes of this Agreement, (i) the term "Equity
Securities" shall mean the Preferred Stock and any securities entitled to vote
generally in the election of directors of the Company, or any direct or indirect
rights or options to acquire any such securities or any securities convertible
or exercisable into or exchangeable for such securities (provided that, in the
event that the Guaranty Warrants (as defined below) become warrants to acquire
Equity Securities, such Guaranty Warrants and any securities issued pursuant to
the exercise of such Guaranty Warrants, shall not (so long, in each case, as
they are held by the Stockholder) constitute Equity Securities for purposes of
determining the appropriate number of shares of Common Equity Securities which
Loral is entitled to acquire hereunder, including in connection with the
determination of the Target Percentage pursuant to Section 1.4(a) hereof), (ii)
the term "Voting Power" shall mean the voting power in the general election of
directors of the Company, (iii) the term "Total Voting Power" shall mean the
total combined Voting Power of all the Equity Securities then outstanding,
including, without limitation, the Preferred Stock, and, insofar as the
Preferred Stock is concerned, it is deemed to have Voting Power equal to that of
the Common Stock into which it is convertible, (iv) the term "Change of Control"
shall mean the occurrence of any of the following events: (A) any "person" or
"group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act)
is or becomes the beneficial owner of Equity Securities which represent at least
forty percent (40%) of the Total Voting Power, or (B) during any one-year
period, individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by such
Board of Directors or whose nomination for election by the shareholders of the
Company was approved by a vote of a majority of the directors of the Company
then still in office who were
5
either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office, (v) the term
"beneficial owner", and terms having similar import, shall mean any direct or
indirect "beneficial owner", as such term is defined in Rules 13d-3 and 13d-5
under the Exchange Act, and (vi) the term "Guaranty Warrants" shall mean those
warrants which accrue to the benefit of the Company in connection with the
Globalstar Bank Guarantee, as described in the Globalstar Warrant Memorandum.
Section 1.2. HSR Clearance.
(a) At any time after the date hereof (but subject to the provisions
of Section 1.2(b) below), following a written request by Loral to the Company
(such request, the "HSR Notice"), the Company and the Stockholders will (i) take
promptly all actions necessary to make the filings required of the Stockholders,
the Company or any of their respective Affiliates under the HSR Act (as defined
in the Merger Agreement) with respect to the right to convert Preferred Stock
and continue to own the securities so received, the ownership and voting of
Equity Securities by the Stockholders, any of the transactions contemplated by
this Agreement or any other similar matters (all such exercise, ownership,
voting, transaction and other similar matters, the "Filing Matters"), (ii)
comply at the earliest practicable date with any request for additional
information or documentary material received by the Company or the Stockholders
or any of their Affiliates from any of the Federal Trade Commission, the
Antitrust Division of the Department of Justice, state attorneys general, the
Commission, or other governmental or regulatory authorities (all such
authorities, the "Antitrust Authorities"), and (iii) cooperate with each other
in connection with any of the filings referred to in clause (i) above and in
connection with resolving any investigation or other inquiry commenced by any of
the Antitrust Authorities. To the extent reasonably requested by Loral, the
Company shall use all reasonable efforts to resolve such objections, if any, as
may be asserted with respect to the Filing Matters. If any administrative,
judicial or legislative action or proceeding is instituted (or threatened to be
instituted)
6
challenging any aspect of the Filing Matters as violative of any Antitrust Law,
each of the Stockholders and the Company shall cooperate with each other to
contest and resist any such action or proceeding, and to have vacated, lifted,
reversed or overturned any decree, judgment, injunction or other order (whether
temporary, preliminary or permanent) that is in effect and that restricts,
prevents or prohibits the exercise by the Stockholders of the right to convert
Preferred Stock and continue to own the securities so received, or the exercise
by Loral of its rights with respect to the ownership and voting of Equity
Securities or any of the transactions contemplated by this Agreement (any such
decree, judgment, injunction or other order is hereafter referred to as an
"Order"), including, without limitation, by pursuing all reasonable avenues of
administrative and judicial appeal, provided that nothing contained in this
Section 1.2(a) shall be construed to require any party hereto to hold separate
or divest any of their respective assets or businesses or agree to any
substantive restriction thereon or on the conduct thereof. Each of the Company
and Loral shall promptly inform the other party of any material communication
received by such party from any Antitrust Authority regarding any of the Filing
Matters or any of the other transactions contemplated hereby. For the purposes
of this Agreement, the term "HSR Clearance Date" shall mean the first date on
which (x) any applicable waiting period under the HSR Act with respect to the
Filing Matters shall have expired or been terminated, (y) there shall not be
pending any Action commenced by any Antitrust Authority relating to any of the
Filing Matters or any of the other transactions contemplated hereby, and (z)
there shall not be in effect any Order.
(b) Notwithstanding the provisions of Section 1.2(a) above, in the
event that Loral delivers the HSR Notice to the Company, the Company shall be
entitled to postpone for a reasonable period of time (but in no event later than
45 days), any filing referred to in Section 1.2(a)(i) above if the Company
determines in its reasonable judgment and in good faith that such filing would
delay the obtaining of any approval from an Antitrust Authority with respect to
any announced or imminent material acquisition or disposition which would
require a filing by the Company under the HSR Act. In the event of such
postponement, Loral shall have the right to withdraw
7
its HSR Notice and may deliver any such HSR Notice at any time thereafter.
Section 1.3. Voting.
(a) General Voting Provisions. Subject to the provisions of Section
1.3(b) below, prior to the HSR Clearance Date, no Stockholder shall have the
right to convert Preferred Stock into common stock or the right to vote any
Equity Securities with respect to the election of directors of the Company or on
any other matters submitted to a vote of the stockholders of the Company (other
than those matters set forth in Section 1.3(b) below). Following the HSR
Clearance Date, each Stockholder shall have the right to vote its Equity
Securities to the extent permitted by the terms thereof on any matters submitted
to a vote of the stockholders of the Company (including, without limitation,
those matters set forth in Section 1.3(b) below); provided that following the
HSR Clearance Date any Stockholder shall have the right to vote any Equity
Securities to the extent permitted by the terms thereof with respect to the
election of directors of the Company only (i) as recommended by the Board of
Directors or management of the Company or (ii) in the same proportions as the
holders of Equity Securities (other than Stockholders) vote their Securities.
On each matter with respect to which a Stockholder is entitled to vote pursuant
to this Section 1.3, each such Stockholder shall be present, in person or
represented by proxy, at all such stockholder meetings of the Company so that
all Equity Securities beneficially owned by it shall be counted for the purpose
of determining the presence of a quorum at such meetings. For purposes of this
Section 1.3, all references to the term "vote" shall include the execution and
delivery of any written consent with respect to the taking of any stockholder
action in lieu of a meeting of stockholders.
(b) Exceptions to General Voting Provisions. Notwithstanding anything
to the contrary contained in this Agreement, each Stockholder shall have the
right to vote freely, in any manner in which they determine, with respect to any
of the following matters:
(i) any amendment to or modification or repeal of any provision
of the Company's Certificate of Incorporation including any of the
provisions of
8
any certificate of designation or By-laws (or similar organizational
documents);
(ii) any merger, consolidation, corporate reorganization or
similar transaction involving the Company;
(iii) any sale, lease, exchange, transfer or other disposition,
directly or indirectly, in a single transaction or series of related
transactions, of all or substantially all of the assets of the Company or
any of its Affiliates;
(iv) any plan or proposal for the liquidation or dissolution of
the Company or any assignment by the Company for the benefit of creditors,
or any filing by the Company of a petition in bankruptcy; or
(v) any restructuring, extension, modification, substitution,
refinancing or amendment of any indebtedness of the Company.
(c) Company Call. If, within one year following the date hereof, the
Stockholders vote against any Call Event Triggering Transaction (as defined
below), the Company shall have the right, for 10 days following the date on
which such vote is held, to purchase, and the Stockholders shall be required to
sell to the Company, all, but not less than all, of the Equity Securities held
by the Stockholders at a per share cash price equal to the Call Event Trigger
Price (as defined below). The Company may exercise such right by delivering to
each Stockholder, within such 10-day period, a written notice stating that the
Company has irrevocably agreed to purchase in cash all (but not less than all)
of the Equity Securities held by the Stockholders at the Call Event Trigger
Price upon the terms and conditions set forth in this Section 1.3(c). The
closing with respect to the purchase of Equity Securities by the Company
pursuant to this Section 1.3(c) shall be on a mutually determined closing date
which shall not be more than 15 days after the date on which the Company's
written notice referred to above is delivered to the Stockholders. The closing
shall be held at 10:00 A.M., local time, at the principal office of the Company,
or at such other time or place as the parties mutually agree. On such closing
date, each
9
Stockholder shall deliver (i) certificates representing the shares of Equity
Securities being sold, free and clear of any lien, claim or encumbrance, and
(ii) such instruments of transfer and evidence of ownership and authority as the
Company may reasonably request. The purchase price shall be paid by the Company
to each Stockholder by wire transfer of immediately available funds no later
than 2:00 P.M. on the closing date to the account(s) designated by the
Stockholders prior to such closing date. For purposes of this Section 1.3(c),
(i) the term "Call Event Triggering Transaction" shall mean any transaction
described in Sections 1.3(b)(ii) and 1.3(b)(iii) between the Company, on the one
hand, and any Spinco Company (or any other Subsidiary of either the Company or a
Spinco Company), on the other; provided that the term "Call Event Triggering
Transaction" shall not include any transaction involving any party which is not
a Spinco Company (or any other Subsidiary of either the Company or a Spinco
Company), (ii) the term "Call Event Trigger Price" shall mean the sum of (x)
$344,000,000.00, plus (y) all amounts expended by the Stockholders following the
date hereof in connection with the acquisition of Equity Securities other than
acquisitions from another Stockholder following the date hereof, minus (z) any
net sales proceeds received by the Stockholders following the date hereof in
connection with the sale of Equity Securities (other than sales to another
Stockholder) following the date hereof.
