-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I9IW7LbFcUzPAqzqnKm95ogZKis5mTzzsWdS+Lv0ArFCuoISVowWaiP9o5N9unnh V9FxfqOdX4ujbUTFQoIdMw== 0000022698-98-000007.txt : 19980515 0000022698-98-000007.hdr.sgml : 19980515 ACCESSION NUMBER: 0000022698-98-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMSAT CORP CENTRAL INDEX KEY: 0000022698 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATION SERVICES, NEC [4899] IRS NUMBER: 520781863 STATE OF INCORPORATION: DC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04929 FILM NUMBER: 98621636 BUSINESS ADDRESS: STREET 1: 6560 ROCK SPRING DR CITY: BETHESDA STATE: MD ZIP: 20817 BUSINESS PHONE: 3012133000 MAIL ADDRESS: STREET 1: 6560 ROCK SPRING DRIVE CITY: BETHESDA STATE: MD ZIP: 20817 FORMER COMPANY: FORMER CONFORMED NAME: COMMUNICATIONS SATELLITE CORP /DE/ DATE OF NAME CHANGE: 19930719 10-Q 1 COMSAT CORPORATION FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended March 31, 1998 Commission File Number 1-4929 COMSAT CORPORATION 6560 Rock Spring Drive Bethesda, MD 20817 (301) 214-3000 District of Columbia 52-0781863 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety (90) days. Yes [X] No [ ] 51,815,836 shares of the Registrant's common stock were outstanding as of March 31, 1998. PART I. FINANCIAL INFORMATION ITEM 1. INTERIM FINANCIAL STATEMENTS FOR THE CORPORATION (UNAUDITED) COMSAT CORPORATION AND SUBSIDIARIES Condensed Consolidated Income Statements
Three Months Ended March 31, ----------------------------- In thousands, except per share amounts 1998 1997 - ------------------------------------------------------------------------------------------------------------------- REVENUES $ 144,717 $ 133,531 ----------- ------------ Operating expenses: Cost of services 65,945 59,623 Depreciation and amortization 51,495 43,463 Research and development 1,798 1,490 General and administrative 5,803 5,804 Total operating expenses 125,041 110,380 ----------- ------------ OPERATING INCOME 19,676 23,151 Other income (expense), net (2,825) (619) Interest expense, net of amounts capitalized (11,332) (9,662) ----------- ------------ Income from continuing operations before taxes and extraordinary item 5,519 12,870 Income tax expense (1,669) (4,771) ----------- ------------ INCOME FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY ITEM 3,850 8,099 Loss from discontinued operations, net of tax - (12,380) ----------- ------------ Income (loss) before extraordinary item 3,850 (4,281) Extraordinary loss from early extinguishment of debt (net of tax) - (1,010) ----------- ------------ NET INCOME (LOSS) $ 3,850 $ (5,291) =========== ============ EARNINGS (LOSS) PER COMMON SHARE - BASIC: Income from continuing operations before extraordinary item $ 0.08 $ 0.17 Loss from discontinued operations - (0.26) Extraordinary loss - (0.02) ----------- ------------ Net income (loss) $ 0.08 $ (0.11) =========== ============ EARNINGS (LOSS) PER COMMON SHARE - ASSUMING DILUTION: Income from continuing operations before extraordinary item $ 0.07 $ 0.16 Loss from discontinued operations - (0.25) Extraordinary loss - (0.02) ----------- ------------ Net income (loss) $ 0.07 $ (0.11) =========== ============ DIVIDENDS DECLARED PER COMMON SHARE $ 0.05 $ 0.195 =========== ============ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 2
COMSAT CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets
March 31, December 31, In thousands 1998 1997 - --------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 7,995 $ 5,757 Receivables 157,585 147,621 Other 35,240 22,387 Net assets of discontinued operations 131,873 142,484 ------------- ------------ Total current assets 332,693 318,249 ------------- ------------ Property and equipment (net of accumulated depreciation of $1,207,420 in 1998 and $1,161,242 in 1997) 1,387,555 1,359,293 Investments 111,565 91,543 Goodwill 12,519 12,722 Other assets 116,014 112,968 ------------- ------------ TOTAL ASSETS $ 1,960,346 $ 1,894,775 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 13,632 $ 13,785 Commercial paper 144,828 149,506 Accounts payable and accrued liabilities 79,716 89,772 Due to related parties 29,194 34,664 Other 7,597 8,919 ------------- ------------ Total current liabilities 274,967 296,646 ------------- ------------ Long-term debt 458,458 461,960 Deferred income taxes and investment tax credits 126,244 121,749 Accrued post-retirement benefit costs 49,552 49,246 Other long-term liabilities 209,499 178,903 Preferred securities issued by subsidiary 200,000 200,000 STOCKHOLDERS' EQUITY: Common stock 414,630 366,901 Retained earnings 228,105 226,785 Treasury stock (6,823) (1,758) Unearned compensation (5,792) (4,739) Accumulated other comprehensive income (loss) 11,506 (918) Total stockholders' equity 641,626 586,271 ------------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,960,346 $ 1,894,775 ============= ============ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 3
COMSAT CORPORATION AND SUBSIDIARIES Condensed Consolidated Cash Flow Statements
Three Months Ended March 31, ----------------------------- In thousands 1998 1997 - ------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 3,850 $ (5,291) Adjustments to reconcile net income (loss) to cash flow of continuing operations: Depreciation and amortization 51,495 43,463 Write-off of investment 1,950 - Extraordinary loss from early extinguishment of debt - 1,010 Loss from discontinued operations - 12,380 Changes in operating assets and liabilities (26,869) (6,401) Other 1,345 9,338 ----------- ------------ Net cash provided by continuing operations 31,771 54,499 Net cash used by discontinued operations (2,557) (5,801) ----------- ------------ Net cash provided by operating activities 29,214 48,698 ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (52,861) (64,260) Investments in unconsolidated businesses (5,113) (9,121) Proceeds from sale of investments 1,200 9,060 Proceeds from note on sale of investment - 6,809 Decrease in Inmarsat ownership 6,101 - Other 545 (162) ----------- ------------ Net cash used in investing activities (50,128) (57,674) ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Common stock issued 30,513 3,314 Cash dividends paid (2,530) (9,542) Repayment/extinguishment of long-term debt - (29,611) Net short-term borrowings (repayments) (4,831) 45,494 ----------- ------------ Net cash provided by financing activities 23,152 9,655 ----------- ------------ Net decrease in cash and cash equivalents 2,238 679 Cash and cash equivalents, beginning of period 5,757 7,659 ----------- ------------ Cash and cash equivalents, end of period $ 7,995 $ 8,338 =========== ============ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 4
COMSAT CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) 1. FINANCIAL STATEMENT PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared by COMSAT Corporation (COMSAT or the corporation) pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). These financial statements should be read in the context of the financial statements and notes thereto filed with the SEC in the corporation's 1997 Annual Report on Form 10-K. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such regulations. The accompanying condensed consolidated financial statements reflect all adjustments and disclosures which, in the opinion of management, are necessary for a fair presentation. All such adjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results of the entire year. 2. DISCONTINUED OPERATIONS The corporation began accounting for Ascent Entertainment Group, Inc. (Ascent), its former entertainment subsidiary, and substantially all of the assets and operations of COMSAT RSI, Inc. (CRSI), its manufacturing subsidiary, as discontinued operations in the second quarter of 1997. The consolidated financial statements have been restated for all prior periods presented to reflect the results of operations and net assets of Ascent and CRSI as discontinued operations. The income (loss) from discontinued operations, net of tax, for Ascent and CRSI for the quarter ended March 31, 1997, is summarized below:
In thousands 1997 ---------------------------------------------------------------------------------------------------------- Ascent $ (13,920) CRSI 1,540 ------------ Total $ (12,380) ============
COMSAT RSI, INC. Substantially all of CRSI was accounted for as discontinued operations beginning on June 30, 1997. CRSI designs, manufactures and integrates earth stations as well as wireless and advanced antenna systems. In February 1998, the corporation sold substantially all of the assets of JEFA Wireless Systems (JEFA), a wholly owned subsidiary of CRSI engaged in the wireless communications integration and intelligent transportation systems business, in a separate transaction. Pursuant to the sale agreement, the corporation assigned to the buyer its rights in certain contracts and made a payment of $4,663,000, net of a working capital adjustment at closing, to complete the transaction. 5 On March 16, 1998, the corporation entered into a stock purchase agreement to sell substantially all of the remainder of CRSI's businesses for cash of $116,500,000, subject to an adjustment based on intercompany loans and advances between the corporation and CRSI at closing. Closing for the CRSI sale is expected to occur on or before June 30, 1998, and is dependent upon completion of certain conditions agreed to by the parties, third party consents and regulatory filings. Certain of CRSI's assets were excluded from the sale, including Electromechanical Systems, Inc. (EMS) and CRSI's 53% ownership interest in Plexsys International Corporation (Plexsys). See "Management's Discussion and Analysis - Outlook." COMSAT also will retain and complete a long-term construction contract for a radio astronomy telescope in Green Bank, West Virginia. Discontinued operations include management's best estimates of the amounts expected to be realized on the sale of net assets, operating losses through anticipated disposal dates, facility closure costs and the estimated costs to complete the long-term contract retained by the corporation. These estimates could change as additional costs are incurred to complete the disposals and the long-term contract. The net assets of CRSI's discontinued operations included in the condensed consolidated balance sheets as of March 31, 1998 and December 31, 1997 are as follows:
March 31, December 31, In thousands 1998 1997 ----------------------------------------------------------------------------------------------------- Current assets $ 171,840 $ 181,456 Fixed assets, net 30,187 33,871 Intangible and other assets 10,243 12,989 Short-term debt 4,615 4,422 Other current liabilities 36,919 28,790 Provision for estimated loss on disposal 34,604 49,504 Long-term debt 1,540 1,540 Other non-current liabilities 2,719 1,576 -------------- -------------- Net assets of discontinued operations $ 131,873 $ 142,484 ============== ==============
ASCENT ENTERTAINMENT GROUP, INC. The corporation distributed its 80.67% interest in Ascent through a tax-free dividend to shareholders on June 27, 1997. COMSAT shareholders of record on June 19, 1997 received 0.4888 of a share of Ascent common stock for each share of COMSAT common stock owned. Ascent was accounted for as a discontinued operation beginning on May 15, 1997, the date on which the corporation's Board of Directors adopted a formal plan to effect the distribution. The tax-free dividend of approximately $195 million was recorded as a reduction of COMSAT's consolidated retained earnings. 6 3. CHANGE IN SATELLITE ACCOUNTING POLICIES Effective January 1, 1998, the corporation changed its accounting policy with respect to the cost of satellites lost at launch or in orbit. Such costs will be expensed in the period in which the satellite is lost at launch or experiences a total failure in orbit. Previously, the costs of failed satellites were amortized over their original useful lives. Partial in-orbit failures will be evaluated for impairment according to the provisions of Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-lived Assets to be Disposed of." Also effective January 1, 1998, the corporation changed its accounting policy with respect to satellite performance incentive payments paid to manufacturers to capitalize the net present value of such costs as a component of the cost of the satellite. Previously, certain of these payments were expensed as paid. These changes did not have a material effect on the corporation's financial statements. 4. COMPREHENSIVE INCOME In January 1998, the corporation adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and the display of comprehensive income and its components in the corporation's financial statements; however, the adoption of this statement had no impact on the corporation's results of operations or stockholders' equity. SFAS No. 130 requires minimum pension liability adjustments, unrealized gains and losses on the corporation's available-for-sale securities and foreign currency translation adjustments, which prior to adoption were reported separately in stockholders' equity, to be included in other comprehensive income. Total comprehensive income (loss) for the quarters ended March 31 were:
In millions 1998 1997 ---------------------------------------------------------------------------------------------------------- Net income (loss) $ 3.9 $ (5.3) Other comprehensive income (loss) 12.4 (4.4) ----------- ------------ Total comprehensive income (loss) $ 16.3 $ (9.7) =========== ============
During the three months ended March 31, 1998 and 1997, other comprehensive income (loss) consisted principally of the unrealized gain (loss) on available-for-sale securities, net of tax, of $12.2 million and $(3.3) million, respectively. 5. INTELSAT AND INMARSAT SHARE CHANGES The corporation's 18.0% ownership share of INTELSAT is unchanged from December 31, 1997. The corporation's ownership share of Inmarsat decreased from 23.0% at December 31, 1997 to 22.3% as of March 31, 1998. As a result of the change in ownership, the corporation received a total of $6.1 million during the first quarter of 1998. 7 6. INVESTMENTS In March 1998, the corporation wrote off its $2.0 million ($1.3 million net of tax) investment in Superconducting Core Technologies, Inc. (SCT). The non-cash charge is reported in Other income (expense), net on the condensed consolidated income statement. 7. REGULATORY ENVIRONMENT AND LITIGATION REGULATORY ENVIRONMENT. Under the Communications Satellite Act of 1962 (the Satellite Act), the International Maritime Satellite Act of 1978 (the Inmarsat Act) and the Communications Act of 1934, as amended (the Communications Act), COMSAT is subject to regulation by the Federal Communications Commission (FCC) with respect to its capital and organizational structure, as well as COMSAT World Systems (CWS) and COMSAT Mobile Communications (CMC) plant, operations, services and rates. FCC decisions and policies have had and will continue to have a significant impact on the corporation. In April 1998, the FCC granted the corporation's petition to be deregulated and reclassified as a "non-dominant" telecommunications carrier in the major markets of CWS. The FCC's decision eliminates rate-of-return restrictions, structural separation regulation and 14-day advance tariff notification in regard to 85% - 90% of COMSAT's INTELSAT business. It also allows CWS to integrate earth station and space segment services, requiring only that COMSAT list those offerings separately in tariff filings at the FCC. The FCC denied requests by major INTELSAT users to condition non-dominant carrier status on the grant of direct access for users to INTELSAT satellite capacity. The FCC also declined to act on a "fresh look" petition that challenged the enforceablility of COMSAT's long term carrier contracts. However, the FCC indicated that it would begin a future proceeding to consider direct access implications. For a discussion of these matters refer to "Management's Discussion and Analysis -- Outlook" section of the Form 10-Q and the description of the corporation's "Business" and Notes 8 and 9 to the corporation's 1997 financial statements included as part of the corporation's 1997 Form 10-K. LITIGATION. COMSAT and its subsidiaries are a party to various lawsuits and arbitration proceedings and are subject to various claims and inquiries, which generally are incidental to the ordinary course of its business. The outcome of legal proceedings cannot be predicted with certainty. Based on currently available information, however, management does not believe that the outcome of any matter which is pending or threatened, either individually or in the aggregate, will have a materially adverse effect on the consolidated financial condition of the corporation but could materially effect consolidated results of operations in a given year or quarter. Certain of those matters are discussed in Notes 8 and 9 to the corporation's 1997 financial statements included as part of the corporation's 1997 Form 10-K and "Item 1 - Legal Proceedings" of Part II of the Form 10-Q herein. 8 8. EARNINGS PER SHARE The following reconciliation illustrates the calculation of the corporation's basic and diluted earnings per share amounts for the quarter ended March 31:
In thousands, except per share amounts 1998 1997 ---------------------------------------------------------------------------------------------------------- Income from continuing operations before extraordinary item $ 3,850 $ 8,099 ============ ============ Basic: Weighted average shares 50,406 48,535 ============ ============ Per share $ 0.08 $ 0.17 ============ ============ Assuming dilution: Weighted average shares 50,406 48,535 Stock options 1,598 617 Restricted stock awards and units 233 333 ------------ ------------ Total 52,237 49,485 ============ ============ Per share $ 0.07 $ 0.16 ============ ============
9. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" and in February 1998 issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 131 establishes standards for the way public business enterprises report information about operating segments and the related disclosures about products and services, geographic areas and major customers. SFAS No. 132 requires revised disclosures about pension and post-retirement benefit plans. Adoption of SFAS No. 132 will not have a material effect on the corporation's presentation of pension and post-retirement benefit disclosures. In light of the recent developments in the corporation's regulatory environment (see Note 7 and the "Management's Discussion and Analysis -- Outlook" section of the Form 10-Q), the corporation is evaluating the effect of implementing SFAS No. 131 on its presentation of operating segments and related disclosures. The corporation will adopt SFAS Nos. 131 and 132 in the fourth quarter of 1998. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1997 ANALYSIS OF OPERATIONS CONSOLIDATED OPERATIONS CONTINUING OPERATIONS Consolidated revenues from continuing operations in the first quarter of 1998 were $144.7 million, $11.2 million higher than the same period last year. This improvement was primarily the result of a 36% increase in Network Services segment revenues. Operating income in the first quarter was $19.7 million, $3.5 million below the comparative period of 1997. The decrease in operating income was primarily the result of an increase in depreciation expense in both the Satellite Services segment as several new satellites were placed in service and the Network Services segment where new equipment was placed in service in COMSAT International (CI). The first quarter's results also included costs related to the completion of two customer contracts in CI and the resignation of the former president and general manager of CI. Other income (expense) for the first quarter was a net expense of $2.9 million, $2.2 million higher than the first quarter last year. The increased expense was a result of the first quarter non-cash write-off of the corporation's $2.0 million investment in Superconducting Core Technologies, Inc. in 1998 and a currency gain recorded in the first quarter of 1997 related to the sale of an equity investment. Interest expense, net of amounts capitalized for the first quarter of 1998, was $11.3 million, $1.6 million higher than the first quarter of 1997. The increase was primarily the result of a reduction in the amount of interest capitalized due to the completion of several satellite projects. Income tax expense for the first quarter was $1.6 million, a decrease of $3.2 million from the same period last year. The decline resulted from lower income on which tax expense is calculated. Income from continuing operations before extraordinary item for the first quarter of 1998 was $3.9 million, $4.2 million below the first quarter of 1997. Basic earnings per share for continuing operations for the first quarter was $0.08, $0.09 below the comparative period of 1997. Diluted earnings per share for continuing operations was $0.07, $0.09 below the same period in 1997. During the first half of 1997, the corporation repurchased $100 million of its long-term debt. This early extinguishment of debt resulted in an extraordinary loss in 1997 of $3.9 million. The portion of this extraordinary loss that was recorded in the first quarter of 1997 was $1.0 million. 10 DISCONTINUED OPERATIONS During the second quarter of 1997, the corporation began accounting for the operations of both Ascent Entertainment Group, Inc. (Ascent) and substantially all of COMSAT RSI, Inc. (CRSI) as discontinued operations. The consolidated financial statements have been restated for all periods presented to reflect the results of operations and net assets of Ascent and CRSI as discontinued operations. On June 27, 1997, the corporation completed the spinoff of its 80.67% ownership of Ascent as a tax-free dividend to COMSAT's shareholders. During the first quarter of 1997, the loss from the discontinued operations of Ascent totaled $13.9 million ($0.28 per fully diluted share). See Note 2 to the financial statements. The corporation signed a stock-purchase agreement on March 16, 1998, to sell substantially all of CRSI. See "Management's Discussion and Analysis -- Outlook." CRSI's first quarter 1997 income of $1.5 million ($0.03 per fully diluted share) is reported as a part of discontinued operations. See Note 2 to the financial statements. CONSOLIDATED RESULTS On a consolidated basis, the net income for the first quarter of 1998 was $3.9 million, compared to a net loss of $5.3 million in the same period of 1997. Basic earnings per share for the first quarter of 1998 was $0.08, $0.19 better than the first quarter of 1997. Diluted earnings per share was $0.07, $0.18 higher than the comparative period of last year. SEGMENT OPERATING RESULTS The corporation reports operating results in two segments - Satellite Services and Network Services. The Satellite Services segment includes both COMSAT World Systems (CWS) and COMSAT Mobile Communications (CMC). The Network Services segment includes COMSAT International (CI), COMSAT Laboratories and Government Programs. 11
RESULTS BY SEGMENT: Quarter Ended March 31, ----------------------------- In millions 1998 1997 - ------------------------------------------------------------------------------------------------------------------------ REVENUES Satellite Services: World Systems $ 65.9 $ 66.8 Mobile Communications 40.8 38.6 ---------- ---------- Total Satellite Services 106.7 105.4 ---------- ---------- Network Services: International 25.1 16.4 Laboratories 9.0 8.1 Government Programs 14.3 11.0 ---------- ---------- Total Network Services 48.4 35.5 ---------- ---------- Eliminations and other (10.4) (7.4) ---------- ---------- Total revenues $ 144.7 $ 133.5 ========== ========== OPERATING INCOME (LOSS) Satellite Services: World Systems $ 24.8 $ 28.1 Mobile Communications 7.8 5.5 ---------- ---------- Total Satellite Services 32.6 33.6 ---------- ---------- Network Services: International (5.6) (4.5) Laboratories (0.6) (0.1) Government Programs 0.9 0.3 ---------- ---------- Total Network Services (5.3) (4.3) ---------- ---------- Total segment operating income 27.3 29.3 General and administrative expense (5.8) (5.8) Other (1.8) (0.3) ---------- ---------- Total operating income $ 19.7 $ 23.2 ========== ==========
SATELLITE SERVICES Revenues in the Satellite Services segment in the first quarter were $106.7 million, $1.3 million higher than the first quarter of 1997. Operating income in the first quarter was $32.6 million, $1.0 million below the same period last year. CWS's revenues in the first quarter of 1998 were $65.9 million, $900,000 below the comparative period of 1997. The decrease in revenues was the result of declines in full-time voice revenues and lower fiber-optic cable restoration revenues, partially offset by increased revenues for International Business Service (IBS) traffic and wide-band mobile services. The improvement in IBS was due primarily to increases in high-speed data and Internet services. CWS's operating income for the first quarter was $24.8 million, $3.3 million lower than the same quarter last year. The decline in operating income was the result of increased depreciation from placing in service four INTELSAT satellites since February 1997 as well as from the lower revenues. 12 Revenues in CMC during the first quarter were $40.8 million, $2.2 million higher than the same period last year. The improved revenues were primarily from increased digital telephone traffic and services provided to the Federal Aviation Administration's (FAA) Wide Area Augmentation System (WAAS). The improvement in telephone traffic was, in part, due to activities in the Persian Gulf. CMC's operating income was $7.8 million, $2.3 million better that the first quarter of 1997. The improvement in operating income was the result of the increased revenues and lower operating costs, partially offset by increased depreciation from new Inmarsat satellites placed in service during the past year. NETWORK SERVICES Network Services revenues for the first quarter were $48.4 million, $12.9 million or 36% higher than the first quarter of last year. The operating loss in the first quarter was $5.3 million, compared to a $4.3 million loss for the same period last year. Revenues in CI during the first quarter were $25.1 million, $8.7 million or 53% higher than the same period last year. The first quarter improvement in revenues was driven primarily by increases in Brazil, Argentina, Colombia and Venezuela. CI's operating loss in the first quarter of 1998 was $5.6 million, compared to an operating loss of $4.5 million in the comparative quarter of 1997. The increased loss was primarily from costs in Brazil associated with two customer contracts completed in the first quarter of 1998. Revenue commitments under long-term contracts increased to $327 million at March 31, 1998, compared to $323 million at December 31, 1997 and $241 million at March 31, 1997. COMSAT Laboratories revenues in the first quarter of 1998 were $9.0 million, $900,000 better than the same period last year because of higher technical consulting and communication product revenues. The Laboratories' operating loss for the first quarter was $600,000, $500,000 higher than the first quarter of 1997. The increased loss for the quarter was primarily due to higher sales and marketing expenses to expand the Laboratories' commercial consulting and product businesses. The Laboratories' backlog at March 31, 1998, was $25 million, down from $28 million at December 31, 1997. Government Programs revenues for the first quarter of 1998 were $14.3 million, $3.3 million higher than the first quarter last year. The improvement over last year was primarily the result of increased revenues from the Commercial Satellite Communications Initiative (CSCI) contract. Operating income in Government Programs during the first quarter was $900,000, $600,000 better than the comparative quarter of last year. OUTLOOK MANY OF THE STATEMENTS THAT FOLLOW ARE FORWARD-LOOKING AND RELATE TO ANTICIPATED FUTURE EVENTS AND OPERATING RESULTS. STATEMENTS THAT LOOK FORWARD IN TIME ARE BASED ON MANAGEMENT'S CURRENT EXPECTATIONS AND ASSUMPTIONS, WHICH MAY BE AFFECTED BY SUBSEQUENT DEVELOPMENTS AND BUSINESS CONDITIONS, AND NECESSARILY INVOLVE RISKS AND UNCERTAINTIES. THESE STATEMENTS AND THE CORPORATION'S FUTURE OPERATING RESULTS MAY BE AFFECTED BY THE TIMING AND OUTCOME OF PENDING REGULATORY AND LEGISLATIVE ACTIONS, INCLUDING A BILL INTRODUCED IN CONGRESS WHICH CALLS FOR MAJOR AMENDMENTS TO THE COMMUNICATIONS SATELLITE ACT ADVERSE TO COMSAT AND THE PRIVATIZATION OF 13 INTELSAT AND INMARSAT; EFFORTS TO RESTRUCTURE INTELSAT AND INMARSAT; FCC PROCEEDINGS; COMPETITIVE BUSINESS CONDITIONS; THE DISPOSITION OF DISCONTINUED OPERATIONS; AND OTHER FACTORS. THEREFORE, THERE CAN BE NO ASSURANCE THAT ACTUAL FUTURE RESULTS WILL NOT DIFFER MATERIALLY FROM ANTICIPATED RESULTS. ALTHOUGH THE CORPORATION HAS ATTEMPTED TO IDENTIFY SOME OF THE IMPORTANT FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED, THOSE FACTORS SHOULD NOT BE VIEWED AS THE ONLY FACTORS WHICH MAY AFFECT FUTURE OPERATING RESULTS. During the first part of 1998, significant progress was made in the corporation's ongoing efforts to restructure INTELSAT and Inmarsat. The INTELSAT Assembly of Parties, at its March 1998 meeting, approved a restructuring plan to transfer six INTELSAT satellites (five currently in orbit and one to be launched in 1999) into a separate, new commercial company. The new company, which was previously referred to as "INC", has been temporarily named New Skies Satellites, N.V. (New Skies) and has been incorporated in the Netherlands. It is expected that the transfer of assets from INTELSAT to New Skies will occur during the third quarter of 1998. Additionally, an initial public offering is expected to occur sometime during 1999 to fund New Skies' future capital requirements. New Skies will operate as an entirely separate company, independent of INTELSAT. INTELSAT's direct ownership in New Skies will be set at 10 % and will be held in a non-voting trust. Individual ownership levels will be limited to 17% and it is expected that COMSAT's initial direct investment in New Skies will be approximately 16.6%. Competitors of New Skies are expected to initiate regulatory proceedings at the FCC seeking actions adverse to New Skies including challenges to U.S. market access. COMSAT currently consolidates its share of the accounts of INTELSAT and as such recognizes its portion of INTELSAT's results of operations each reporting period. COMSAT anticipates it will use the cost method of accounting for its investment in New Skies. Under the cost method, COMSAT would only recognize income at the time dividends from New Skies are received. COMSAT does not anticipate that New Skies will declare dividends during its first year of operations. As such, beginning at the time of the transfer of assets to New Skies, the corporation's pre-tax earnings from its investments in both INTELSAT and New Skies will be slightly lower each quarter. In March 1998, the Inmarsat Council approved a plan to transfer the operating assets of the current Inmarsat intergovernmental organization to a new company. This plan was presented at the April 1998 meeting of Inmarsat's Assembly of Parties. During its meeting, the Assembly endorsed the Council's plan for full privatization. At their next meeting, which is slated to occur in September 1998, the Assembly is expected to finalize outstanding issues. According to current plans, Inmarsat will become an independent commercial company in the first quarter of 1999. While the new company initially would not be publicly traded, it is expected that the company would proceed with an initial public offering within 24 months after its creation. As currently proposed, individual ownership in the new company would be capped at 15%, although COMSAT's current 22% ownership in Inmarsat would be grandfathered. COMSAT's voting rights, however, would be capped at 15% with respect to votes against certain shareholder resolutions. Prior to the public offering, owners are expected to be able to trade shares, and strategic investors are expected to invest up to $500 million in equity in the new company. 