Section 1.4. Loral Option.
(a) General Provisions Relating to Loral Option. If, within one year
following the date hereof, any Option Event Triggering Transaction (as defined
below) occurs, Loral shall have the right, within 90 days after the consummation
of the Option Event Triggering Transaction, to purchase, and the Company (for
purposes of this Section 1.4, all references to the "Company" shall be deemed to
include the Surviving Corporation (as defined below), shall be required to sell
to Loral, a number of shares of Preferred Stock which would cause Loral to own
Equity Securities with Voting Power equal to the Target Percentage (as defined
below) of the Total Voting Power immediately after giving effect to the
consummation of the Option Event Triggering Transaction, at a per share cash
price equal to the Option Event Trigger Price (as defined below). Loral may
exercise such right by deliv-
10
ering to the Company, within such 90-day period, a written notice stating that
Loral (or any Subsidiary of Loral designated by Loral; for purposes of this
Section 1.4, all references to "Loral" shall be deemed to include such
designated Subsidiary) has irrevocably agreed to purchase in cash the number of
shares of Preferred Stock specified in the preceding sentence, at the Option
Event Trigger Price, upon the terms and conditions set forth in this Section
1.4. The closing with respect to the purchase of Preferred Stock by the Company
pursuant to this Section 1.4 shall be on a mutually determined closing date
which shall not be more than 15 days after the date on which Loral's written
notice referred to above is delivered to the Company. The closing shall be held
at 10:00 A.M., local time, at the principal office of the Company, or at such
other time or place as the parties mutually agree. On such closing date, the
Company shall issue to Loral certificates representing the shares of Preferred
Stock being sold, which shall be validly issued, fully paid and non-assessable
and free and clear of any lien, claim or encumbrance. The purchase price shall
be paid by Loral to the Company by wire transfer of immediately available funds
no later than 2:00 P.M. on the closing date to the account designated in writing
by the Company prior to such closing date. For purposes of this Section 1.4,
(i) the term "Option Event Triggering Transaction" shall mean any transaction
described in clauses (ii), (iii) or (iv) of Section 1.3(b) hereof, involving as
parties, among others, the Company or any of its Affiliates (other than GTL and
Globalstar), on the one hand, and either GTL or Globalstar or any of their
respective Subsidiaries, on the other, (ii) the term "Option Event Trigger
Price" shall mean a $6.00 per share cash purchase price, subject to adjustment
pursuant to the provisions of Section 1.4(b) hereof, (iii) the term "Surviving
Corporation" shall mean any successor to the rights and obligations of the
Company as a result of or in connection with any Option Event Triggering
Transaction, and (v) the term "Target Percentage" shall mean a percentage amount
equal to the percentage of the Total Voting Power represented by the Equity
Securities held by the Stockholders immediately prior to the closing of the
Option Event Triggering Transaction; provided, however, that if there has
occurred within the five days preceding such closing an event that diluted the
Voting Power of the Equity Securities held by the Stockholders, the Target
Percentage
11
shall be determined as of the date five days prior to the closing of such Option
Event Triggering Transaction.
(b) Adjustment of Loral Option Event Trigger Price. The Option Event
Trigger Price shall be equitably adjusted from time to time after the date
hereof to take into account of any of the following events: (i) if the Company
shall pay a dividend or make any other distribution with respect to any Equity
Securities which is payable in the form of Equity Securities or in the form of
any other Asset (other than normal, periodic cash dividends of the Company),
(ii) if the Company shall subdivide its outstanding common stock, (iii) if the
Company shall combine its outstanding common stock into a smaller number of
shares, (iv) if the Company shall issue any shares of its capital stock in a
reclassification of the Common Stock (including any such reclassification in
connection with a merger, consolidation or other business combination involving
the Company), or (v) in any other similar transaction affecting the Company or
the number or value of the outstanding Equity Securities. The parties
acknowledge and agree that each such equitable adjustment shall preserve for
Loral the economic benefits of the Loral option set forth in Section 1.4(a)
above.
Section 1.5. Globalstar Warrant Put Option. In the event of any of
the following transactions (each such transaction, a "Warrant Trigger Event"):
(i) any merger, consolidation, corporate reorganization or similar
transaction involving Globalstar or GTL;
(ii) any sale, lease, exchange, transfer or other disposition,
directly or indirectly, of all or substantially all of the assets of
Globalstar or GTL; or
(iii) any liquidation or dissolution of Globalstar or GTL;
in which it is proposed that the Globalstar Warrants be converted into cash or
the right to receive cash, or any other interest (or the right to receive any
other interest) in Globalstar other than common stock thereof the Stockholders
shall have the right (the "Limited Warrant Put") to require the Company to
purchase the Globalstar
12
Warrants for a price equal to their Option Privilege Value (as defined below).
The Stockholders may exercise the Limited Warrant Put by delivering to the
Company, at least 10 days prior to the scheduled closing of the Warrant Trigger
Event, a notice to such effect accompanied by appropriate documentation or
certificates evidencing the Globalstar Warrants. The Option Privilege Price
shall be payable by the Company 10 days after the determination thereof. As
used herein, the term "Option Privilege Price" means the greater of (x) the
consideration payable in respect of the Globalstar Warrants in the Warrant
Trigger Event and (y) the hypothetical fair market value that would be assigned
to the Globalstar Warrants at the date of the Warrant Trigger Event assuming (1)
that no Warrant Trigger Event were to occur then or at any time prior to the
expiration of the Globalstar Warrants, (2) that the Globalstar Warrants would
remain outstanding until such expiration in accordance with their terms,
exercisable for shares of or interests in the issuer thereof, and (3) that such
issuer would remain a public company during such period. The Option Privilege
Price shall be determined by an investment banking firm of national standing
selected by agreement of the Company and the Stockholders or, failing such
agreement, by agreement of Bear Stearns Co. Inc. and Lehman Brothers. Such
investment banking firm shall, in determining the Option Privilege Price, give
full effect to (i) the spread between the exercise price and the fair market
value of the securities into which the Globalstar Warrants are exercisable and
(ii) the value of the "option privilege" in the Globalstar Warrants (that is,
the value of the right, without risking any capital, to speculate on and benefit
from appreciation in the underlying securities).
ARTICLE II
TRANSFER RESTRICTIONS
2.1. Certain Transactions. Notwithstanding anything contained in this
Agreement to the contrary, a Stockholder may without restriction:
(i) assign, pledge, mortgage, hypothecate, or otherwise encumber
or transfer all or any of its
13
Equity Securities in connection with any bona fide financing arrangement entered
into by such person or otherwise in connection with any indebtedness owed by
such Stockholder; provided that in the event that the Stockholder in question
defaults, the creditor's rights and obligations with respect to the voting and
transfer of such Equity Securities and the registration thereof shall be the
same as the Stockholder in question had under the provisions of this Agreement
and the creditor in question shall be deemed to be a Stockholder under this
Agreement for such purposes;
(ii) transfer any Equity Securities to another Stockholder or
any subsidiary or other Affiliate thereof (provided that such subsidiary or
Affiliate agrees to be bound to the provisions of this Agreement, upon which
such subsidiary or Affiliate shall be entitled to all rights and benefits, and
shall be subject to all obligations, of a Stockholder under this Agreement);
(iii) transfer any Equity Securities pursuant to any registered
public offering in connection with the provisions of Article III hereof or
pursuant to the provisions of Rule 144 (or any similar provision then in force)
under the Securities Act provided that such transfer under Rule 144 or any
similar provision meets the volume restrictions set forth in Rule 144 as in
effect on the date hereof; or
(iv) transfer any Equity Securities pursuant to any merger,
consolidation, corporate reorganization, restructuring or any other similar
transaction affecting the Company or pursuant to any involuntary transfer.
Section 2.2. Rights Pursuant to a Tender Offer. Each Stockholder
(any such Stockholder shall, for purposes of this Section 2.2, be referred to as
a "Tendering Stockholder") shall have the right to sell or exchange all its
Equity Securities pursuant to a tender or exchange offer for the Equity
Securities (an "Offer"). However, during the Term, prior to such sale or
exchange, the Tendering Stockholder shall give the Company the opportunity to
purchase such Equity Securities in the following manner:
14
(i) The Tendering Stockholder shall give notice (the "Tender Notice")
to the Company in writing of its intention to sell or exchange Equity
Securities in response to an Offer no later than three calendar days prior
to the latest time (including any extensions) by which Equity Securities
must be tendered in order to be accepted pursuant to such Offer, specifying
the amount of Equity Securities proposed to be tendered by the Tendering
Stockholder (the "Tendered Shares") and the purchase price per share
specified in the Offer at the time of the Tender Notice.
(ii) If the Tender Notice is given, the Company shall have the right
to purchase all, but not less than all, of the Tendered Shares exercisable
by giving written notice (an "Exercise Notice") to the Tendering
Stockholder at least two calendar days prior to the latest time after
delivery of the Tender Notice by which Equity Securities must be tendered
in order to be accepted pursuant to the Offer (including any extensions
thereof) and depositing in any escrow or similar arrangement reasonably
acceptable to the Tendering Stockholder, a sum in cash sufficient to
purchase all Tendered Shares at the price then being offered in the Offer,
without regard to any provision thereof with respect to proration or
conditions to the offeror's obligation to purchase. The delivery by the
Company of an Exercise Notice and deposit of funds as provided above will,
except as provided below, constitute an irrevocable agreement by the
Company to purchase, and the Tendering Stockholder to sell, the Tendered
Shares in accordance with the terms of this Section 2.2, whether or not the
Offer or any other tender or exchange offer (a "Competing Tender Offer")
for Equity Securities that was outstanding during the Offer is consummated.
(iii) The purchase price to be paid by the Company for any Equity
Securities purchased by it pursuant to this Section 2.2 shall be the
highest price offered or paid in the Offer or in any Competing Tender
Offer. For purposes hereof, the price offered or paid in a tender or
exchange offer for Voting Shares shall be deemed to be the price offered or
paid pursuant thereto, without regard to
15
any provisions thereof with respect to proration or conditions to the
offeror's obligation to purchase. If the purchase price per share
specified in the Offer includes any property other than cash (the "Offer
Noncash Property"), the purchase price per share at which the Company shall
be entitled to purchase all, but not less than all, of the Equity
Securities specified in the Tender Notice shall be (y) the amount of cash
per share, if any, specified in such Offer (the "Cash Portion"), plus (z)
an amount of cash per share equal to the value of the Offer Noncash
Property per share (the "Cash Value of Offer Noncash Property"), as
determined in good faith by the mutual agreement of the parties hereto, or
if the parties cannot agree, by an independent, nationally recognized
investment banking firm selected by the Tendering Stockholders and
reasonably acceptable to the Company. If the Company exercises its right
of first refusal by giving an Exercise Notice, the closing of the purchase
of the Equity Securities with respect to such right (the "Closing") shall
take place at 3:00 p.m., local time (or, if earlier, two hours before the
latest time by which Equity Securities must be tendered in order to be
accepted pursuant to the Offer), on the last day on which Equity Securities
must be tendered in order to be accepted pursuant to the Offer (including
any extensions thereof) (the "Last Tender Date"), and the Company shall pay
the purchase price for the Equity Securities specified above. The
Tendering Stockholder shall be entitled to rescind its Tender Notice at any
time prior to the Last Tender Date by notice in writing to the Company;
provided that if on or before the Last Tender Date, the Company publicly
announces that the Company has approved, proposed or entered into an
agreement with respect to (either individually or together with any other
persons) a recapitalization, reorganization or business combination with
respect to the Company or all or substantially all of its assets, or a
self-tender offer, the Tendering Stockholder shall be entitled to rescind
its Tender Notice by notice in writing to the Company at any time prior to
the Closing on the Last Tender Date. If the Tendering Stockholder rescinds
its Tender Notice pursuant to the immediately preceding sentence, the
Company's Exercise Notice with respect to such Offer shall be
16
deemed to be immediately rescinded and the Tendering Stockholder's
disposition of its Equity Securities in response to the Offer with respect
to which the Tender Notice is rescinded or any other Offer shall again be
subject to all of the provisions of this Section 2.2.
(iv) If the Company does not exercise its right of first refusal set
forth in this Section 2.2 within the time specified for such exercise by
giving an Exercise Notice, then the Tendering Stockholder shall be free to
accept, for all its Equity Securities, the Offer with respect to which the
Tender Notice was given or any Competing Tender Offer (including any
increases and extensions thereof).
ARTICLE III
REGISTRATION RIGHTS
Section 3.1. Registration Upon Request.
(a) At any time commencing on the date hereof and continuing
thereafter, each Stockholder (any such Stockholder, whether registering
securities pursuant to this Section 3.1 or Section 3.2, shall be referred to as
a "Registering Stockholder") shall have the right to make written demand upon
the Company, on not more than five separate occasions (subject to the provisions
of this Section 3.1), to register under the Securities Act, any common stock or
other securities of the Company held by it (the securities subject to such
demand hereunder or subject to the provisions of Section 3.2 being referred to
in each case as the "Subject Securities"), and the Company shall use its best
efforts to cause such securities to be registered under the Securities Act as
soon as reasonably practicable so as to permit the sale thereof promptly;
provided that each such demand shall cover at least ________ shares of Common
Stock (subject to adjustment for stock splits, reverse stock splits, stock
dividends and similar events after the date hereof). In connection therewith,
the Company shall prepare, and as soon as reasonably practicable but in no event
later than 90 days of the receipt of the request, file, on Form S-3 if permitted
or otherwise on the appropriate form, a
17
registration statement under the Securities Act to effect such registration.
Such registration shall be effected in accordance with the intended method or
methods of disposition specified by the Registering Stockholders (including, but
not limited to, an offering on a delayed or continuous basis pursuant to Rule
415 (or any successor rule to similar effect) promulgated under the Securities
Act). Each Registering Stockholder agrees to provide all such information and
materials and to take all such action as may be reasonably required in order to
permit the Company to comply with all applicable requirements of the Securities
Act and the SEC and to obtain any desired acceleration of the effective date of
such registration statement. If the offering to be registered is to be
underwritten, the managing underwriter shall be selected by the Registering
Stockholders and shall be reasonably satisfactory to the Company.
Notwithstanding the foregoing, the Company (i) shall not be obligated to prepare
or file more than one registration statement other than for purposes of a stock
option or other employee benefit or similar plan during any twelve-month period,
(ii) shall be entitled to postpone for a reasonable period of time (but in no
event later than 60 days), the filing of any registration statement otherwise
required to be prepared and filed by the Company if (A) the Company is, at such
time, conducting or about to conduct an underwritten public offering of
securities and is advised by its managing underwriter or underwriters in writing
(with a copy to the Registering Stockholders), that such offering would, in its
or their opinion, be materially adversely affected by the registration so
requested, or (B) the Company determines in its reasonable judgment and in good
faith that the registration and distribution of the Subject Securities would
interfere with any announced or imminent material financing, acquisition,
disposition, corporate reorganization or other material transaction of a similar
type involving the Company. In the event of such postponement, the Registering
Stockholders shall have the right to withdraw the request for registration by
giving written notice to the Company within 20 days after receipt of the notice
of postponement (and, in the event of such withdrawal, such request shall not be
counted for purposes of determining the number of registrations to which the
Registering Stockholders are entitled pursuant to this Section 3.1).
18
(b) The Company shall not grant to any other holder of its
securities, whether currently outstanding or issued in the future, any
incidental or piggyback registration rights with respect to any registration
statement filed pursuant to a demand registration under this Section 3.1 and
without the prior consent of the Registering Stockholders, the Company will not
itself, and will not permit any other holder of its securities to, participate
in any offering made pursuant to a demand registration under this Section 3.1.
The Company may grant to other holders of its securities incidental or piggyback
registration rights on a primary offering by the Company which are no more
favorable to such holders than the provisions set forth in Section 3.2 are to
the Stockholders. If the Registering Stockholders consents to the inclusion of
offers and sales of any other securities in a registration pursuant to this
Section 3.1 and the underwriter(s) retained in connection with such registration
subsequently advise the Registering Stockholders that such offering would be
adversely affected by the inclusion of such other securities, the Registering
Stockholders may in their sole discretion exclude all or some of such securities
from such registration.
(c) Any registration requested by any Registering Stockholder
pursuant to this Section 3.1 shall not be deemed to have been effected (and,
therefore, not requested for purposes of this Section 3.1), (i) unless it has
become effective, (ii) if after it has become effective such registration is
interfered with by any stop order, injunction or other order or requirement of
the SEC or other governmental agency or court for any reason other than a
misrepresentation or an omission by the Registering Stockholders and, as a
result thereof, the Subject Securities requested to be registered cannot be
completely distributed in accordance with the plan of distribution set forth in
the related registration statement or (iii) if the closing pursuant to the
purchase agreement or underwriting agreement entered into in connection with
such registration does not occur. Any registration effected pursuant to Section
3.2 shall not be deemed to have been requested by a Registering Stockholder for
purposes of this Section 3.1.
Section 3.2. Incidental Registration Rights. If the Company proposes
to register any of its Equity Securities under the Securities Act for its own
account
19
(other than (i) pursuant to Section 3.1 hereof, (ii) securities to be issued
pursuant to a stock option or other employee benefit or similar plan, and (iii)
securities proposed to be issued in exchange for securities or assets of, or in
connection with a merger or consolidation with, another corporation), the
Company shall, as promptly as practicable, give written notice to the
Registering Stockholders of the Company's intention to effect such registration.
If, within 15 days after receipt of such notice, a Registering Stockholder
submits a written request to the Company specifying the amount of Equity
Securities that it proposes to sell or otherwise dispose of in accordance with
this Section 3.2, the Company shall use its best efforts to include the
securities specified in the Registering Stockholder's request in such
registration. If the offering pursuant to such registration statement is to be
made by or through underwriters, the managing underwriters shall be chosen by
the Company and shall be reasonably satisfactory to the Registering Stockholders
and the Company, and the Registering Stockholders and such underwriter shall
execute an underwriting agreement in customary form. If the managing
underwriter reasonably determines in good faith and advises the Registering
Stockholders in writing that the inclusion in the registration statement of all
the Equity Securities proposed to be included would interfere with the
successful marketing of the securities proposed to be registered, then the
Company and the Registering Stockholders shall negotiate in good faith to agree
upon an equitable adjustment in the number or amount of securities of each to be
included in such underwriting (provided that in the event that the Company and
the Registering Stockholders are unable to agree upon an equitable adjustment in
the number or amount of securities of each to be included in such underwriting,
then the number of securities which the Company and the Registering Stockholders
propose to register shall be reduced pro rata (based upon the respective market
values of each party's respective share of the total number of securities
proposed to be registered). No registration effected under this Section 3.2
shall relieve the Company of its obligation to effect any registration upon
request under Section 3.1. If the Registering Stockholders are permitted to
participate in a proposed offering pursuant to this Section 3.2, the Company
thereafter may determine either not to file a registration statement relating
thereto, or to withdraw such registration statement, or otherwise not
20
to consummate such offering, without any liability hereunder. Any underwriters
participating in a distribution of the Subject Securities pursuant to Sections
3.1 and 3.2 hereof shall use all reasonable efforts to effect as wide a
distribution as is reasonably practicable, and in no event shall any sale of
Subject Securities be made knowingly to any person (including its Affiliates and
any group in which that person or its Affiliates shall be a member, or the
Registering Stockholders or the underwriters know of the existence of such a
group or Affiliate) that, immediately prior to giving effect to any such sale,
beneficially owned Equity Securities representing five percent (5%) or more of
the Total Voting Power. The Registering Stockholders and the Company shall use
all reasonable efforts to secure the agreement of the underwriters, in
connection with any underwritten offering of its Equity Securities, to comply
with the foregoing.