14 Approval of the final Inmarsat restructuring proposal will require (i) a vote of two-thirds of the member governments that are present and voting (up to 82, with each having one vote) at the Assembly of Parties at which approval is sought and (ii) a further decision by two-thirds of the Inmarsat Council that all conditions precedent to the transaction have been satisfied and that transaction documents are approved. The Inmarsat restructure timetable is contingent on Inmarsat member governments reaching broad consensus on implementing the proposed amendments to the Inmarsat Convention prior to formal ratification. If such consensus is not achieved, the ratification process could take longer. The corporation, as a minority shareholder and the U.S. signatory to Inmarsat, lacks the ability to independently effect a restructuring of Inmarsat. The success and timing of the corporation's privatization efforts will be dependent upon the corporation's ability to achieve a consensus among other signatories and participating member governments. Morever, the issue whether legislation authorizing U.S. approval of Inmarsat privatization is required has yet to be resolved. As with INTELSAT, COMSAT consolidates its shares of the accounts of Inmarsat. It is projected that COMSAT will own at least 20% of Inmarsat at the time it is privatized. Assuming COMSAT continues to own at least 20% of the new company and other details and assumptions related to the restructuring do not change, the corporation anticipates it will use the equity method of accounting for this investment. Under the equity method, the corporation would continue to include its proportionate share of the new company's operating results as part of the corporation's operating results. As such, the equity method of accounting for the privatized Inmarsat should not impact the corporations's net incom. Final determination of the accounting method for this investment will be dependent upon the terms and conditions of the final Inmarsat restructuring. On April 24, 1998, the FCC granted the corporation's petition for reclassification as a non-dominant common carrier in markets that represent approximately 85-90% of CWS's revenues. For those markets, rate-of-return regulation has been lifted effective immediately. In the remaining "thin-route" markets, which currently constitute 10-15% of the CWS business, the FCC denied the corporation's request for non-dominant status, but indicated that it would consider on an expedited basis a form of incentive-based regulation and issued a Notice of Proposed Rulemaking seeking public comment. The FCC also granted COMSAT's request to be able to file tariffs on one-day's notice with a presumption of lawfulness. The FCC also granted the corporation's request for the elimination of the CWS structural separation requirement, and also gave CWS authority to enter the earth station market on an unseparated and non-dominant basis. The FCC also indicated that it would initiate a proceeding to explore the legal, economic and policy implications of enabling users to have direct access to the INTELSAT system. Finally, the FCC concluded that COMSAT's long-term carrier contracts with AT&T, MCI and Sprint do not impede competition; thus such contracts would not be subject to regulatory abrogation based on the so called "fresh look" doctrine. On May 6, 1998, the U.S. House of Representatives passed a bill entitled the "Communications Satellite Competition and Privatization Act of 1997" (H.R. 1872). To become law, a companion bill will have to be considered and passed by the U.S. Senate, proceed through a House-Senate conference, and be signed by the President. While the corporation supports the bill's stated objective of privatizing INTELSAT and Inmarsat in a pro-competitive manner, COMSAT is opposed to the bill in its current form. 15 As passed by the House, if adequate progress toward privatization is not made or privatization is not completed in a prescribed manner by prescribed deadlines, H.R. 1872 could restrict COMSAT from offering certain important existing and future services via the INTELSAT and Inmarsat satellite systems. If privatization meeting the bill's criteria does not occur, the bill could impair COMSAT's investment in INTELSAT and Inmarsat by, among other actions, possibly requiring the return of orbital positions and spectrum needed in INTELSAT and Inmarsat operations. The bill also would require the FCC to establish direct access to the INTELSAT and Inmarsat satellite systems in the U.S., thus discontinuing after 2000 COMSAT's exclusive provider role, subject to certain conditions and safeguards. Specifically, the bill was amended to ensure that any direct access scheme compensate COMSAT for its costs as signatory operator, and that the corporation otherwise receive full fair market value for investment-based access arrangements. The bill, however, would link the removal of the existing 10% ownership limitation on COMSAT's common stock under the Satellite Act to the time when direct access is granted. In addition, the bill authorizes the FCC to relieve COMSAT customers of their obligations under traffic agreements during a one-time reevaluation period in 2000. A petition for similar regulatory action has been pending before the FCC for two years. Recently, the FCC rejected arguments that such traffic agreements were anti-competitive and permitted such agreements to stand. The bill also specifies criteria for the proposed restructuring of INTELSAT that, if not implemented, might restrict INTELSAT's proposed new commercial affiliate, New Skies, from accessing the U.S. market. However, if INTELSAT and Inmarsat are privatized in accordance with criteria specified in the bill, the service restrictions and market access exclusions could be avoided. Direct access to Inmarsat would be precluded if Inmarsat privatizes on its current schedule, as would direct access to the video services carried by New Skies. The corporation is, and will continue, opposing the bill, unless it is modified in a manner that would not adversely affect the corporation's business and the value of its shareholders' investments in the INTELSAT and Inmarsat satellite systems. The corporation is unable to predict when or whether the Senate will act on the bill. However, the corporation expects any Senate bill will exclude many provisions of H.R. 1872 which possibly could impair COMSAT's investments and operations. CI was awarded two licenses in its operating companies in Brazil and Peru. CI's license in Peru, which was awarded during the first quarter, allows COMSAT Peru to provide advanced voice, data and multimedia communications networks for businesses operating in Lima, Peru. In April 1998, COMSAT Brasil was awarded a license that permits the CI company to provide one-stop shopping, shared hub services and international connectivity. Both licenses facilitate the expansion of CI's service offerings and geographic presence in Latin America. In March 1998, the corporation signed a stock purchase agreement to sell substantially all of CRSI for $116.5 million in cash. The sale price is subject to adjustment based on inter-company loans and advances between COMSAT and CRSI at the time of the closing. Closing of the sale is expected to occur on or before June 30, 1998, and is dependent upon completion of certain conditions agreed to by the parties, third party consents and regulatory filings. 16 Certain of CRSI's assets were excluded from the sale transaction, including Electromechanical Systems, Inc. (EMS), a long-term construction contract for a radio astronomy telescope and CRSI's 53% ownership interest in Plexsys International Corporation (Plexsys). The corporation anticipates disposing of EMS and has commenced preliminary discussions with potential buyers. The corporation is unable to predict whether an agreement will be concluded on acceptable terms. In the first quarter of 1998, Plexsys substantially reduced its operations and laid off most of its staff. The corporation does not anticipate that it will recover its investment in Plexsys or certain amounts owed to it by Plexsys. In addition, in February 1998, the corporation sold substantially all of the assets of JEFA Wireless Systems, a wholly owned subsidiary of CRSI, in a separate transaction. See Note 2 to the financial statements. The financial impact of the disposition of CRSI was included in the corporation's 1997 loss from discontinued operations. The corporation believes that the reserves it has established for the disposition of CRSI are adequate. There can be no assurance, however, that additional reserves will not be required. YEAR 2000 ISSUE The year 2000 issue is the result of computer programs being written using two digits rather than four digits to define the applicable year (i.e. "97" for 1997). Certain of the corporation's computer programs that have date-sensitive software may not operate properly when the last two digits become "00", as will occur on January 1, 2000. To the extent that this situation may exist, there is a potential for computer system failure or miscalculations, which could cause disruption of operations. The problem is not limited to computer programs, as some of the corporation's equipment that has date-sensitive processors may not be able to process dates after December 31, 1999. In the second half of 1996, the corporation initiated a program to identify and properly address issues associated with the year 2000 problem in order to avoid interruption to the corporation's operations at the turn of the century. The corporation has made substantial progress in assessing how it will be impacted by the year 2000 issue. Currently, the corporation is in the process of modifying or replacing computer systems and other date-sensitive equipment, so that the corporation's key systems will be year 2000 compliant. The corporation presently believes that such changes to the corporation's key systems and equipment will be completed and tested by the end of the second quarter of 1999. The corporation's current estimate is that it will cost between $3 million and $5 million prior to January 1, 2000, to modify its in-house management information systems, customer products, and other systems and equipment impacted by the year 2000 issue. The corporation does not expect the costs directly attributable to the year 2000 issue to have a material effect on its consolidated results from operations in a given year. Year 2000 modifications and replacements are based on management's best estimates, which were derived using assumptions of future events, including the continued availability of resources and the reliability of third party modification plans. Specific factors that might cause material differences in the estimates include, but are not limited to, the availability and cost of personnel with appropriate and necessary skills, the ability to locate and correct all relevant computer code and similar uncertainties. 17 LIQUIDITY AND CAPITAL RESOURCES The primary sources of cash in the first three months of 1998 were cash from operations and the proceeds from the exercise of stock options. Cash was used primarily for the purchase of property and equipment. The corporation's working capital at March 31, 1998 was $57.7 million, $36.1 million higher than at December 31, 1997. The increase in working capital during the first quarter of 1998 was primarily the result of an increase in receivables and decreases in commercial paper, accounts payable and accrued liabilities. The corporation has access to short-term and long-term financing at favorable rates. The corporation's current long-term debt ratings are A- from Standard and Poor's and A3 from Moody's. The corporation's current commercial paper ratings are A2 from Standard and Poor's and P2 from Moody's. The corporation's $200 million commercial paper program had $145 million in borrowings outstanding at March 31, 1998. A $200 million credit agreement, expiring in 1999, backs up the corporation's commercial paper program. The corporation plans to reduce short-term debt with the proceeds from the sale of substantially all of the assets and operations of CRSI. Consummation of the sale of CRSI, however, remains subject to certain conditions. See "Management's Discussion and Analysis -- Outlook." The corporation had $36 million remaining at March 31, 1998 under a $100 million medium-term note program, which is unchanged from year-end 1997. The medium-term program is part of a $200 million debt securities shelf registration program initiated in 1994. The corporation's capital structure and debt-financing activities are regulated by the FCC. The corporation is required to submit a capitalization plan to the FCC for review annually. In August 1997, the FCC approved the corporation's 1997 capitalization plan. The corporation plans to submit its 1998 capitalization plan in May 1998. Under the approved FCC guidelines, the corporation is subject to a limit of $200 million in short-term debt, a maximum long-term debt-to-total-capital ratio of 45% and an interest coverage ratio of 2.3 to 1. The latter two guidelines are measured at year end. The corporation was in compliance with the $200 million short-term debt limit as of March 31, 1998. If the corporation were to fail to satisfy one or more of the FCC guidelines as of an applicable measurement date, the corporation would be required to seek advance FCC approval of future financing activities on a case-by-case basis. If such approval were not granted, the corporation could be required to reduce or reschedule planned capital investments, reduce cash outlays, reduce debt or sell assets. 18 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See Note 7 of this Form 10-Q and Item 3 of the Corporation's 1997 Form 10-K, which are incorporated herein by reference. In the third quarter of 1997, IDB Mobile Communications, Inc. (IDB) informed COMSAT that it was no longer purchasing Inmarsat satellite capacity for its U.S. land earth stations from COMSAT, but was using another signatory. COMSAT believes that IDB is required to purchase that capacity from COMSAT under the terms of IDB's service contract with COMSAT, U.S. law and the Inmarsat Operating Agreement. After attempts to resolve this issue failed, COMSAT filed a lawsuit against IDB seeking damages for breach of contract in January 1998. In response, IDB filed a petition for a declaratory ruling asking the FCC to rule that operators of Inmarsat land earth stations may purchase Inmarsat satellite capacity from foreign signatories and a motion to dismiss or stay the lawsuit until the FCC rules. In May 1998, the United States District Court for the District of Maryland, Southern Division dismissed the corporation's breach of contract lawsuit and indicated that, in its opinion, the FCC was the appropriate forum for the enforcement of COMSAT's claim. The corporation plans to seek reconsideration of the District Court's decision. If the District Court does not modify its ruling, COMSAT plans to file a complaint with the FCC to enforce IDB's payment obligation. ITEM 2. CHANGE IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. (a) EXHIBITS 10.1 - Stock Purchase and Sale Agreement dated as of March 16, 1998 among COMSAT Corporation, TBG Industries, Inc. and Prodelin Holding Corporation. 18 - Letter regarding change in accounting principles 27 - Financial Data Schedule 19 (b) REPORTS ON FORM 8-K Report dated February 20, 1998, reporting the corporation's 1997 earnings and announcing that the corporation's Annual Meeting of Shareholders has been scheduled for May 15, 1998. Report dated March 12, 1998, announcing that the corporation's first quarter 1998 results will include a $1.3 million non-cash charge to reflect the write-off of its investment in Superconducting Core Technologies, Inc. Report dated March 17, 1998, announcing that the corporation signed a stock purchase agreement to sell substantially all of COMSAT RSI, Inc. (CRSI) to a subsidiary of TBG Industries, Inc. 20 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. COMSAT CORPORATION By /S/ ALAN G. KOROBOV ------------------- Alan G. Korobov Controller Date: May 14, 1998 21 EX-10 2 STOCK PURCHASE AND SALE AGREEMENT Exhibit 10.1 ============================================================================== STOCK PURCHASE AND SALE AGREEMENT dated as of March 16, 1998 among COMSAT CORPORATION, a District of Columbia corporation, TBG INDUSTRIES, INC. a Delaware corporation, and PRODELIN HOLDING CORPORATION, a Delaware corporation, as Buyer ============================================================================== 1481337