Section 3.3. Registration Mechanics. (a) In connection with any
offering of Subject Securities registered pursuant to Section 3.1 or 3.2 herein,
the Company shall (i) furnish to the Registering Stockholders such number of
copies of any prospectus (including preliminary and summary prospectuses) and
conformed copies of the registration statement (including amendments or
supplements thereto and, in each case, all exhibits) and such other documents as
any Registering Stockholder may reasonably request; (ii)(A) use its best efforts
to register or qualify the Subject Securities covered by such registration
statement under such blue sky or other state securities laws for offer and sale
as the Registering Stockholders shall reasonably request and (B) keep such
registration or qualification in effect for so long as the registration
statement remains in effect; provided that the Company shall not be obligated to
qualify to do business as a foreign corporation under the laws of any
jurisdiction in which it shall not then be qualified or to file any general
consent to service of process in any jurisdiction in which such a consent has
not been previously filed or subject itself to taxation in any jurisdiction
wherein it would not otherwise be subject to tax but for the requirements of
this Section 3.3; (iii) use its best efforts to cause all Subject Securities
covered by such registration statement to be registered with or approved by such
other federal or state government agencies or authorities as may be necessary,
in the opinion of counsel to the Registering Stockholders, to enable the
21
Registering Stockholders to consummate the disposition of such Subject
Securities; (iv) notify the Registering Stockholders any time when a prospectus
relating thereto is required to be delivered under the Securities Act upon
discovery that, or upon the happening of any event as a result of which, the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, in the light of the circumstances under which they were made, and
(subject to the good faith determination of the Company's Board of Directors as
to whether to permit sales under such registration statement), at the request of
any Registering Stockholder promptly prepare and furnish to it a reasonable
number of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such securities,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading, in light of the circumstances under which
they were made; (v) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC; (vi) use its best efforts to list the Subject
Securities covered by such registration statement on the New York Stock Exchange
or on any other Exchange on which the Subject Securities are then listed, if
required by the rules of any such Exchange; (vii) use its best efforts to obtain
a "cold comfort" letter from the independent public accountants for the Company
in customary form and covering matters of the type customarily covered by such
letters as may be reasonably requested by the Registering Stockholders, in the
event of a registration effected pursuant to Section 3.1 hereof; (viii) execute
and deliver all instruments and documents (including in an underwritten offering
an underwriting agreement in customary form) and take such other actions and
obtain such certificates and opinions as the Registering Stockholders reasonably
request in order to effect an underwritten public offering; and (ix) before
filing any registration statement or any amendment or supplement thereto, and as
far in advance as is reasonably practicable, furnish to each Registering
Stockholder and its counsel copies of such documents. In connection with any
offering of Subject Securities registered pursuant to Section 3.1 or 3.2, the
Company shall (x) furnish to the
22
underwriter, if any, unlegended certificates representing ownership of the
Subject Securities being sold in such denominations as requested and (y)
instruct any transfer agent and registrar of the Subject Securities to release
any stop transfer orders with respect to such Subject Securities. Upon any
registration becoming effective pursuant to Section 3.1, the Company shall use
its best efforts to keep such registration statement current for a period of 60
days (or 90 days, if the Company is eligible to use a Form S-3, or successor
form) or such shorter period as shall be necessary to effect the distribution of
the Subject Securities.
(b) Before filing with the SEC any registration statement referred to
herein or any amendments or supplements thereto, the Company shall furnish to
the Registering Stockholders or their respective counsel copies of all such
documents proposed to be filed, in order to give the Registering Stockholders or
their respective counsel sufficient time to review such documents, and such
documents may thereafter be filed subject to any timely and reasonable comments
of the Registering Stockholders or their respective counsel. The Company shall
(i) deliver promptly to the Registering Stockholders or their respective counsel
copies of all written communications between the Company and the SEC relating to
the registration statement, and (ii) advise the Registering Stockholders or
their respective counsel promptly of, and provide the Registering Stockholders
or their respective counsel with the opportunity to participate in (to the
extent reasonably practicable), all telephonic and other non-written
communications between the Company and the SEC relating to such registration
statement. The Company shall respond promptly to any comments from the SEC with
respect thereto, after consultation with the Registering Stockholders or their
respective counsel, and shall take such other actions as shall be reasonably
required in order to have each such registration statement declared effective
under the Securities Act as soon as reasonably practicable following the date
hereof.
(c) Each Registering Stockholder agrees that upon receipt of any
notice from the Company of the happening of any event of the kind described in
subdivision (iv) of this Section 3.3, it will forthwith discontinue its
disposition of Subject Securities pursuant to the registration statement
relating to such Subject Securi-
23
ties until its receipt of the copies of the supplemented or amended prospectus
contemplated by subdivision (iv) of this Section 3.3 and, if so directed by the
Company, will deliver to the Company all copies (other than permanent file
copies) then in its possession of the prospectus relating to such Subject
Securities current at the time of receipt of such notice. If any Registering
Stockholder's disposition of Subject Securities is discontinued pursuant to the
foregoing sentence unless the Company thereafter extends the effectiveness of
the registration statement to permit dispositions of Subject Securities by the
Registering Stockholder for an aggregate of 60 days (or 90 days, if the Company
is eligible to use a Form S-3, or successor form), whether or not consecutive,
the registration statement shall not be counted for purposes of determining the
number of registrations to which the Registering Stockholders are entitled
pursuant to Section 3.1.
Section 3.4. Expenses. The Registering Stockholders shall pay all
agent fees and commissions and underwriting discounts and commissions related to
Subject Securities being sold by the Registering Stockholders and the fees and
disbursements of its counsel and accountants and the Company shall pay all fees
and disbursements of its counsel and accountants in connection with any
registration pursuant to this Article III. All other fees and expenses in
connection with any registration statement (including, without limitation, all
registration and filing fees, all printing costs, all fees and expenses of
complying with securities or blue sky laws) shall (i) in the case of a
registration pursuant to Section 3.1, be borne equally by the Registering
Stockholders and the Company and (ii) in the case of a registration pursuant to
Section 3.2, be shared pro rata based upon the respective market values of the
securities to be sold by theCompany, the Registering Stockholders and any other
holders participating in such offering; provided that the Registering
Stockholders shall not be obligated to pay any expenses relating to work that
would otherwise be incurred by the Company including, but to limited to, the
preparation and filing of periodic reports with the SEC.
Section 3.5. Indemnification and Contribution. (a) In the case of
any offering registered pursuant to this Article III, the Company agrees to
indemnify and hold each Registering Stockholder, each underwriter, if
24
any, of the Subject Securities under such registration and each person who
controls any of the foregoing within the meaning of Section 15 of the Securities
Act, and any officer, employee or partner of the foregoing, harmless against any
and all losses, claims, damages, or liabilities (including reasonable legal fees
and other reasonable expenses incurred in the investigation and defense thereof)
to which they or any of them may become subject under the Securities Act or
otherwise (collectively "Losses"), insofar as any such Losses shall arise out of
or shall be based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in the registration statement relating to the sale of
such Subject Securities (as amended if the Company shall have filed with the SEC
any amendment thereof), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or (ii) any untrue statement or alleged untrue statement
of a material fact contained in the prospectus relating to the sale of such
Subject Securities (as amended or supplemented if the Company shall have filed
with the SEC any amendment thereof or supplement thereto), or the omission or
alleged omission to state therein a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided that the indemnification contained in this Section 3.5
shall not apply to such Losses which shall arise primarily out of or shall be
based primarily upon any such untrue statement or alleged untrue statement, or
any such omission or alleged omission, which shall have been made in reliance
upon and in conformity with information furnished in writing to the Company by
the Registering Stockholders or any such underwriter, as the case may be,
specifically for use in connection with the preparation of the registration
statement or prospectus contained in the registration statement or any such
amendment thereof or supplement therein.
(b) In the case of each offering registered pursuant to this Article
III, the Registering Stockholders and each underwriter, if any, participating
therein shall agree, substantially in the same manner and to the same extent as
set forth in the preceding paragraph, severally to indemnify and hold harmless
the Company and each person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act, and the
25
directors and executive officers of the Company, with respect to any statement
in or omission from such registration statement or prospectus contained in such
registration statement (as amended or as supplemented, if amended or
supplemented as aforesaid) if such statement or omission shall have been made in
reliance upon and in conformity with information furnished in writing to the
Company by the Registering Stockholders or such underwriter, as the case may be,
specifically for use in connection with the preparation of such registration
statement or prospectus contained in such registration statement or any such
amendment thereof or supplement thereto.