TABLE OF CONTENTS ARTICLE I DEFINITIONS..................................................................................1 1.1 DEFINITIONS..................................................................................1 ARTICLE II PURCHASE AND SALE OF SHARES; CLOSING........................................................11 2.1 CERTAIN ASSETS AND LIABILITIES..............................................................11 2.2 PURCHASE AND SALE...........................................................................12 2.3 CLOSING.....................................................................................12 2.4 PURCHASE PRICE..............................................................................12 2.4.1 JUNE STATEMENTS..................................................................12 2.4.2 PRE-CLOSING STATEMENT............................................................13 2.5 CLOSING DELIVERIES..........................................................................14 2.5.1 PURCHASE PRICE...................................................................14 2.5.2 SHARE CERTIFICATES...............................................................14 2.5.3 CORPORATE RECORDS................................................................14 2.5.4 ANCILLARY AGREEMENTS.............................................................14 2.5.5 CLOSING DOCUMENTS TO BE DELIVERED BY SELLER......................................15 2.5.6 CLOSING DOCUMENTS TO BE DELIVERED BY BUYER.......................................15 2.6 PURCHASE PRICE ADJUSTMENT...................................................................15 2.6.1 CLOSING STATEMENT................................................................15 2.6.2 OBJECTIONS; RESOLUTIONS..........................................................15 2.6.3 WORKPAPERS.......................................................................16 2.6.4 FINAL ADJUSTMENTS................................................................16 2.6.5 FEES AND EXPENSES................................................................19 ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER....................................................19 3.1 CORPORATE STATUS AND AUTHORITY OF SELLER....................................................19 3.2 NO CONFLICTS, ETC...........................................................................20 3.2.1 NO CONFLICTS.....................................................................20 3.2.2 CONSENTS AND APPROVALS...........................................................20 3.3 CORPORATE STATUS AND AUTHORITY OF CRSI AND THE SUBSIDIARIES.................................20 3.4 OWNERSHIP OF CRSI AND THE SUBSIDIARIES......................................................21 3.5 TRANSFER OF SHARES..........................................................................22 3.6 FINANCIAL STATEMENTS, ETC...................................................................22 3.6.1 SCHEDULES........................................................................22 3.6.2 ACCURACY.........................................................................23 3.6.3 NO UNDISCLOSED LIABILITIES.......................................................23 3.6.4 ABSENCE OF CHANGES...............................................................23 3.7 PROPERTIES; LEASES; TANGIBLE ASSETS.........................................................25 3.7.1 TITLE............................................................................25 3.7.2 LEASES...........................................................................26 3.7.3 DOCUMENTS........................................................................26 i 3.8 ACCOUNTS RECEIVABLE.........................................................................26 3.9 INVENTORY...................................................................................27 3.10 INTELLECTUAL PROPERTY.......................................................................27 3.10.1 PATENTS AND KNOW-HOW.............................................................27 3.10.2 TRADEMARKS AND COPYRIGHTS........................................................28 3.10.3 COMPUTER SOFTWARE................................................................29 3.11 MATERIAL CONTRACTS..........................................................................30 3.11.1 IDENTIFICATION...................................................................30 3.11.2 FULL FORCE AND EFFECT............................................................31 3.12 LITIGATION AND INVESTIGATION................................................................31 3.13 TAXES.......................................................................................32 3.14 EMPLOYEES; COMPENSATION; LABOR..............................................................34 3.14.1 EMPLOYEES AND COMPENSATION.......................................................34 3.14.2 CERTAIN LABOR MATTERS............................................................34 3.14.3 EMPLOYEE BENEFIT PLANS; ERISA....................................................35 3.15 ENVIRONMENTAL MATTERS.......................................................................36 3.15.1 ENVIRONMENTAL PERMITS............................................................36 3.15.2 NO VIOLATION.....................................................................36 3.15.3 NO NOTICE........................................................................36 3.15.4 NO BASIS FOR LIABILITY...........................................................36 3.15.5 UNDERGROUND IMPROVEMENTS.........................................................37 3.15.6 RECORDS..........................................................................37 3.15.7 LIENS............................................................................37 3.16 GOVERNMENT CONTRACTS........................................................................37 3.16.1 COMPLIANCE.......................................................................37 3.16.2 INVESTIGATIONS...................................................................38 3.16.3 ABSENCE OF CLAIMS................................................................39 3.16.4 ELIGIBILITY......................................................................39 3.17 COMPLIANCE WITH LAWS........................................................................39 3.17.1 GENERAL..........................................................................39 3.17.2 EXPORT CONTROL...................................................................39 3.17.3 SECURITY CLEARANCES..............................................................40 3.18 INSURANCE...................................................................................40 3.19 BROKERS.....................................................................................40 3.20 DISCLOSURE..................................................................................40 3.21 RELATED PARTY TRANSACTIONS..................................................................41 3.22 BANK ACCOUNTS...............................................................................41 3.23 CONFLICTS OF INTEREST.......................................................................41 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF TBG AND BUYER......................................41 4.1 CORPORATE STATUS AND AUTHORITY OF TBG AND BUYER.............................................41 4.2 NO CONFLICTS, ETC...........................................................................42 4.2.1 NO CONFLICTS.....................................................................42 4.2.2 CONSENTS AND APPROVALS...........................................................42 ii 4.3 SUFFICIENT FUNDS............................................................................43 4.4 BROKERS.....................................................................................43 4.5 PURCHASE FOR INVESTMENT.....................................................................43 ARTICLE V COVENANTS...................................................................................43 5.1 CONDUCT OF THE BUSINESS.....................................................................43 5.1.1 ORDINARY COURSE..................................................................43 5.1.2 CASH MANAGEMENT..................................................................45 5.2 ACCESS TO INFORMATION.......................................................................46 5.2.1 ACCESS...........................................................................46 5.2.2 CONFIDENTIALITY..................................................................46 5.2.3 NOTICE TO SELLER.................................................................46 5.3 FILINGS AND AUTHORIZATIONS..................................................................47 5.4 TAX MATTERS.................................................................................47 5.4.1 TAX RETURNS......................................................................47 5.4.2 INDEMNITY........................................................................48 5.4.3 TAX LIABILITY....................................................................49 5.4.4 TAX CONTESTS.....................................................................49 5.4.5 COOPERATION......................................................................51 5.5 PURCHASE SUPPORT AGREEMENT..................................................................51 5.6 NAME AND MARKS..............................................................................52 5.6.1 BUYER'S OBLIGATIONS..............................................................52 5.6.2 SELLER'S OBLIGATIONS.............................................................52 5.7 NOTICE TO BUYER.............................................................................52 5.8 FURTHER ASSURANCES..........................................................................52 5.9 PUBLIC ANNOUNCEMENTS........................................................................52 5.10 COMPANY RECORDS.............................................................................53 5.10.1 RETENTION........................................................................53 5.10.2 COOPERATION WITH RESPECT TO EXAMINATIONS AND CONTROVERSIES....................................................................53 5.10.3 REMEDY FOR FAILURE TO COMPLY.....................................................53 5.11 ACCESS TO REAL PROPERTIES...................................................................53 5.12 COOPERATION OF BUYER........................................................................54 5.13 DISCLOSURE SCHEDULES........................................................................54 5.13.1 DELIVERY. .......................................................................54 5.13.2 INTERPRETATION...................................................................54 5.14 EMPLOYEE BENEFIT MATTERS....................................................................54 5.14.1 EMPLOYEE BENEFIT DEFINITIONS.....................................................54 5.14.2 WELFARE PLANS FOLLOWING THE CLOSING..............................................55 5.14.3 RETENTION AGREEMENTS.............................................................56 5.14.4 SAVINGS PROGRAM..................................................................56 5.14.5 VACATION AND HOLIDAYS............................................................57 5.14.6 WARN ACT COMPLIANCE..............................................................57 5.14.7 EXCLUDED EMPLOYEES...............................................................57 5.15 ADMINISTRATION OF ACCOUNTS..................................................................57 iii 5.15.1 IN TRUST FOR BUYER...............................................................57 5.15.2 IN TRUST FOR SELLER..............................................................57 5.16 NEGOTIATIONS WITH OTHERS....................................................................58 5.17 EXCHANGE PROCEEDS...........................................................................58 5.18 NONCOMPETITION AND NONSOLICITATION..........................................................58 5.18.1 NONCOMPETITION...................................................................58 5.18.2 NONSOLICITATION..................................................................59 5.18.3 VALIDITY.........................................................................60 5.19 EXCLUDED CONTRACTS..........................................................................60 5.20 FINANCIAL REPORTS...........................................................................60 5.21 GREENBANK SURETY BOND.......................................................................60 ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER................................................61 6.1 CONDITIONS..................................................................................61 6.1.1 REPRESENTATIONS AND WARRANTIES ACCURATE..........................................61 6.1.2 PERFORMANCE BY SELLER............................................................61 6.1.3 GOVERNMENT AUTHORIZATIONS........................................................61 6.1.4 OPINION OF COUNSEL...............................................................62 6.1.5 SURVEYS..........................................................................62 6.1.6 ENVIRONMENTAL....................................................................62 6.1.7 ABSENCE OF ADVERSE CHANGE........................................................62 6.1.8 SECURITY CLEARANCE...............................................................63 6.1.9 COMPLIANCE WITH ISRA.............................................................63 6.1.10 GREENBANK NOVATION...............................................................63 6.1.11 EXPORT LICENSES..................................................................63 6.1.12 ANCILLARY AGREEMENTS.............................................................64 6.2 WAIVER......................................................................................64 ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER...............................................64 7.1 CONDITIONS..................................................................................64 7.1.1 REPRESENTATIONS AND WARRANTIES ACCURATE..........................................64 7.1.2 PERFORMANCE BY BUYER.............................................................64 7.1.3 GOVERNMENT AUTHORIZATIONS........................................................64 7.1.4 OPINION OF COUNSEL...............................................................64 7.1.5 CHANGE OF NAME...................................................................65 7.2 WAIVER......................................................................................65 ARTICLE VIII INDEMNIFICATION.............................................................................65 8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES..................................................65 8.1.1 OF THE SELLER....................................................................65 8.1.2 OF THE BUYER.....................................................................65 8.2 GENERAL INDEMNITY...........................................................................65 8.2.1 INDEMNIFICATION BY SELLER........................................................65 iv 8.2.2 INDEMNIFICATION BY BUYER.........................................................66 8.2.3 LIMITATIONS......................................................................67 8.2.4 IVORY COAST......................................................................68 8.3 DEFENSE OF THIRD PARTY CLAIMS...............................................................69 8.3.1 NOTICE...........................................................................69 8.3.2 DEFENSE OF CLAIMS................................................................69 8.3.3 SETTLEMENT.......................................................................70 8.3.4 COOPERATION......................................................................70 8.4 SPECIAL INDEMNITY...........................................................................70 8.5 NO CONTRIBUTION FROM COMPANY................................................................70 ARTICLE IX TERMINATION.................................................................................71 9.1 TERMINATION EVENTS..........................................................................71 9.2 EFFECT OF TERMINATION.......................................................................71 ARTICLE X MISCELLANEOUS...............................................................................72 10.1 REMEDIES; EXCLUSIVITY OF REPRESENTATIONS AND WARRANTIES; RELATIONSHIP BETWEEN THE PARTIES............................................................72 10.1.1 REMEDIES............................................................................72 10.1.2 EXCLUSIVITY OF REPRESENTATIONS AND WARRANTIES; RELATIONSHIP BETWEEN THE PARTIES..................................................................72 10.2 EXPENSES....................................................................................73 10.3 AMENDMENT...................................................................................73 10.4 ENTIRE AGREEMENT............................................................................73 10.5 NOTICES.....................................................................................73 10.6 SEVERABILITY................................................................................75 10.7 WAIVER......................................................................................75 10.8 BINDING EFFECT; ASSIGNMENT..................................................................75 10.9 NO THIRD PARTY BENEFICIARIES................................................................75 10.10 COUNTERPARTS................................................................................76 10.11 GOVERNING LAW...............................................................................76 10.12 CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL...............................................76 10.12.1 CONSENT TO JURISDICTION..........................................................76 10.12.2 WAIVER OF JURY TRIAL.............................................................77 10.13 CONSTRUCTION................................................................................77 10.13.1 WORDS............................................................................77 10.13.2 CROSS REFERENCES.................................................................77 10.13.3 NO PRESUMPTION...................................................................77 10.13.4 EXHIBITS AND SCHEDULES...........................................................77 10.14 INDEPENDENCE OF COVENANTS AND REPRESENTATIONS AND WARRANTIES..................................................................................77 v EXHIBITS - -------- Exhibit A-1 Form of Asset Distribution and Assumption Agreement Exhibit A-2 Form of Assignment and Assumption Agreement Exhibit B Form of Promissory Note Exhibit C Form of Technology License Agreement Exhibit D Form of Transition Services Agreement Exhibit E Form of Sublease Agreement Exhibit F Form of Guarantee Assumption Agreement Exhibit G Form of Post Closing Note Exhibit H Form of Greenbank Novation Agreement Exhibit I Form of Greenbank Subcontract DISCLOSURE SCHEDULES - -------------------- I Knowledge of Seller II Distributed Assets and Liabilities III Excluded Contracts 2.4.1 June Statements 2.6.1 Intercompany Loans and Advances Principles and Methods 3.2.1 Conflicts as to Material Contracts 3.2.2 Consents and Approvals 3.3 Subsidiaries of CRSI; Stockholders and Capital Stock; Jurisdictions Where CRSI and the Subsidiaries are Qualified 3.4 Existing Options, Warrants, Calls, Rights, Arrangements, etc. Unissued Capital Stock of CRSI and the Subsidiaries 3.6.1 Financial Statements 3.6.4 Absence of Changes 3.7.1 Real Property 3.7.2 Leases of Real Property and Certain Equipment 3.7.3(b) Pending Condemnation Proceedings or Proceedings in Relation to Real Property 3.7.3(c) Agreements Granting Right of Use of Occupancy of Real Properties 3.8 Delinquent Accounts Receivable 3.10.1 Patents and Licenses 3.10.2 Trademarks, Copyrights and Licenses 3.10.3 Computer Software 3.11.1 Material Contracts 3.11.2 Material Contract Exceptions 3.12 Litigation and Investigation 3.13 Taxes vi 3.14.1 Employees; Benefit Plans; Employment Policies 3.14.2 Certain Labor Matters 3.14.3 Employee Benefit Plans; ERISA 3.15.1 Environment Permits 3.15.2 Violation of Environmental Laws 3.15.3 Notice of Violation of Environmental Laws 3.15.4 Basis for Liability 3.15.5 Underground Improvements, Dumps and Land Fills Subject to Environmental Laws 3.16.1 Noncompliance with Government Contracts 3.16.2 Investigations with respect to Government Contracts 3.16.3 Outstanding Claims with respect to Government Contracts 3.16.4 Non-Eligibility with respect to Government Contracts 3.17.2 Noncompliance with Export Control 3.17.3 Facility Security Clearances 3.18 Insurance Policies 4.2.2 Consents and Approvals 4.2.2(ii) Filings Required by the Department of Defense Industrial Security Regulation or Department of Defense Industrial Security Manual 5.1(m) 1997 or 1998 Fiscal Year Capital Expenditures 5.5 Goods and Services to be Supplied by CRSI and Subsidiaries subject to the "Purchase Support Agreement" 5.14.1 Excluded Employees 5.14.3 Employee Retention Agreements 1481337
vii STOCK PURCHASE AND SALE AGREEMENT This STOCK PURCHASE AND SALE AGREEMENT, dated as of March 16, 1998, is made by and between COMSAT Corporation, a District of Columbia corporation ("Seller"), TBG Industries, Inc., a Delaware corporation ("TBG"), and Prodelin Holding Corporation, a Delaware corporation and a wholly owned subsidiary of TBG ("Buyer"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, Seller owns all of the issued and outstanding shares of capital stock of COMSAT RSI, Inc., a Delaware corporation ("CRSI"); WHEREAS, CRSI and the Subsidiaries (as defined herein) design, manufacture, install and support systems and products for satellite, terrestrial and wireless communications, as well as antennas and products for air traffic control, radar and specialized applications (the "Business" (PROVIDED THAT, for all purposes of this Agreement, Business shall not be deemed to include any of the Excluded Assets and Liabilities)); WHEREAS, upon the terms and subject to the conditions contained herein, Seller desires to sell, and Buyer desires to purchase, all of the issued and outstanding capital stock of CRSI consisting of 1,000 shares of common stock, par value $1.00 per share (the "Shares"); and WHEREAS, immediately prior to the Closing, and upon the terms and subject to the conditions contained herein, Seller shall cause certain of CRSI's assets and liabilities to be distributed to Seller or a wholly owned subsidiary thereof; NOW, THEREFORE, in consideration of the premises and the mutual representations, warranties, covenants and agreements contained herein, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.1 DEFINITIONS. Unless the context otherwise requires, the following terms shall have the following meanings for all purposes of this Agreement and shall be equally applicable to both the singular and the plural forms of the terms herein defined: "ADJUSTED DECEMBER STATEMENTS" shall have the meaning specified in Section 3.6.1(d) hereof. 1481337 "ADJUSTED JUNE BALANCE SHEET" shall have the meaning specified in Section 2.4.1 hereof. "ADJUSTED JUNE STATEMENTS" shall have the meaning specified in Section 3.6.1(b) hereof. "AFFILIATE" means, with respect to any specified Person, any Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such specified Person. "AGREEMENT", "THIS AGREEMENT", "HEREIN", "HEREUNDER", "HEREOF", "HEREBY" or other like words mean this Stock Purchase Agreement as originally executed or as modified or amended pursuant to the applicable provisions hereof. "ANCILLARY AGREEMENTS" means, collectively, the Distribution Agreement, the Technology License Agreement, the Transition Services Agreement, the Guarantee Assumption Agreement, the Sublease Agreement and the Assignment and Assumption Agreements. "ARBITER" shall have the meaning specified in Section 2.6.2 hereof. "ASSIGNMENT AND ASSUMPTION AGREEMENT(S)" shall have the meaning specified in Section 2.1(b) hereof. "BUSINESS" shall have the meaning specified in the second Whereas clause hereof. "BUYER" shall have the meaning specified in the preamble hereof. "BUYER INDEMNITEE" shall have the meaning specified in Section 8.2.1 hereof. "CLAIM" shall have the meaning specified in Section 8.3.1 hereof. "CLAIM NOTICE" shall have the meaning specified in Section 8.3.1 hereof. "CLOSING" shall have the meaning specified in Section 2.3 hereof. "CLOSING DATE" shall have the meaning specified in Section 2.3 hereof. "CODE" means the Internal Revenue Code of 1986, as amended. "COMPETING BUSINESS" shall have the meaning specified in Section 5.18 hereof. 1481337 2 "COMPUTER SOFTWARE" shall have the meaning specified in Section 3.10.3 hereof. "COMSAT" shall have the meaning specified in the preamble hereof. "CONFIDENTIALITY AGREEMENT" shall have the meaning specified in Section 5.2.2 hereof. "CONSENTS" shall have the meaning specified in Section 6.1.3(b) hereof. "CRSI" shall have the meaning specified in the first Whereas clause hereof, except that CRSI shall not refer to any of the Excluded Assets and Liabilities. "CRSI ACQUISITION DATE" means June 3, 1994. "CRSI TECHNOLOGY" shall have the meaning specified in Section 3.10.1 hereof. "DECREASED ADJUSTED NOTE" shall have the meaning specified in Section 2.6.4(a)(iv). "DECREASED ADJUSTED PRINCIPAL" shall have the meaning specified in Section 2.6.4(a)(iv). "DISTRIBUTED ASSETS" shall have the meaning specified in Section 2.1 hereof. "DISTRIBUTED ASSETS AND LIABILITIES" shall have the meaning specified in Section 2.1 hereof. "DISTRIBUTED LIABILITIES" shall have the meaning specified in Section 2.1 hereof. "DISTRIBUTION AGREEMENT" shall have the meaning specified in Section 2.1 hereof. "EMPLOYEES" shall have the meaning specified in Section 3.14.1 hereof. "EMPLOYEE PLANS" shall have the meaning specified in Section 5.14.1 hereof. "ENVIRONMENTAL LAWS" means any Laws (including without limitation the Comprehensive Environmental Response, Compensation and Liability Act), including any plan, judgment, injunction, notice or demand letter issued, 1481337 3 entered, promulgated or approved by any Governmental Authority, now or hereafter in effect relating to the generation, production, installation, use, storage, treatment, transportation, release, threatened release or disposal of Hazardous Materials, noise control, or the protection of natural resources or the environment. "ERISA" shall have the meaning specified in Section 3.14.3 hereof. "ERISA PLAN" shall have the meaning specified in Section 3.14.3 hereof. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXCLUDED ASSETS" shall mean, collectively, the Distributed Assets and Excluded Contracts. "EXCLUDED ASSETS AND LIABILITIES" shall mean, collectively, the Excluded Assets and the Excluded Liabilities. "EXCLUDED CONTRACTS LIABILITIES" shall have the meaning specified in Section 2.1(b) hereof. "EXCLUDED CONTRACTS AND LIABILITIES" shall have the meaning specified in Section 2.1(b) hereof. "EXCLUDED EMPLOYEES" shall have the meaning specified in Section 5.14.1 hereof. "EXCLUDED GOVERNMENT CONTRACT" shall have the meaning specified in Section 5.20 hereof. "EXCLUDED LIABILITIES" shall mean, collectively, the Distributed Liabilities and the Excluded Contracts Liabilities. "EXCLUDED SUBSIDIARIES" means CRSI Acquisition Inc., a Delaware corporation, Plexsys International Corp., a Delaware corporation, Plexsys International FSC Corp., a U.S. Virgin Islands corporation, and Radiation Systems Electromechanical Systems, Incorporated, a Florida corporation. "EXON-FLORIO AMENDMENT" means Section 721(a) of the Defense Production Act of 1950, as amended. "FINAL CLOSING NET INTERCOMPANY LOAN AMOUNT" shall have the meaning specified in Section 2.6.2 hereof. 