(c) Each party indemnified under this Section 3.5 shall, promptly
after receipt of notice of the commencement of any claim ("Claim") against such
indemnified party in respect of which indemnity may be sought hereunder, notify
the indemnifying party in writing of the commencement thereof. The failure of
any indemnified party to so notify an indemnifying party shall not relieve the
indemnifying party from any liability in respect of such Claim which it may have
to such indemnified party on account of the indemnity contained in this Section
3.5, unless (and only in the event) the indemnifying party was materially
prejudiced by such failure, and in no event shall such failure relieve the
indemnifying party from any other liability which it may have to such
indemnified party. In case any Claim in respect of which indemnification may be
sought hereunder shall be brought against any indemnified party and it shall
notify an indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate therein and, to the extent that it may desire,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof through counsel reasonably satisfactory to the indemnified party
by notifying the indemnified party in writing of such election within 10 days
after receipt of the indemnified party's initial notice of the Claim, and after
such notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under this Section 3.5 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof, other than reasonable costs of investigation (unless such
indemnified party reasonably objects to such assumption on the
26
grounds that there may be defenses available to it which are different from or
in addition to those available to such indemnifying party in which event the
indemnified party shall be reimbursed by the indemnifying party for the
reasonable expenses incurred in connection with retaining separate legal
counsel). If the indemnifying party undertakes to defend against such Claim
within such 10-day period, the indemnifying party shall control the
investigation, defense and settlement thereof; provided that (i) the
indemnifying party shall use its reasonable efforts to defend and protect the
interests of the indemnified party with respect to such Claim, (ii) the
indemnified party, prior to or during the period in which the indemnifying party
assumes control of such matter, may take such reasonable actions as the
indemnified party deems necessary to preserve any and all rights with respect to
such matter, without such actions being construed as a waiver of the indemnified
party's rights to defense and indemnification pursuant to this Agreement, and
(iii) the indemnifying party shall not, without the prior written consent of the
indemnified party, consent to any settlement which (A) imposes any Liabilities
on the indemnified party (other than those Liabilities which the indemnifying
party agrees to promptly pay or discharge), and (B) with respect to any non-
monetary provision of such settlement, would be likely, in the indemnified
party's reasonable judgment, to have an adverse effect on the business
operations, assets, properties or prospects of any Stockholder (in the event
that a Registering Stockholder or any of its Affiliates is the indemnified
party), or the Company (in the event that the Company is an indemnified party),
or such indemnified party. If the indemnifying party does not undertake within
such 10-day period to defend against such Claim, then the indemnifying party
shall have the right to participate in any such defense at its sole cost and
expense, but the indemnified party shall control the investigation, defense and
settlement thereof (provided that the indemnified party may not settle any such
Claim without obtaining the prior written consent of the indemnifying party
(which consent shall not be unreasonably withheld by the indemnifying party;
provided that in the event that the indemnifying party is in material breach at
such time of the provisions of this Section 3.5, then the indemnified party
shall not be obligated to obtain such prior written consent of the indemnifying
party) at the reasonable cost and expense of the indemnifying party
27
(which shall be paid by the indemnifying party promptly upon presentation by the
indemnified party of invoices or other documentation evidencing the amounts to
be indemnified). In addition to the foregoing, no indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which the
indemnified party could have been a party and indemnity could have been sought
hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability arising out
of such claim or proceeding.
(d) If the indemnification provided for in this Section 3.5 is
unavailable to an indemnified party or is insufficient to hold such indemnified
party harmless from any Losses in respect of which this Section 3.5 would
otherwise apply by its terms (other than by reason of exceptions provided
herein), then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall have a joint and several obligation to contribute to
the amount paid or payable by such indemnified party as a result of such Losses,
in such proportion as is appropriate to reflect the relative benefits received
by and fault of the indemnifying party, on the one hand, and such indemnified
party, on the other hand, in connection with the offering to which such
contribution relates as well as any other relevant equitable considerations.
The relative benefit shall be determined by reference to, among other things,
the amount of proceeds received by each party from the offering to which such
contribution relates. The relative fault shall be determined by reference to,
among other things, each party's relative knowledge and access to information
concerning the matter with respect to which the claim was asserted, and the
opportunity to correct and prevent any statement or omission. The amount paid
or payable by a party as a result of any Losses shall be deemed to include any
legal or other fees or expenses incurred by such party in connection with any
investigation or proceeding, to the extent such party would have been
indemnified for such expenses if the indemnification provided for in this
Section 3.5 was available to such party.
(e) The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 3.5 were determined by pro rata
allocation or by
28
any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
Section 3.6. Rule 144. The Company covenants that it will file
the reports required to be filed by it under the Securities Act and the Exchange
Act and the rules and regulations adopted by the Commission thereunder (or, if
the Company is not required to file such reports, it will, upon the request of
any Stockholder, make publicly available other information), and it will take
such further action as any Stockholder may reasonably request, all to the extent
required from time to time to enable such Stockholder to sell Subject Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (i) Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or (ii) any similar rule or regulation hereafter
adopted by the Commission. Upon the request of any Stockholder, the Company
will deliver to such Stockholder a written statement as to whether it has
complied with such requirements.
SECTION 3.7. Holdback Agreement. The Company agrees that it and its
Affiliates will not effect any sale, offer for sale, or grant any option to
purchase any shares of common stock (or securities convertible into or
exchangeable or exercisable for common stock) (collectively, "Sales") during the
10-day period prior to, and the 90-day period (or such longer period, not to
exceed 120 days, as the managing underwriter(s) therefor determines) beginning
on the effective date of a registration statement filed pursuant to Section 3.1
without the consent of such managing underwriter(s). The Stockholders agree not
to effect any Sales during the 10-day period prior to, and the 90-day period (or
such longer period, not to exceed 120 days, as the managing underwriter(s)
therefor determines) beginning on the effective date of a registration statement
relating to a primary offering (other than one described in clauses (i), (ii) or
(iii) of the first sentence of Section 3.2 hereof) without the consent of such
managing underwriter(s); provided that this sentence shall be of no force and
29
effect if the Company effects a Sale or files any registration statement for the
benefit of any other party during such 120-day period.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1. Representations and Warranties of the Company. The Company
hereby represents and warrants to each of the Stockholders as follows:
(a) The execution, delivery and performance by the Company of this
Agreement and the consummation by the Company of the transactions
contemplated by this Agreement are within its corporate powers and have
been duly authorized by all necessary corporate action on its part. This
Agreement constitutes a legal, valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, (i) except as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally, including the effect of statutory and other
laws regarding fraudulent conveyances and preferential transfers, and (ii)
subject to the limitations imposed by general equitable principles
(regardless of whether such enforceability is considered in a proceeding at
law or in equity).
(b) The execution, delivery and performance of this Agreement by the
Company does not and will not contravene or conflict with or constitute a
default under the Company's Certificate of Incorporation or By-laws or any
of its material Contracts.
(c) Immediately after giving effect to both the Restructuring and the
Distribution (including, without limitation, after giving effect to the
distribution of shares of Spinco Common Stock to the holders of common
stock of Loral and the holders of options with respect to common stock of
Loral, who or which may be entitled to receive shares of Spinco Common
Stock pursuant to or in connection with the Distribution Agreement, the
Merger Agreement or
30
otherwise), (i) the Company's authorized capital stock shall consist of
________ shares of Spinco Common Stock and ________ shares of Preferred
Stock, of which ________ shares of Spinco Common Stock and ________ shares
of Preferred Stock shall be issued and outstanding, (ii) Loral will be the
record and beneficial owner of _______ shares of Preferred Stock, all of
which will be validly issued and fully paid and nonassessable and all of
which will be free of all Liens, (iii) except for the shares of Spinco
Common Stock and the shares of Preferred Stock specified in clause (i)
above, there will be no other Equity Securities, and (iv) the Wing
Stockholders will hold, in the aggregate, at least twenty percent (20%) of
the Total Voting Power.
ARTICLE V
TERM
Section 5.1. Term. The term (the "Term") of this Agreement shall
commence on the date hereof and shall continue until the earlier of (x) the date
on which the Voting Power of the Equity Securities, on a fully diluted basis,
beneficially owned by Loral and its Affiliates shall represent less than five
percent (5%) of the Total Voting Power, (y) the seventh anniversary of the date
hereof, or (z) a Change of Control (as defined in Section 1.1(c) above). Upon
expiration of the Term, the provisions of this Agreement shall terminate, and be
of no further force or effect, automatically without any further action on the
part of any parties hereto; provided that the provisions of Articles III and VI
shall continue without regard to the term limitation set forth in this sentence;
provided further that no such termination shall relieve any party of any
liability to the other parties hereto, to the extent such liability is incurred
prior to the expiration of the Term.
31
ARTICLE VI
MISCELLANEOUS
Section 6.1. Certain Restrictions. The Company shall not take or
recommend to its stockholders any action, including any amendment of its
Certificate of Incorporation, By-laws or stockholder rights plan, if any, which
would impose restrictions applicable to Loral and not to other securityholders
generally based upon the size of Loral' security holdings, the business in which
it is engaged or other considerations applicable to it and not to
securityholders generally. In addition, the Company shall not take or recommend
to its stockholders any action, including any amendment of its Certificate of
Incorporation, By-laws or stockholder rights plan, if any, which would likely
adversely affect in any material respect, either directly or indirectly, any of
the rights or obligations of the Stockholders under the provisions of this
Agreement.
The Stockholders agree that the Company may adopt a stockholders
rights plan similar to the stockholders rights plan adopted by Loral except that
Loral (and its Affiliates and associates) shall not be deemed to be an
"Acquiring Person" unless Loral and its Affiliates become the beneficial owner
of 25% or more of the outstanding shares of common stock of the Company.
Section 6.2. Entire Agreement. This Agreement and the Restructuring
Agreement (including the schedules and exhibits and the agreements and other
documents referred to therein, including, without limitation, the Tax Sharing
Agreement and the Transition Services 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 6.3. Fees and Expenses. Except as otherwise provided in this
Agreement, all costs and expenses incurred by the Stockholders and the Company
in connection with consummating such party's obligations
32
hereunder or otherwise shall be paid by the party incurring such cost or
expense.
Section 6.4. Access to Information. During the Term, the Company
shall provide to each Stockholder reasonable access to the books and records of
the Company and its subsidiaries during the regular business hours of the
Company and such subsidiaries, following the Company's receipt of a written
notice from such Stockholder requesting such access; provided that the Company
shall not be required to provide any confidential information if the Company
reasonably determines that the providing of such information would result in (x)
a violation of applicable antitrust laws or (y) create a substantial likelihood
of a significant adverse effect on the Company; provided, further, that the
Stockholder shall keep confidential any confidential information disclosed to it
except as required by law, service of process, interrogatories, or similar legal
process, and except for any such information which becomes publicly available
through no fault of the Stockholder.
Section 6.5. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF
NEW YORK WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES THEREOF (EXCEPT
IN THOSE CIRCUMSTANCES WHERE THE CORPORATE LAW OF THE COMPANY'S JURISDICTION OF
ORGANIZATION REQUIRES THE APPLICATION OF THE LAW OF THE COMPANY'S JURISDICTION
OF ORGANIZATION WITH RESPECT TO A PARTICULAR MATTER).