1481337 4 "FINANCIAL STATEMENTS" shall have the meaning specified in Section 3.6.1 hereof. "GAAP" shall have the meaning specified in Section 3.6.2 hereof. "GOVERNMENTAL AUTHORITY" means any federal, state, local or foreign court, tribunal, legislative, administrative or regulatory authority or agency. "GOVERNMENT BID" means any bid or proposal made by CRSI or any Subsidiary which, if accepted, would result in a Government Contract, but excluding, for all purposes of this definition of Government Bid, any such bid or proposal included among or relating to the Excluded Assets and Liabilities. "GOVERNMENT CONTRACT" means any contract, subcontract and agreement and other arrangement between CRSI or any Subsidiary and (i) the United States government, (ii) any prime contractor of the United States government or other Person acting on its behalf, but solely to the extent that the contract, subcontract, agreement or other arrangement between CRSI or such Subsidiary and such prime contractor or Person relates to a contract, subcontract, agreement or other arrangement between such prime contractor or Person and the United States government, and (iii) any subcontractor with respect to any contract, subcontract, agreement or other arrangement described in clause (i) or (ii) hereof, but excluding, for all purposes of this definition of Government Contract, any such contract, subcontract, agreement or other arrangement included among the Excluded Assets and Liabilities. "GREENBANK CONTRACT" shall mean that certain contract, bearing number AUI-1059, between CRSI and Associated Universities, Inc., as amended. "GREENBANK SUBCONTRACT" shall mean that certain subcontract between Seller and CRSI entered into at or prior to closing and relating to the completion of the Greenbank Contract, substantially in the form of Exhibit I attached hereto. "GUARANTEE ASSUMPTION AGREEMENT" shall have the meaning specified in Section 2.5.4(d) hereof. "HAZARDOUS MATERIALS" mean any wastes, substances, radiation or materials (whether solids, liquids or gases) (i) which are hazardous, toxic, infectious, explosive, radioactive, carcinogenic or mutagenic; (ii) which are or become defined as a "pollutants", "contaminants", "hazardous materials", "hazardous wastes", "hazardous substances", "toxic substances", "radioactive materials", "solid wastes" or other similar designations in, or otherwise subject to regulation under, any Environmental Laws; (iii) the presence of which on the Real Property cause or threaten to cause a nuisance pursuant to applicable 1481337 5 statutory or common law upon the Real Property or to adjacent properties; (iv) without limitation, which contain polychlorinated biphenyls (PCBs), asbestos and asbestos-containing materials, lead-based paints, urea-formaldehyde foam insulation, and petroleum or petroleum products (including, without limitation, crude oil or any fraction thereof) or (v) which pose a hazard to natural resources, industrial hygiene or the environment. "HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (including the regulations promulgated thereunder), as amended. "INCREASED ADJUSTED NOTE" shall have the meaning specified in Section 2.6.4(a)(ii). "INDEMNIFIED PARTY" shall have the meaning specified in Section 8.3.1 hereof. "INDEMNITOR" shall have the meaning specified in Section 8.3.1 hereof. "INDEMNITY CAP" shall have the meaning specified in Section 8.2.3(a) hereof. "INDEMNITY THRESHOLD" shall have the meaning specified in Section 8.2.3(a) hereof. "INTEREST RATE" shall be the per annum rate equal to the rate announced by Chase Manhattan Bank, N.A. in the City of New York as its base or prime rate in effect on the close of business on the Closing Date, plus 250 basis points. "INVENTORY" shall have the meaning specified in Section 3.9 hereof. "IVORY COAST COMMISSION LITIGATION" shall have the meaning set forth in Section 8.2.4(a). "JUNE NET INTERCOMPANY LOAN AMOUNT" shall have the meaning specified in Section 2.4.1 hereof. "JUNE RECONCILIATION STATEMENT" shall have the meaning specified in Section 2.4.1 hereof. "KNOWLEDGE OF SELLER" or "SELLER'S KNOWLEDGE" means (i) the actual knowledge of the persons listed on Schedule I hereto and (ii) that knowledge which should have been obtained by such person, after making such due inquiry and exercising the due diligence that a prudent business person in a 1481337 6 similar circumstance should have made or exercised, as applicable with respect thereto. "LAWS" means any law, statute, treaty, rule, directive or regulation, decree or order of any Governmental Authority. "LIABILITY" means any liability or obligation, whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated and whether due or to become due, regardless of when asserted. "LIENS" means all liens, claims, charges, restrictions, pledges and other security interests, mortgages and encumbrances. "LOSSES" means all losses, damages, liabilities, claims, demands, judgments, settlements, actual costs and expenses, penalties and interest (including reasonable attorneys', accountants' and other professional fees and expenses but excluding lost profits, exemplary damages or opportunity costs), and Taxes actually incurred in connection with the receipt of indemnification payments, whether or not arising out of third party claims; PROVIDED HOWEVER that Losses shall be net of any (i) insurance proceeds received by an Indemnified Party from an insurance company on account of such Losses (net of deductibles and any costs incurred in obtaining such proceeds and any increase in insurance premiums as a result of a claim with respect to such proceeds), and (ii) reductions in Taxes actually realized by an Indemnified Party as a result of the event or circumstance giving rise to such Loss. "MATERIAL ADVERSE EFFECT" means, with respect to any Person, a material adverse effect upon the business, assets, financial condition or results of operations of such Person, except that where reference is made to Persons taken as a whole, such reference means a material adverse effect upon the business, assets, financial condition or results of all such Persons on a consolidated basis. "MATERIAL LEASES" shall have the meaning specified in Section 3.7.2 hereof. "NON-COMPETE PERIOD" shall have the meaning specified in Section 5.18 hereof. "NOTE" shall have the meaning specified in Section 2.4.2(a) hereof. "NOTE PRINCIPAL AMOUNT" shall have the meaning specified in Section 2.4.2(a) hereof. 1481337 7 "NOTICE PERIOD" with respect to indemnification for any third party claim described in Section 8.3.1 herein shall mean the period ending on the earlier of: (i) 30 days after the time at which such third party claim has become the subject of proceedings before any court or tribunal, or such shorter time as would allow the Indemnitor sufficient time to contest such proceeding prior to any judgment or decision thereon; and (ii) 30 days after the time at which the Indemnified Party has either (X) received written notice from the claimant asserting such third party claim or (Y) commenced an active investigation of circumstances likely to give rise to such third party claim, or such longer time as would not prejudice, adversely affect or materially interfere with the ability of the Indemnitor to investigate and defend against such third party claim. "PATENTS AND LICENSES" shall have the meaning specified in Section 3.10.1 hereof. "PERMITTED LIENS" shall have the meaning specified in Section 3.7.1 hereof. "PERSON" means any corporation, partnership (whether general, limited or otherwise), limited liability company, trust, association, unincorporated organization, governmental entity, agency or branch or department thereof, or any other legal entity, or any natural person. "POSITIVE BALANCE" shall have the meaning specified in Section 2.4.2(a). "POST CLOSING NOTE" shall have the meaning specified in Section 2.6.4(b)(i). "PRE-CLOSING NET INTERCOMPANY AMOUNT" shall have the meaning specified in Section 2.4.2 hereof. "PRE-CLOSING INTERCOMPANY STATEMENT" shall have the meaning specified in Section 2.4.2 hereof. "PRELIMINARY CLOSING NET INTERCOMPANY LOAN AMOUNT" shall have the meaning specified in Section 2.6.1 hereof. "PRELIMINARY CLOSING STATEMENT" shall have the meaning specified in Section 2.6.1 hereof. 1481337 8 "PROCEEDING" shall mean any action, suit, claim, investigation or proceeding, whether involving a court of law, administrative body or arbitrator. "PURCHASE PRICE" shall have the meaning specified in Section 2.3 hereof. "PURCHASE SUPPORT AGREEMENT" shall have the meaning specified in Section 5.5 hereof. "REAL PROPERTY" means the real property owned, leased or operated or purported to be owned, leased or operated, by CRSI or the Subsidiaries as of June 30, 1997, any additional real property owned, leased or operated or purported to be owned, leased or operated since that date and, for purposes of Sections 3.15 and 8.2.1(c) hereof, any real property formerly owned, leased or operated or purported to be owned, leased or operated by CRSI or the Subsidiaries. "RELEASE" means any emission, spill, seepage, leak, escape, leaching, discharge, injection, pumping, pouring, emptying, dumping, disposal or release of Hazardous Materials from any source (including, without limitation, the Real Property and property adjacent to the Real Property) into or upon the environment, including the air, soil, improvements, surface water, groundwater, the sewer, septic system, storm drain, publicly owned treatment works, or waste treatment, storage or disposal systems at, on, from, above or under the Real Property or any other property at which Hazardous Materials originating on or from the Real Property or the businesses or assets of CRSI or any Subsidiary have been stored, treated or disposed. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SELLER" shall have the meaning specified in the preamble hereof. "SELLER CONSOLIDATED GROUP" shall have the meaning specified in Section 5.4.1 hereof. "SELLER INDEMNITEE" shall have the meaning specified in Section 8.2.2 hereof. "SELLER'S FIRM" shall have the meaning specified in Section 2.6.1 hereof. "SHARES" shall have the meaning specified in the third Whereas clause hereof. "SUBLEASE AGREEMENT" shall have the meaning specified in Section 2.5.4(c) hereof. 1481337 9 "SUBSIDIARIES" means any corporation, business trust, partnership, limited liability company, joint venture or any other entity in which CRSI holds a direct, indirect or beneficial equity interest. "SUBSIDIARIES" shall have the meaning specified in Section 3.3 hereof. "TAX CONTEST" shall have the meaning specified in Section 5.4.4(a) hereof. "TAX INDEMNIFICATION LIABILITY" shall have the meaning specified in Section 5.4.4(a) hereof. "TAX INDEMNIFIED PARTY" shall have the meaning specified in Section 5.4.4(b) hereof. "TAX INDEMNITOR" shall have the meaning specified in Section 5.4.4(a) hereof. "TAX RETURNS" means all federal, state, local, provincial and foreign returns, declarations, statements, reports, schedules, and information returns (including, without limitation, any related or supporting information or Schedule attached thereto) required to be filed with any Taxing authority in connection with any Tax or Taxes. "TAXES" or "TAX" (and, with correlative meanings, "TAXABLE" or TAXING") means, with respect to any Person, (A) any federal, state, local, provincial or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, business, occupation, premium, windfall profits, environmental, customs, duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, AD VALOREM, transfer, registration, value added, advance corporation, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto with respect to which such Person could be held liable and (B) any liability for the payment of any amount of the type described in the immediately preceding clause (A) as a result of (i) being a transferee (within the meaning of section 6901 of the Code) of another Person, or (ii) being a member of an affiliated or combined group. "TBG" shall have the meaning specified in the preamble hereof. "TECHNOLOGY LICENSE AGREEMENT" shall have the meaning specified in Section 2.5.4(a) hereof. "TITLE DOCUMENTS" shall have the meaning specified in Section 3.7.3(a) hereof. 1481337 10 "TRADEMARKS AND LICENSES:" shall have the meaning specified in Section 3.10.2 hereof. "TRANSITION SERVICES AGREEMENT" shall have the meaning specified in Section 2.5.4(b) hereof. "UNADJUSTED DECEMBER STATEMENTS" shall have the meaning specified in Section 3.6.1(c) hereof. "UNADJUSTED JUNE BALANCE SHEET" shall have the meaning specified in Section 2.4.1 hereof. "UNADJUSTED JUNE STATEMENTS" shall have the meaning specified in Section 3.6.1(a) hereof. "WARN ACT" means the Worker Adjustment and Retraining Notification Act of 1968, 19 U.S.C. ss.ss. 2101 ET SEQ., or any similar state or local law or regulation. "WELFARE PLANS" shall have the meaning specified in Section 5.14.1(c) hereof. ARTICLE II PURCHASE AND SALE OF SHARES; CLOSING SECTION 2.1 CERTAIN ASSETS AND LIABILITIES. Immediately prior to the Closing and consummation of the transactions contemplated by this Agreement, and subject to the terms and conditions of this Agreement, (a) CRSI shall distribute, and Seller or a wholly owned subsidiary thereof shall accept and assume, pursuant to an Asset Distribution and Assumption Agreement substantially in the form of Exhibit A-1 attached hereto (the "Distribution Agreement"), the assets and liabilities listed on Schedule II attached hereto (such assets, the "Distributed Assets", and such liabilities, the "Distributed Liabilities"; and, collectively, the "Distributed Assets and Liabilities"), and (b) CRSI shall sell, transfer, set over and assign to Seller or a wholly owned subsidiary of Seller, and Seller or such wholly owned subsidiary shall purchase, accept and assume, pursuant to one or more Assignment and Assumption Agreements substantially in the form of Exhibit A-2 attached hereto (each, an "Assignment and Assumption Agreement" and, collectively, the "Assignment and Assumption Agreements"), the Excluded Contracts listed on Schedule III hereto and all Liabilities relating thereto (such Liabilities, the "Excluded Contracts Liabilities" and, together with the Excluded Contracts, the "Excluded Contracts and Liabilities"). For purposes of clarity, and as reflected on Schedules II and III, the Excluded Assets 1481337 11 and Liabilities include all of the Excluded Contracts referenced in Section 5.19, and all of the issued and outstanding shares of the Excluded Subsidiaries, and any Liabilities associated with the Excluded Contracts and the Excluded Subsidiaries. Seller shall pay and discharge, and indemnify Buyer and hold Buyer harmless from and against, all transfer or stamp duty taxes, if any, due and payable in connection with the distribution or transfer, as the case may be, of the Excluded Assets and Liabilities. SECTION 2.2 PURCHASE AND SALE. At the Closing contemplated hereby and upon the terms and subject to the conditions contained herein, Buyer agrees to purchase and accept from Seller, and Seller agrees to sell, assign, transfer and deliver or cause to be delivered to Buyer, all of the Shares, free and clear of any and all Liens or any restrictions, agreements or commitments of any kind (other than in respect of this Agreement), other than restrictions related to transfer or stamp duty taxes, if any, arising from the transfer of the Shares as contemplated hereby, which Seller agrees to pay and to release and discharge Buyer from any obligations with respect thereto, and such other restrictions on any subsequent transfer of the Shares that may arise under applicable federal or state securities laws. SECTION 2.3 CLOSING. The Closing (the "Closing") of the sale and purchase of the Shares shall take place at the offices of Buyer's outside counsel, O'Sullivan Graev & Karabell, LLP, 30 Rockefeller Plaza, New York, New York 10112, at 10:00 a.m., local time, on the third business day after satisfaction or waiver of the conditions set forth in Articles VI and VII herein, or at such other place, date and time as the parties may agree (the "Closing Date"), but in no event later than June 30, 1998. SECTION 2.4 PURCHASE PRICE. The aggregate purchase price for the Shares shall be $116,500,000 (the "Purchase Price"). The Purchase Price shall be subject to adjustments as provided below and in Section 2.6 herein. 