Section 6.6. 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):
33
(a) If to any of the Stockholders, to:
Loral Corporation
c/o Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, MD 20817
Telephone: (301) 897-6125
Telecopy No.: (301) 897-6333
Attention: General Counsel
and to:
Skadden, Arps, Slate, Meagher
& Flom
919 Third Avenue
New York, New York 10022
Telephone: (212) 735-3000
Telecopy No.: (212) 735-2000
Attention: Peter Allan Atkins, Esq.
Lou R. Kling, Esq.
and to:
O'Melveny & Myers
153 E. 53rd Street
New York, New York 10022
Telephone: (212) 326-2000
Telecopy No.: (212) 326-2160
Attention: C. Douglas Kranwinkle, Esq.
Jeffrey J. Rosen, Esq.
(b) If to the Company, to:
Loral Space & Communications Corporation
600 Third Avenue
New York, New York
Telephone: (212) 697-1105
Telecopy No.: (212) 602-9805
Attention: General Counsel
34
with a copy to:
Willkie Farr & Gallagher
153 E. 53rd Street
New York, New York 10022
Telephone: (212) 821-8000
Telecopy No.: (212) 821-8111
Attention: Robert B. Hodes, Esq.
Bruce R. Kraus, Esq.
In addition to providing any notice required to be given by the
Company pursuant to its Certificate of Incorporation in the manner specified
therein, the Company shall send to each Stockholder by telecopy in accordance
with this Section 6.6 a copy of each such notice.
Section 6.7. Successors and Assigns; Reclassifications; 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 any party hereto
(whether by operation of law or otherwise) without the prior written consent of
the other parties hereto (which consent may not be unreasonably withheld),
except that any party shall have the right, without the consent of any other
party hereto, to assign all or a portion of its rights, interests and
obligations hereunder to one or more direct or indirect subsidiaries, but no
such assignment of obligation shall relieve the assigning party from its
responsibility therefor. In the event of any recapitalization or
reclassification of any Equity Securities, or any merger, consolidation or other
transaction with like effect, the securities issued in replacement or exchange
for such Equity Securities shall be deemed Equity Securities hereunder. This
Agreement shall be binding upon and inure solely to the benefit of each party
hereto, and 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; provided that the
indemnified parties referred to in Section 3.5 hereof are intended to be third
party beneficiaries of the provisions of Section 3.5 hereof, and shall have the
right to enforce such provisions as if they were parties hereto.
35
Section 6.8. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 6.9. Further Assurances. Each party hereto or person subject
hereto shall do and perform or cause to be done and performed all such further
acts and things and shall execute and deliver all such other agreements,
certificates, instruments and documents as any other party hereto or person
subject hereto may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
Section 6.10. 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. Unless otherwise
specified in this Agreement, all references in this Agreement to "days" shall be
deemed to be references to calendar days.
Section 6.11. 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 6.12. Consent to Jurisdiction. Each of the parties hereto
irrevocably and unconditionally (a) agrees that all suits, actions or other
legal proceedings arising out of this Agreement or any of the transactions
contemplated hereby (a "Suit") shall be brought and adjudicated solely in the
United States District Court for the District of Delaware, or, if such court
will not accept jurisdiction, in the Delaware Chancery Court or any court of
competent civil jurisdiction sitting in New Castle County, Delaware, (b) submits
to the non-exclusive jurisdiction of any such court for the purpose of any
36
such Suit and (c) waives and agrees not to assert by way of motion, as a defense
or otherwise in any such Suit, any claims that it is not subject to the
jurisdiction of the above courts, that such Suit is brought in an inconvenient
forum or that the venue of such Suit is improper. Each of the parties hereto
also irrevocably and unconditionally consents to the service of any process,
summons, pleadings, notices or other papers in a manner permitted by the notice
provisions of Section 6.6 hereof and agrees that any such form of service shall
be effective in connection with any such Suit; provided that nothing contained
in this Section 6.12 shall affect the right of any party to serve process,
pleadings, notices or other papers in any other manner permitted by applicable
Law.
Section 6.13. 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 court referred to
in Section 6.12 hereof.
37
IN WITNESS WHEREOF, each of the parties has caused this Agreement 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:______________________________
Name:
Title:
LORAL SPACE & COMMUNICATIONS
CORPORATION
By:______________________________
Name:
Title:
38
EXHIBIT A-1
-----------
GLOBALSTAR WARRANT - SUMMARY TERM SHEET - PRINCIPAL TERMS
---------------------------------------------------------
Reference is hereby made to (x) the Restructuring, Financing and
Distribution Agreement dated as of January 8, 1996 (the "Restructuring
Agreement") among Lockheed Martin Corporation, Loral Corporation, Spinco and the
other parties thereto, and (y) the Globalstar Warrant Memorandum (as defined in
the Restructuring Agreement). All capitalized terms which are not otherwise
defined herein shall have the meanings ascribed to such terms in the
Restructuring Agreement.
Issuer: Globalstar Telecommunications Limited or, if not available, Globalstar
L.P. (the "Company").
Issued To: Guarantors
No. of Shares: As set forth in the Globalstar Warrant Memorandum, subject to
adjustment based on the antidilution provisions described below. (If issuer is
Globalstar L.P., the term "shares" will refer to L.P. interests.)
Warrant Exercise Price: As set forth in the Globalstar Warrant Memorandum,
subject to adjustment based on the antidilution provisions described below.
Acceleration of Vesting: In the event the Company merges with or into another
company (unless the warrants continue to represent the rights to purchase equity
in the surviving company on the same terms, except for equitable adjustment of
price and number of shares purchasable), sells all or substantially all of its
assets, liquidates, etc., the Company must give notice to the holder prior to
the consummation of the transaction and must give the holder the option of
exercising the warrant prior to consummation of such transaction.
Antidilution Events:
. Stock Splits, Recaps, etc. - will result in increased number of
Warrant Shares (unless reverse split, etc.)
. Rights, Options, Warrants, Convertible Securities - will result in
increased number of Warrant Shares pursuant to a prescribed
formula, but only to the extent that such shares, rights, options,
warrants or convertible securities are issued or distributed
generally to all holders of the Common Stock.
. Issuance of Common Stock at Lower Values - if shares are issued
below the then current fair market value of such shares,
adjustment will be made on a proportionate basis pursuant to a
prescribed formula, but only to the extent that such shares,
rights, options, warrants or
convertible securities are issued or distributed generally to all
holders of the Common Stock.
. Extraordinary Distributions/Stock Dividends -extraordinary cash
dividends (over 10% of current market value on record date),
distributions of properties, assets, etc. in partial liquidation
and stock dividends will result in adjustment.
. Distributions of Debt - Warrant Shares subject to adjustment in
accordance with a prescribed formula.
. Distributions includes repurchases and redemptions.
Registration Rights on Warrant Shares: Customary
-2-
EXHIBIT B
---------
WF&G Draft
1/8/96
CERTIFICATE OF DESIGNATION
OF
SERIES A NON-VOTING CONVERTIBLE PREFERRED STOCK
OF
LORAL TELECOMMUNICATIONS ACQUISITION, INC.
Pursuant to Section 151(g) of the
General Corporation Law of the State of Delaware
The undersigned, Senior Vice President of Loral Telecommunications
Acquisition, Inc., a Delaware corporation (the "Corporation"), in accordance
with the provisions of Section 151 of the General Corporation Law of the State
of Delaware, hereby certifies that pursuant to authority vested in the Board of
Directors of the Corporation by the provisions of its Certificate of
Incorporation, the Board of Directors has duly adopted the following resolution
creating a series of Preferred Stock of the Corporation designated as the Series
A Non-Voting Convertible Preferred Stock:
WHEREAS, the Certificate of Incorporation of the Corporation authorizes
__________ shares of capital stock, of which 1,000 shares are authorized as
Common Stock, $.01 par value per share ("Common Stock"), and __________ shares
are authorized as Preferred Stock, $.01 par value per share ("Preferred Stock");
and
WHEREAS, the Certificate of Incorporation of the Corporation authorizes the
Board of Directors to provide for the issuance of shares of Preferred Stock in
series and to establish from time to time the number of shares to be included in
each such series and to fix the designation, powers, preferences and rights of
the shares of each such series and the qualifications, limitations and
restrictions thereof;
NOW, THEREFORE, BE IT RESOLVED, that, pursuant to the Certificate of
Incorporation, the Board of Directors hereby fixes the designation and
preferences and relative rights, qualifications, limitations and restrictions of
a series of Preferred Stock.
RESOLVED, that each share of Preferred Stock described herein shall rank
equally in all respects and shall be subject to the following provisions:
(1) Number and Designation. ______ shares of Preferred Stock of the
Corporation shall be designated as Series
A Non-Voting Convertible Preferred Stock (the "Series A Preferred Stock").
(2) Dividends and Distributions. (a) Subject to paragraphs (2)(b)
and (4) below, the Corporation shall pay, and the holders of shares of Series A
Preferred Stock shall be entitled to receive, and to share equally and ratably,
share for share with the Common Stock, in such dividends and distributions on
the Common Stock or the Series A Preferred Stock as may be declared from time to
time by the Board of Directors, whether payable in cash, property or securities
of the Corporation. The record date for determining the holders of Series A
Preferred Stock entitled to receive dividends and distributions shall be the
same as the record date for determining the holders of Common Stock entitled to
receive dividends and distributions. Dividends and distributions shall be paid
to the holders of Series A Preferred Stock entitled to receive such dividends
and distributions at the close of business on the date on which such dividends
and distributions are paid or made by the Corporation in respect of the Common
Stock.
(b) In the event that the Corporation declares and pays a dividend or
makes any distribution on its Common Stock in the form of (x) shares of
additional Common Stock, (y) options, warrants or rights to acquire Common Stock
or (z) other securities of the Corporation convertible into or exchangeable for
Common Stock, the holders of the Series A Preferred Stock shall receive in lieu
of such securities: (1) an equal number of shares of additional Series A
Preferred Stock, in the case of clause (x) above; (2) options, warrants or
rights to acquire an equal number of additional shares of Series A Preferred
Stock on terms otherwise identical to such options, warrants or rights
distributed to the holders of Common Stock, in the case of clause (y) above; and
(3) securities convertible into or exchangeable for an equal number of shares of
Series A Preferred Stock on terms otherwise identical to the convertible or
exchangeable securities distributed to the holders of Common Stock, in the case
of clause (z) above.
(c) All dividends or distributions paid with respect to shares of the
Series A Preferred Stock shall be paid pro rata to the holders entitled thereto.
(d) Each fractional share of Series A Preferred Stock outstanding
shall be entitled to a ratable proportionate amount of all dividends and other
distributions accruing, paid or made with respect to each outstanding share of
Series A Preferred Stock and all such dividends and other distributions with
respect to such outstanding fractional shares shall be payable in the same
manner and at such times as provided for in paragraphs (2)(a), (2)(b) and (4)
hereof with respect to dividends and other distributions on each outstanding
share of Series A Preferred Stock.
-2-
(3) Voting Rights. (a) Except as otherwise set forth herein and as
otherwise provided by law, the holders of the Series A Preferred Stock shall not
be entitled to vote on any matter relating to the business or affairs of the
Corporation and shall not be included in determining the number of Shares voting
or entitled to vote on any such matters.
(b) Notwithstanding the foregoing, each issued and outstanding share
of Series A Preferred Stock shall be entitled to one vote for each share of
Common Stock into which such share of Series A Preferred Stock is convertible,
and shall be included as aforesaid in the number of shares voting and entitled
to vote with respect to the following matters presented to the stockholders of
the Corporation for their action or consideration:
i) any amendment to or modification or repeal of any provision of the
Corporation's Certificate of Incorporation or By-laws (or similar organizational
documents);
ii) any merger, consolidation, corporate reorganization or similar
transaction involving the Corporation;
iii) any sale, lease, exchange, transfer or other disposition,
directly or indirectly, in a single transaction or series of related
transactions, of all or substantially all of the assets of the Corporation or
any of its Affiliates;
iv) any plan or proposal for the liquidation or dissolution of the
Corporation or any assignment by the Corporation for the benefit of creditors,
or any filing by the Corporation of a petition in bankruptcy; or
v) any restructuring, extension, modification, substitution,
refinancing or amendment of any indebtedness of the Corporation.
Except as otherwise provided herein or by law, the holders of the Series A
Preferred Stock shall vote together with the holders of the Common Stock as a
single class.
(c) In addition to the voting rights set forth above, the consent of
the holders of at least a majority of the shares of the Series A Preferred Stock
at the time outstanding, voting together as a single class, shall be necessary
for any amendment to the Certificate of Incorporation or By-laws of the
Corporation, if such amendment would adversely affect the rights, powers,
privileges or preferences of the Series A Preferred Stock.
(4) Rights on Liquidation. In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of the shares of the Series A Preferred Stock then outstanding shall
be entitled
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to receive, prior and in preference to any distribution of any of the assets of
the Corporation to the holders of the Common Stock by reason of their ownership
thereof, an amount equal to $.01 per share for each outstanding share of Series
A Preferred Stock. If upon the occurrence of such event the assets thus
distributed among the holders of the Series A Preferred Stock shall be
insufficient to permit the payment to such holders of the full preferential
amount, the entire assets of the Corporation legally available for distribution
shall be distributed ratably among the holders of the Series A Preferred Stock.
After the payment or distribution to the holders of the Series A Preferred Stock
of such preferential amount, the holders of the Series A Preferred Stock and the
Common Stock then outstanding shall be entitled to receive ratably (based, in
the case of the Series A Preferred Stock, on the number of shares of Common
Stock into which such Series A Preferred Stock was last convertible) all
remaining assets of the Corporation to be distributed.
(5) Conversion. (a) Each share of Series A Preferred Stock may be
converted, at the option of the holder thereof, at any time (i) after the HSR
Clearance Date or (ii) upon the transfer (in accordance with the provisions of
the Stockholders Agreement) of such share of Series A Preferred Stock to a
Person other than a Stockholder or any Affiliate thereof, in the manner
hereinafter provided, into one (subject to any adjustment required below) fully
paid and nonassessable share of Common Stock; provided, however, that on any
liquidation of the Corporation, the right of conversion shall terminate at the
close of business on the business day immediately preceding the date fixed for
the payment of any amounts distributable on liquidation to the holders of the
Series A Preferred Stock.
(b) Each conversion of shares of Series A Preferred Stock into shares of
Common Stock shall be effected by the prior written notice thereof by the holder
of the Series A Preferred Stock and the surrender of the certificates
representing the shares to be converted at the principal office of the
Corporation (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of the Series A
Preferred Stock as shown on the books of the Corporation) at any time during
normal business hours. Such notice shall state the name or names (with
addresses) and denominations in which the certificate or certificates for such
shares of Common Stock are to be issued and shall include instructions for
reasonable delivery thereof. Each conversion shall be deemed to have been
effected as of the close of business on the date on which such certificates have
been surrendered and such notice has been received. At such time, the rights of
the holder of the surrendered Series A Preferred Stock as such holder shall
cease, and the Person in whose name the certificates for shares of Common Stock
will be issued upon such conversion shall be deemed to have become the holder of
record of the Common Stock represented thereby.
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(c) Promptly after the surrender of the certificates and the receipt of
written notice, the Corporation shall issue and deliver in accordance with the
surrendering holder's instructions (i) the certificates for the shares of Common
Stock issuable upon such conversion and (ii) certificates representing any
surrendered shares of Series A Preferred Stock which were delivered to the
Corporation in connection with such conversion but which were not requested to
be converted and, therefore, were not converted.
(d) The issuance of certificates for Common Stock upon conversion of
Series A Preferred Stock shall be made without charge to the holders of such
shares for any issuance tax in respect thereof or other cost incurred by the
Corporation in connection with such conversion and the related issuance of
shares of Common Stock; provided that the Corporation shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the holder
of the Series A Preferred Stock being converted.
(e) The Corporation shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
issuance upon the conversion of the Series A Preferred Stock, such number of
shares of Common Stock issuable upon conversion of all outstanding Series A
Preferred Stock. All shares of Common Stock which are so issuable shall, when
issued, be duly and validly issued fully paid and nonassessable and free from
all taxes, liens and charges. The Corporation shall take all such actions as
may be necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirement of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which shall be
immediately transmitted by the Corporation upon issuance).
(f) The Corporation shall not close its books against the transfer of
shares of Series A Preferred Stock in any manner which would interfere with the
timely conversion of any shares of Series A Preferred Stock. The Corporation
shall assist and cooperate with any holder of Series A Preferred Stock required
to make any governmental filings or obtain any governmental approval prior to or
in connection with any conversion of Series A Preferred Stock hereunder
(including, without limitation, making any filings required to be made by the
Corporation).
(6) Stock Splits; Adjustments. (a) If the Corporation shall in any manner
subdivide (by stock split, stock dividend or otherwise) or combine (by reverse
stock split or otherwise) the outstanding shares of Common Stock, the
outstanding shares of the Series A Preferred Stock shall be proportionately
subdivided or combined, as the case may be, and effective provision shall be
made for the protection of all
-5-
conversion and voting rights of the Series A Preferred Stock hereunder.
(b) If the Corporation shall issue any shares of its capital stock in
a reclassification of the Common Stock (including any such reclassification in
connection with a merger, consolidation or other business combination involving
the Corporation), or in any other similar transaction affecting the Corporation
or the number or value of Common Stock outstanding, effective provision shall be
made for the protection of all conversion and voting rights of the Series A
Preferred Stock hereunder.
(7) General Provisions. (a) The term "Affiliate" as used herein shall
have the meaning set forth in the Stockholders Agreement.
(b) The term "Antitrust Authority" as used herein shall have the
meaning set forth in the Stockholders Agreement.
(c) The terms "HSR Clearance Date" and "HSR Act" as used herein shall
have the meanings set forth in the Stockholders Agreement.
(d) The term "Person" as used herein means an individual or a
corporation, partnership, association, trust or any other entity or
organization.
(e) The term "outstanding," when used herein with reference to shares
of stock, shall mean issued shares, excluding shares held by the Corporation.
(f) The term "Stockholders Agreement" as used herein means that
certain Stockholders Agreement, dated as of _________, 1996, by and among Loral
Corporation, Loral Aerospace Holdings, Inc., Loral Aerospace Corp. and Loral
Telecommunications Acquisition, Inc.
(g) The term "Stockholders" as used herein shall have the meaning set
forth in the Stockholders Agreement.
(h) The headings of the paragraphs, subparagraphs, clauses and
subclauses of this Certificate of Designation are for convenience of reference
only and shall not define, limit or affect any of the provisions hereof.
(i) Subject to Section 3 hereof, any right, preference, privilege or
power of, or restriction provided for the benefit of, the Series A Preferred
Stock set forth herein may be amended and the observance thereof may be waived
(either generally or in a particular instance and either retroactively or
prospectively) with the written consent of the Corporation and the consent of
the holders of not less than a majority of the shares of Series A Preferred
Stock then outstanding, and any
-6-
amendment or waiver so effected shall be binding upon the Corporation and all
holders of Series A Preferred Stock.
IN WITNESS WHEREOF, the undersigned, Senior Vice President of Loral
Telecommunications Acquisition, Inc., has signed this Certificate of Designation
this ___ day of ____________, 1996 and affirms under penalties of perjury that
it is the act and deed of the Corporation and that the facts stated herein are
true.
LORAL TELECOMMUNICATIONS
ACQUISITION, INC.
By:____________________________
Michael B. Targoff
Senior Vice President
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EXHIBITS B & C
--------------
1. Broad indemnification provisions
2. Limitations on and methods for changing size of the board
3. Limitations on shareholder rights to:
A. act by written consent
B. call special meetings
C. fill board vacancies
D. nominate directors
E. propose actions that would facilitate change of
control
F. remove directors
4. Lock-ins (supermajority provisions for amending charter and by-
laws)
5. Shareholder rights plan (Poison pill)
6. Staggered board
EXHIBIT D
---------
A shareholder rights plan substantially identical to that of the
shareholder rights plan adopted by Loral (as submitted to and approval by the
Board of Directors of Loral prior to the date hereof) except that Loral and its
affiliates and its associates shall not be deemed to be an "Acquiring Person"
unless Loral and its affiliates become the beneficial owner of 25% or more of
the outstanding shares of common stock (including securities convertible or
exercisable into common stock) of the Company, together with such other changes
to the shareholder rights plan as the parties may reasonably agree.
EXHIBIT E TO DISTRIBUTION AGREEMENT
-----------------------------------
1. The Company Pension Plans
2. The Company Savings Plans
3. The Prior Welfare Plans
4. The SERP
EXHIBIT 99.2
Press release of the Registrant and Loral Corporation dated January 8, 1996.
LOCKHEED MARTIN AND LORAL
AGREE TO STRATEGIC COMBINATION
Lockheed Martin Will Acquire Loral's Defense Electronics
and System Integration Businesses for $9.1 Billion
Loral's Shareholders to Receive $38 Per Share in Cash and
Shares in New Loral Space and Communications Corporation
Lockheed Martin to Invest $344 Million for 20 Percent
of Loral Space at an Effective Price of $7.50 Per Share
Total Transaction Has Estimated Value In Excess of $10
Billion
BETHESDA, Maryland and NEW YORK CITY, January 8 -- Daniel M. Tellep, Chairman of
Lockheed Martin Corporation (NYSE:LMT), Norman R. Augustine, Lockheed Martin's
president and chief executive officer, and Bernard L. Schwartz, chairman and
chief executive officer of Loral Corporation (NYSE:LOR), today announced
agreement on a series of interrelated strategic transactions with an estimated
value exceeding $10 billion.
The three key elements of the agreement are: first, the combination of
the two companies' defense electronics and system integration businesses to
enhance competitiveness and opportunities for growth in the rapidly evolving
global environment; second, the distribution to Loral shareholders of its
holdings in the fast-growing space and telecommunications market through a newly
formed company to be called Loral Space and Communications Corporation; and
third, a purchase by Lockheed Martin of an equity position in Loral Space.
Under the agreement, which has been unanimously approved by both
companies' boards of directors:
.. Lockheed Martin will acquire Loral's defense electronics and system
integration businesses for approximately $9.1 billion, including $2.1
billion of assumed debt. Of the total, $7 billion, or $38 in cash per
share, will be paid directly to Loral shareholders by Lockheed Martin
through a tender offer commencing no later than Friday, January 12.
.. Loral shareholders also will receive for each share, one share of the newly
formed public company which will own Loral's present satellite and
telecommunications interests, including Globalstar (NASDAQ:GSTRF) and Space
Systems/Loral.
.. Lockheed Martin will invest an additional $344 million for a 20% equity
position in Loral Space, at an effective price of $7.50 per share. Loral
Space will begin business with over $700 million in cash and no debt.
.. Lockheed Martin will provide Loral Space with support in key technologies
to further reinforce the strategic relationship.
.. Schwartz will be chairman and CEO of Loral Space and will become vice
chairman of Lockheed Martin and join its board of directors.
The agreement represents the culmination of a long-term relationship
between Lockheed Martin and Loral, bringing together the technologies, resources
and talents of two of the most successful companies in the defense electronics
industry and creating a new space-based telecommunications company.
"The strategic combination with Loral solidifies Lockheed Martin's
leadership position as a world premier high technology company," said Tellep.
"It enhances our technology base, improves our competitiveness, expands our
global reach and provides new opportunities for growth. With some $30 billion in
annual sales and a broad portfolio of businesses spanning aerospace, defense,
commercial and civil programs, we are well positioned for the 21st century. Our
shareholders, customers and employees will benefit from this landmark event."
Schwartz said, "Our board and management team enthusiastically support
this transaction as the right move at the right time. It ensures our customers
and employees the long-term capabilities needed in our increasingly demanding
marketplace. The combined businesses build on the complementary cultures of
Lockheed Martin and Loral, and I look forward to working with our new partners.
At the same time, the transaction provides Loral shareholders with significant
present value together with continuing ownership in Loral Space, which itself
has substantial potential for shareholder value growth. We intend to create a
major space-based telecommunications enterprise, building on this foundation."
Augustine noted that the aerospace/electronics industry is continuing
to consolidate with a corresponding strengthening of a number of other large
competitors, both in the U.S. and abroad.
"The Lockheed Martin/Loral strategic combination expands our ability
to serve our customers in areas spanning the depths of the oceans to the reaches
of space. Moreover, the continued participation in the combined company of an
industry leader like Bernard Schwartz will further enhance our ability to
deliver shareholder value," Augustine said. "Financially, in 1996 the dilution
to earnings will be minimal, even before
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considering synergy benefits, and accretive thereafter. With the cash flow of
the combined enterprise, we expect leverage to drop from 67% at the time of
closing to less than 60% by year end 1996 with strong debt coverage maintained,"
Augustine said.
Lockheed Martin Highlights
- --------------------------
When the transaction is complete, Lockheed Martin's annual combined
sales will reach approximately $30 billion with a total backlog of approximately
$47 billion. The combination with Loral enhances key core businesses --
electronics, tactical systems, and information and technology services -- with
major opportunities for improving competitiveness and capitalizing on
complementary strengths in system integration; electronic combat systems;
tactical missiles; data management systems; simulation and training systems; and
command, control and communications. The company will operate with a
discretionary research and development budget of approximately $1 billion per
year, and is expected to generate approximately $1.5 billion to $2.0 billion in
free cash annually.
Lockheed Martin currently is organized in five business sectors:
Aeronautics, Electronics, Energy & Environment, Information & Technology
Services, and Space & Strategic Missiles. When this transaction is completed,
the Loral business units initially will constitute a sixth sector, Tactical
Systems. A long-term consolidation plan will be developed following thorough
review and analysis to determine how to best integrate these businesses.
Tellep, who remains chairman of the board, Augustine, who becomes vice
chairman and continues as chief executive officer, and Schwartz, will form the
Office of the Chairman, which will address key strategic issues. Schwartz
intends to invest $10 million personally in Lockheed Martin common stock.
Two executive vice presidents and chief operating officers will report
to Augustine. Vance D. Coffman, executive vice president and chief operating
officer of Lockheed Martin, will have overall responsibility for the
Aeronautics, Energy & Environment and Space & Strategic Missiles businesses.
Frank C. Lanza, currently Loral's president and chief operating officer, also
will join Lockheed Martin's board of directors and serve as an executive vice
president and chief operating officer, with overall responsibility for the
Electronics, Information & Technology Services and Tactical Systems businesses.
In addition, Lanza will serve as president of Tactical Systems.
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Loral Space Highlights
- ----------------------
Loral Space's space and telecommunications operations now will have
concentrated management focus, over $700 million in cash, no debt, a sufficient
financing in place to take advantage of a range of promising growth
opportunities in satellite-based businesses worldwide, including those that are
here now and those that will emerge in the future.
Loral Space has several principal operating assets. First is its 31%
interest in Globalstar, which is developing a $2 billion worldwide
satellite-based communications system capable of serving 10 million subscribers.
Loral Space is the managing general partner of Globalstar. Second is its 33%
interest in Space Systems/Loral, which is a leading commercial satellite
manufacturing company with annual sales of $1 billion. Other assets of the
enterprise will include all of Loral's Globalstar service provider franchises in
Canada, Mexico and Brazil; Loral's interest in the projected domestic and
international satellite DBS and broadband data projects, for example, Cyberstar;
and Loral's 22% interest in K&F Industries, a $250-million revenue aircraft
braking company. It is the intention over time to integrate the component
operating parts of Loral Space into a single entity.
"This transaction will enable the senior management of Loral Space to
focus on the satellite and space businesses, which have excellent potential for
growth," said Schwartz. "The participation of Lockheed Martin will enhance the
future of the new space company and will assure that the resources will be
available to complete the Globalstar project. Loral now will be a leading space
and communications company and have the opportunity to build and expand on its
current positions in satellite, data and information technologies, and direct
broadcast services."
At the same time it approved the Lockheed Martin strategic
combination, the Loral board of directors adopted a shareholder rights plan,
which is intended primarily to deter predatory or unfair acquisitions that might
interfere with the company's strategic objectives.
Terms of the Transaction
- ------------------------
Lockheed Martin's offer is contingent, among other things, on the
tendering of two-thirds of Loral's outstanding shares and government approvals,
including U.S. and European antitrust reviews.
-4-
Loral's board of directors will declare the distribution of Loral
Space and Communications Corporation shares to Loral shareholders of record
prior to closing the tender offer. The proceeds of the transaction received by
Loral's shareholders will be taxable to them. The two companies expect to close
the transaction by the end of February 1996.
A bank group, consisting of Morgan Guaranty Trust Co. of New York,
Bank of America and Citicorp USA, has committed $3.5 billion of financing and
has commenced the process to syndicate a $10-billion credit facility for
Lockheed Martin to support the tender offer.
Bear, Stearns & Co. is financial advisor to Lockheed Martin, will act
as dealer-manager in connection with the tender offer, and also rendered a
fairness opinion. Lazard Freres & Co, LLC and Lehman Brothers, Inc., are
financial advisors to Loral and Lazard has rendered a fairness opinion to
Loral's board of directors. The tender offer will be made pursuant to definitive
offering documents to be filed with the Securities and Exchange Commission.
Lockheed Martin, headquartered in Bethesda, Maryland, is a highly
diversified advanced technology company with current annual sales of $23
billion. It has 165,000 employees worldwide. Loral is a high technology company
that primarily concentrates in defense electronics, communications, space and
systems integration with annual sales of $6.7 billion. Headquartered in New York
City, Loral has 38,000 employees.
CONTACT:
Charles Manor/Lockheed Martin Corporation/301-897-6258
Joanne Hvala/Loral Corporation/212-697-1105
Ruth Pachman/Jim Fingeroth/Kekst and Co./212-593-2655
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