2.4.1 JUNE STATEMENTS. Schedule 2.4.1 delivered hereunder sets forth (i) the report of Deloitte & Touche LLP, independent auditors of Seller and CRSI ("Seller's Firm"), which includes a consolidated statement of net assets held for sale at June 30, 1997 (the "Unadjusted June Balance Sheet"), (ii) a pro forma balance sheet at June 30, 1997 (the "Adjusted June Balance Sheet") based upon the Unadjusted June Balance Sheet after excluding, to the extent reflected on the Unadjusted June Balance Sheet, all of the Excluded Assets and Liabilities, (iii) a reconciliation statement (the "June Reconciliation Statement") showing the adjustments from the Unadjusted June Balance Sheet to the Adjusted June Balance Sheet, and (iv) a statement based upon the Unadjusted June Balance Sheet after excluding, to the extent reflected on the Unadjusted June Balance Sheet, all intercompany loans and advances in respect of the Excluded Assets and Liabilities, of the net intercompany loans and advances between Seller and CRSI and the Subsidiaries (the "June Intercompany Statement"). The Adjusted June Balance 1481337 12 Sheet, the June Reconciliation Statement and the June Intercompany Statement have been certified by the Controller of Seller. The net intercompany loans and advances between Seller and CRSI and the Subsidiaries as reflected on the June Intercompany Statement is ($53,500,000) (the "June Net Intercompany Loan Amount"). The Unadjusted June Balance Sheet and the Adjusted June Balance Sheet (a) have been prepared in all material respects in accordance with GAAP except as set forth on Schedule 2.4.1 and except that such statements do not include all requisite financial footnotes or normal year end adjustments, (b) have been prepared on a basis consistent with the accounting principles, practices, classifications, estimates, assumptions and methodologies of CRSI, the Subsidiaries, and where applicable the Excluded Subsidiaries, (c) take into account all accruals and other adjustments required to present CRSI and the Subsidiaries, and where applicable the Excluded Subsidiaries, as entities separate and apart from Seller and (d) fairly presents the financial condition of CRSI and the Subsidiaries, and where applicable the Excluded Subsidiaries, as of the date indicated therein. 2.4.2 PRE-CLOSING STATEMENT. At least three business days prior to the Closing Date, Seller shall prepare and deliver to Buyer a statement showing the intercompany loans and advances between Seller and CRSI and the Subsidiaries after excluding all intercompany loans and advances between Seller and CRSI and the Subsidiaries in respect of the Excluded Assets and Liabilities, as of the most recent month end for which Seller has closed its intercompany account balances (the "Pre-Closing Intercompany Statement"). The Pre-Closing Intercompany Statement shall be prepared on a basis consistent with the June Intercompany Statement, and shall be certified by the Controller of Seller. The net intercompany loans and advances between Seller and CRSI and the Subsidiaries as reflected on the Pre-Closing Intercompany Statement is hereinafter referred to as the "Pre-Closing Net Intercompany Loan Amount." Seller's determination of the Pre-Closing Net Intercompany Loan Amount shall be binding upon the parties at Closing absent manifest error, PROVIDED THAT the Purchase Price shall be subject to a post-Closing adjustment as provided in Section 2.6 herein. (a) If the Pre-Closing Net Intercompany Loan Amount is greater than the June Net Intercompany Loan Amount, then the absolute difference between such amounts shall hereinafter be referred to as the "Positive Balance." At the Closing, in addition to delivery of the Purchase Price, Buyer shall make, execute and deliver to Seller, and TBG shall co-make with Buyer, execute and deliver to Seller, an unconditional promissory note in the form of Exhibit B hereto containing or subject to intercreditor and subordination provisions customary for a transaction of the type contemplated hereby and reasonably acceptable to the parties hereto and the financial institutions providing financing to Buyer in connection with the transactions contemplated hereby (the "Note") in the principal amount of the Positive Balance, PROVIDED THAT if the Positive Balance is greater than $5,000,000, then the principal amount of the Note shall be $5,000,000 (in either case, the "Note Principal 1481337 13 Amount"), AND PROVIDED FURTHER THAT such intercreditor and subordination provisions shall in no way limit or restrict Seller's rights of set-off contained in the Note. (b) If the Pre-Closing Net Intercompany Loan Amount is equal to or less than the June Net Intercompany Loan Amount, no additions or subtractions shall be made to the Purchase Price to be delivered at Closing. SECTION 2.5 CLOSING DELIVERIES. At the Closing, Seller and Buyer shall deliver or cause to be delivered the following funds, agreements, instruments or items: 2.5.1 PURCHASE PRICE. Buyer shall cause to be delivered to Seller, by wire transfer of immediately available funds, to an account designated in writing by Seller to Buyer at least two days prior to the Closing, an amount equal to the Purchase Price, and if required pursuant to Section 2.4.2(a), Buyer and TBG shall deliver to Seller the Note in the Note Principal Amount; 2.5.2 SHARE CERTIFICATES. Against delivery of the Purchase Price, and if applicable the Note, Seller shall sell, deliver and transfer the Shares to Buyer, together with a certificate evidencing each of the Shares duly endorsed in blank by an authorized officer of Seller or with a stock transfer power duly endorsed in blank by an authorized officer of Seller and affixed thereto; 2.5.3 CORPORATE RECORDS. Seller shall deliver or cause to be delivered to Buyer all extant corporate minute books, stock transfer records and the corporate seal of CRSI and of each of the Subsidiaries; 2.5.4 ANCILLARY AGREEMENTS. Seller and Buyer (or, in the case of the Technology License Agreement, Transition Services Agreement and Sublease Agreement referenced below, CRSI) shall enter into the following agreements: (a) TECHNOLOGY LICENSE AGREEMENT. A Technology License Agreement, substantially in the form of Exhibit C attached hereto (the "Technology License Agreement"); (b) TRANSITION SERVICES AGREEMENT. A Transition Services Agreement, substantially in the form of Exhibit D attached hereto (the "Transition Services Agreement"), pursuant to which Seller shall provide to CRSI, and CRSI shall provide to Seller, for a transitional period following the Closing the services specified therein; (c) OFFICE SUBLEASE AGREEMENT. An Office Sublease Agreement, substantially in the form of Exhibit E attached hereto (the "Sublease 1481337 14 Agreement"), pursuant to which Seller shall lease to CRSI office and manufacturing space in Seller's facilities located in Clarksburg, Maryland; (d) GUARANTEE ASSUMPTION AGREEMENT. A Guarantee Assumption and Reimbursement Agreement, substantially in the form of Exhibit F attached hereto (the "Guarantee Assumption Agreement"); and (e) GREENBANK SUBCONTRACT. The Greenbank Subcontract; 2.5.5 CLOSING DOCUMENTS TO BE DELIVERED BY SELLER. Seller shall deliver or cause to be delivered to TBG and Buyer the opinions, certificates and other documents required to be delivered by Seller pursuant to Article VI herein, and such other documents and instruments as may be reasonably requested by TBG and Buyer to more fully consummate the transactions contemplated hereby; and 2.5.6 CLOSING DOCUMENTS TO BE DELIVERED BY BUYER. TBG and Buyer shall deliver or cause to be delivered to Seller the opinions, certificates and other documents required to be delivered by TBG and Buyer pursuant to Article VII herein, and such other documents and instruments as may be reasonably requested by Seller to more fully consummate the transactions contemplated hereby. SECTION 2.6 PURCHASE PRICE ADJUSTMENT. 2.6.1 CLOSING STATEMENT. Within 30 days after the Closing Date, Seller shall prepare as at the Closing Date and make available to Buyer (i) a statement (the "Preliminary Closing Statement") using those methods, principles and procedures set forth on Schedule 2.6.1, and based upon the June Intercompany Statement, showing the intercompany loans and advances between Seller and CRSI and the Subsidiaries, but excluding any loans and advances in respect of the Excluded Assets and Liabilities, together with the net amount thereof (the "Preliminary Closing Net Intercompany Loan Amount"), and (ii) a line-item reconciliation spread sheet of the June Intercompany Statement, the Pre-Closing Intercompany Statement and the Preliminary Closing Statement, in each case certified by the Controller of Seller. The Preliminary Closing Statement shall be prepared on a basis consistent with the June Intercompany Statement and in accordance with the methods, principles and procedures set forth on Schedule 2.6.1. 2.6.2 OBJECTIONS; RESOLUTIONS. Within 30 days after the receipt of the Preliminary Closing Statement, Buyer will deliver written notice to Seller of any objections thereto which objections may relate to loans and advances reflected on the Pre-Closing Intercompany Statement (as well as on the Preliminary Closing Statement, if applicable), and will attempt in good faith (without an obligation to reach an agreement) to reach an agreement with Seller as to any matters in dispute; PROVIDED HOWEVER that Buyer shall have no right to object to methods, principles and procedures used by Seller in determining or recording the intercompany loans and 1481337 15 advances between Seller and CRSI and the Subsidiaries as reflected on the Preliminary Closing Statement (or the Pre-Closing Intercompany Statement, if applicable) so long as such methods, principles and procedures are consistent with those used to prepare the June Intercompany Statement and those described on Schedule 2.6.1. If Buyer and Seller, notwithstanding such good faith effort, fail to resolve all matters in dispute within 20 days after Buyer advises Seller of its objections, then any remaining disputed matters will be finally and conclusively determined by an independent auditing firm of recognized national standing (the "Arbiter") selected in good faith by Buyer and Seller, which firm will not be the regular auditing firm of Buyer or Seller. Promptly, but not later than 10 days after its acceptance of its engagement by Buyer and Seller, the Arbiter will determine (based solely on presentations by Seller and Buyer and not by independent review) only those matters in dispute and will prepare and deliver to the parties for CRSI and the Subsidiaries on a consolidated basis (but excluding the Excluded Assets and Liabilities) at the Closing Date a final statement (the "Final Closing Statement") showing the intercompany loans and advances between Seller and CRSI and the Subsidiaries, but excluding any loans and advances in respect of the Excluded Assets and Liabilities, together with the net amount thereof (the "Final Closing Net Intercompany Loan Amount"), and a reconciliation of the disputed matters from the Preliminary Closing Statement (and, if applicable, the Pre-Closing Intercompany Statement) to the Final Closing Statement, which Final Closing Statement shall be conclusive and binding upon the parties. Buyer's failure to timely notify Seller in writing of any objections pursuant to this Subsection 2.6.2 shall be deemed for all purposes to constitute Buyer's acceptance of the Preliminary Closing Statement, and the Preliminary Closing Net Intercompany Loan Amount shall, in such circumstances, be deemed the Final Closing Net Intercompany Loan Amount. 2.6.3 WORKPAPERS. For purposes of complying with the terms set forth herein, each party will cooperate with and make available to the other party and its auditors and representatives all information, records, data and auditors' working papers, and will permit access to its facilities and personnel, as may be reasonably required in connection with the preparation and analysis of the Preliminary Closing Statement (and the Pre-Closing Intercompany Statement, if requested), and the resolution of any disputes thereunder. Without limiting the generality of the foregoing, Seller will cause Seller's Firm to make available to Buyer and Buyer's outside accountants within three business days after delivery of the Preliminary Closing Statement pursuant to Subsection 2.6.2 copies of the workpapers therefor. 2.6.4 FINAL ADJUSTMENTS. (a) If the Pre-Closing Net Intercompany Loan Amount was greater than the June Net Intercompany Loan Amount, and: (i) The Final Closing Net Intercompany Loan Amount is greater than the Pre-Closing Net Intercompany Loan Amount, and the 1481337 16 Principal Amount on the Note is $5,000,000, no further adjustments shall be made in respect of the Purchase Price or the Note; (ii) The Final Closing Net Intercompany Loan Amount is greater than the Pre-Closing Net Intercompany Loan Amount, and the Principal Amount on the Note is less than $5,000,000, then Seller shall return the Note to Buyer and TBG against delivery by Buyer and TBG of a new unconditional promissory note (the "Increased Adjusted Note") in form and substance identical to the Note except that the principal amount on the Increased Adjusted Note shall be the absolute difference between the Final Closing Net Intercompany Loan Amount and the June Net Intercompany Loan Amount, PROVIDED THAT if such absolute difference is greater than $5,000,000, the principal amount on the Increased Adjusted Note shall be $5,000,000; (iii) The Final Closing Net Intercompany Loan Amount is equal to the Pre-Closing Net Intercompany Loan Amount, no further adjustment will be made in respect of the Purchase Price or the Note; (iv) The Final Closing Net Intercompany Loan Amount is less than the Pre-Closing Net Intercompany Loan Amount, but is greater than the June Net Intercompany Loan Amount, and the absolute difference between the Final Closing Net Intercompany Loan Amount and the June Net Intercompany Loan Amount is less than $5,000,000, then Seller shall return the Note to Buyer and TBG against delivery by Buyer and TBG of a new unconditional promissory note (the "Decreased Adjusted Note") in form and substance identical to the Note except that the principal amount on the Decreased Adjusted Note shall be the absolute difference between the Final Closing Net Intercompany Loan Amount and the June Net Intercompany Loan Amount (the "Decreased Adjusted Principal"); (v) The Final Closing Net Intercompany Loan Amount is less than the Pre-Closing Net Intercompany Loan Amount and is equal to the June Net Intercompany Loan Amount, then Seller shall return the Note to Buyer and TBG; or (vi) The Final Closing Net Intercompany Loan Amount is less than the June Net Intercompany Loan Amount, then Seller shall return the Note to Buyer and TBG, and Seller shall pay to Buyer by wire transfer of immediately available funds, to an account designated in writing by Buyer to Seller, an amount equal to the absolute difference between the June Net Intercompany Loan Amount and the Final Closing Net Intercompany Loan Amount, PROVIDED THAT if such absolute difference is greater than $10,000,000, Seller shall pay to Buyer only 1481337 17 $10,000,000 and no greater amount. Any amount paid by Seller to Buyer pursuant to this Subsection 2.6.4(a)(vi) shall include simple interest at the Interest Rate on such amount from and including the Closing Date to but not including the date of payment (computed on a per annum basis, 365 or 366 day year, as the case may be). (b) If the Pre-Closing Net Intercompany Loan Amount was less than or equal to the June Net Intercompany Loan Amount, and: (i) The Final Closing Net Intercompany Loan Amount is greater than the June Net Intercompany Loan Amount, then Buyer shall make, execute and deliver to Seller, and TBG shall co-make with Buyer, execute and deliver to Seller, an unconditional promissory note in the form of Exhibit G hereto containing or subject to intercreditor and subordination provisions customary for a transaction of the type contemplated hereby and reasonably acceptable to the parties hereto and the financial institutions providing financing to Buyer in connection with the transactions contemplated hereby (the "Post-Closing Note") in the principal amount of the absolute difference between the Final Closing Net Intercompany Loan Amount and the June Net Intercompany Loan Amount, PROVIDED THAT if such absolute difference is greater than $5,000,000, the principal amount on the Post-Closing Note shall be $5,000,000, AND PROVIDED FURTHER THAT such intercreditor and subordination provisions shall in no way limit or restrict Seller's rights of set-off contained in the Post-Closing Note; (ii) The Final Closing Net Intercompany Loan Amount is equal to the June Net Intercompany Loan Amount, no further adjustment shall be made in respect of the Purchase Price; or (iii) The Final Closing Net Intercompany Loan Amount is less than the June Net Intercompany Loan Amount, then Seller shall pay to Buyer by wire transfer of immediately available funds, to an account designated in writing by Buyer to Seller, an amount equal to the absolute difference between the Final Closing Net Intercompany Loan Amount and the June Net Intercompany Loan Amount, PROVIDED THAT if such absolute difference is greater than $10,000,000, Seller shall pay to Buyer only $10,000,000 and no greater amount. Any amount paid by Seller to Buyer pursuant to this Subsection 2.6.4(b)(iii) shall include simple interest at the Interest Rate on such amount from and including the Closing Date to but not including the date of payment (computed on a per annum basis, 365 or 366 day year, as the case may be). (c) Any exchange or delivery of any promissory notes, and any payments of funds pursuant to this Section 2.6.4, shall be made within five 1481337 18 business days following the final determination of the Final Closing Net Intercompany Loan Amount pursuant to Section 2.6.2. (d) The parties hereto agree that if the principal amount of the Post-Closing Note is equal to $5,000,000, and the Final Closing Net Intercompany Loan Amount exceeds the June Net Intercompany Loan Amount by more than $5,000,000, then the amount of such excess shall be extinguished and Seller shall forgo the right to collect from CRSI and the Subsidiaries the amount of such excess. 2.6.5 FEES AND EXPENSES. All fees and expenses of the Arbiter (if any), shall be borne equally between Buyer and Seller. If Buyer or TBG engages any outside auditing firm or consultant to assist in its review and analysis of the Preliminary Closing Statement or the Pre-Closing Intercompany Statement, or to certify any financial statements of CRSI and the Subsidiaries at the Closing Date in connection with any filing required under the Securities Act or the Exchange Act and the regulations and Forms adopted pursuant to either Act, the fees and expenses of such firm or consultant shall be borne by Buyer and TBG at their sole expense. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER Seller hereby represents and warrants to TBG and to Buyer, as of the date hereof and as of the Closing Date, as follows: SECTION 3.1 CORPORATE STATUS AND AUTHORITY OF SELLER. Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the District of Columbia, and has the requisite corporate power and authority to own, lease and operate its properties and to carry on its business as currently conducted in all material respects and to enter into and perform this Agreement and the Ancillary Agreements and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by Seller of this Agreement and the Ancillary Agreements have been duly authorized by all requisite corporate action on the part of Seller. This Agreement is and, when executed at the Closing, each Ancillary Agreement will be a valid and binding obligation of Seller, enforceable against Seller in accordance with its respective terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application referring to or affecting the enforcement of creditors' rights, or by general equitable principles. 1481337 19 SECTION 3.2 NO CONFLICTS, ETC. 3.2.1 NO CONFLICTS. The execution, delivery and performance of this Agreement and the Ancillary Agreements by Seller and CRSI and the consummation of the transactions contemplated hereby and thereby will not: (a) conflict with or result in a breach of any provision of the Articles of Incorporation or by-laws of Seller or the Certificates of Incorporation or by-laws of CRSI or any Subsidiary; (b) except as set forth on Schedule 3.2.1, result in a default (or give rise to any right to termination, cancellation or acceleration after lapse of time or the giving of notice or both) or result in the creation of any Liens under any of the terms, conditions or provisions of any (i) loan agreement, note, bond, mortgage, deed of trust or indenture to which Seller, CRSI or any Subsidiary is a party, (ii) Material Lease or (iii) any contract listed on Schedule 3.11.1; and (c) violate any Laws applicable to or binding upon Seller, CRSI or any Subsidiary or their respective properties or assets. 3.2.2 CONSENTS AND APPROVALS. Except as set forth on Schedule 3.2.2 delivered hereunder, no material consent, approval or authorization of or filing with any Governmental Authority or other Person is required on the part of Seller, CRSI or any of the Subsidiaries in connection with the execution and delivery of this Agreement and the Ancillary Agreements by Seller and CRSI or the consummation by Seller and CRSI of the transactions contemplated hereby or thereby, except for: (a) the pre-merger notification filings required to be made by Seller and Buyer under the HSR Act; and (b) the joint notification required pursuant to the Exon-Florio Amendment. SECTION 3.3 CORPORATE STATUS AND AUTHORITY OF CRSI AND THE SUBSIDIARIES. Each of CRSI and each of the Subsidiaries (i) is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) has the requisite corporate power and authority to own, lease and operate its properties and to carry on its business as currently conducted and (iii) is duly qualified to transact business in each jurisdiction in which the nature of its business or the location of its assets requires it to be so qualified, other than those jurisdictions in which the failure to be so qualified is not, individually or in the aggregate, reasonably expected to have a Material Adverse Effect on CRSI or any of the Subsidiaries. Schedule 3.3 delivered hereunder contains a list of each subsidiary, its stockholders and the capital stock owned by them and such subsidiary's 1481337 20 jurisdiction of incorporation, whether direct or indirect or wholly or partially owned, of CRSI (other than such subsidiaries that are included among the Excluded Assets) (collectively, the "Subsidiaries"). None of CRSI or any Subsidiary has any equity interest or investment in any corporation, partnership, joint venture, limited liability company, association or other business organization other than as set forth on Schedule 3.3 delivered hereunder. Schedule 3.3 contains a list of each jurisdiction in which CRSI and the Subsidiaries are qualified to transact business. The Seller has made available to Buyer true, complete and correct copies of the Certificate or Articles of Incorporation and all amendments thereto of CRSI and each Subsidiary and the by-laws of CRSI and each Subsidiary as in effect on the date hereof. The minute and stock transfer books of CRSI and each Subsidiary have been made available to Buyer and TBG. SECTION 3.4 OWNERSHIP OF CRSI AND THE SUBSIDIARIES. The Shares consist of all of the issued and outstanding shares of capital stock of CRSI. Seller owns beneficially and of record all of the Shares free and clear of any Lien other than Liens for taxes and assessments and other governmental charges not yet due or which are being contested in good faith and by appropriate proceedings. CRSI or a Subsidiary owns beneficially and of record all of the issued and outstanding shares of capital stock of each of the Subsidiaries listed as being owned by CRSI or such Subsidiary on Schedule 3.3 free and clear of any Lien other than Liens for taxes and assessments and other governmental charges not yet due or which are being contested in good faith and by appropriate proceedings. All of the Shares and the shares of capital stock of the Subsidiaries have been duly authorized, validly issued and are fully paid and nonassessable, and (ii) except as contemplated by this Agreement or as otherwise set forth on Schedule 3.4, there are no existing options, warrants, calls, rights, arrangements or commitments of any character relating to the authorized and unissued capital stock of CRSI and the Subsidiaries or to any securities or obligations convertible into or exchangeable for, or giving any person any right to subscribe for or acquire from Seller, CRSI or the Subsidiaries, any shares of capital stock of CRSI or any Subsidiary, and no such convertible or exchangeable securities or obligations are outstanding. There are no voting trusts or other agreements or understandings to which the Seller or CRSI or any of the Subsidiaries is bound with respect to the voting of the capital stock of CRSI or any of the Subsidiaries. There are no stock appreciation rights, phantom stock rights or similar rights or arrangements outstanding. With respect to the period existing prior to the CRSI Acquisition Date, all securities issued by CRSI or the Subsidiaries were, to the Knowledge of Seller, acquired in transactions complying with the Securities Act and all applicable laws. With respect to the period existing from and after the CRSI Acquisition Date, all securities issued by CRSI or the Subsidiaries were acquired in transactions complying with the Securities Act and all applicable laws. 1481337 21 SECTION 3.5 TRANSFER OF SHARES. Upon delivery of the Shares and the payment of the Purchase Price therefor as contemplated by this Agreement, Buyer will receive at the Closing good and valid title to the Shares purchased by it, free and clear of any Lien except for any Lien that may arise from acts or omissions of Buyer and except for restrictions on transfer under the Securities Act, any state "Blue Sky" law and any applicable foreign law or regulation. SECTION 3.6 FINANCIAL STATEMENTS, ETC. 3.6.1 SCHEDULES. Schedule 3.6.1 delivered hereunder contains true, correct and complete copies of: (a) the Unadjusted June Balance Sheet certified by Seller's Firm, and the related statement of income for CRSI and its subsidiaries for the period January 1, 1997 through June 30, 1997, certified by the Controller of Seller (collectively, the "Unadjusted June Statements"); (b) the Adjusted June Balance Sheet and the related statement of income for CRSI and the Subsidiaries for the period January 1, 1997 through June 30, 1997 (excluding, for purposes of clarity, the Excluded Assets and Liabilities), each certified by the Controller of Seller (collectively, the "Adjusted June Statements"), and a reconciliation statement showing the adjustments from the Unadjusted June Statements to the Adjusted June Statements, certified by the Controller of Seller; (c) the consolidated balance sheet of CRSI and its subsidiaries as of December 31, 1997, and the related statement of income for CRSI and its subsidiaries for the year then ended (collectively, the "Unadjusted December Statements"), each certified by the Controller of Seller and each of which have been prepared on a basis consistent with the accounting principles, practices, classifications, estimates, assumptions and methodologies used in the preparation of the Unadjusted June Statements; and (d) the consolidated balance sheet of CRSI and the Subsidiaries as of December 31, 1997 and the related statements of income and cash flows for CRSI and the Subsidiaries for the year then ended (collectively the "Adjusted December Statements") (excluding, for purposes of clarity, the Excluded Assets and Liabilities), each certified by the Controller of Seller and each of which have been prepared on a basis consistent with the accounting principles, practices, classifications, estimates, assumptions and methodologies used in the preparation of the Adjusted June Statements, and a reconciliation statement showing the adjustments from the Unadjusted December Statements to the Adjusted December Statements, certified by the Controller of Seller. 1481337 22 The Unadjusted June Statements, the Adjusted June Statements, the Unadjusted December Statements, the Adjusted December Statements and the related reconciliation statements referenced above are hereinafter collectively referred to as the "Financial Statements." 3.6.2 ACCURACY. The data set forth in Schedule 3.6.1 are in accordance with the books and records of CRSI and the Subsidiaries, and when applicable the Excluded Subsidiaries, and fairly present the financial condition, the results of the operations, retained earnings and cash flows for CRSI and the Subsidiaries, and when applicable the Excluded Subsidiaries, for the dates or periods therein indicated. The Financial Statements were prepared in accordance with generally accepted accounting principles consistently applied ("GAAP") with such deviations as may be referred to in the notes thereto or in Schedule 3.6.1, and subject, with respect to the Unadjusted June Statements and the Adjusted June Statements, to normal year-end adjustments. 3.6.3 NO UNDISCLOSED LIABILITIES. Except as set forth on Schedule 3.6.1, neither CRSI or any of the Subsidiaries has any material Liabilities, except for (i) Liabilities reflected or reserved against in the Financial Statements, (ii) Liabilities under contracts, agreements and arrangements to which they are a party or bound, including without limitation those that are set forth in Schedule 3.11.1, which Liabilities have arisen in the ordinary course of business, and (iii) Liabilities that have arisen since the date of the Financial Statements in the ordinary course of business, (none of which relates to breach of contract, breach of warranty, tort, infringement, violation of Law or any action, suit or Proceeding (including any Liability under any Environmental Laws)). There were no material loss contingencies (as such term is used in the Statement of Financial Accounting Standards No. 5 issued by the Financial Accounting Standards Board in March 1975) that were not adequately provided for in the Financial Statements as of the dates therein indicated. 3.6.4 ABSENCE OF CHANGES. Other than as set forth in Schedule 3.6.4 delivered hereunder, since June 30, 1997, the Business has been operated in the ordinary course and consistent with past practice and there has not been: (a) Any increase in the rate or terms of compensation payable to any of the directors, officers or employees of CRSI or the Subsidiaries, except increases occurring in the ordinary course of business in accordance with their customary practices (which shall include normal periodic performance reviews and related compensation and benefit increases); (b) Any material increase in the rate or terms of any bonus, insurance, pension or other employee benefit plan, payment or arrangement made to, for or with any of the officers or employees of CRSI or the Subsidiaries, except increases occurring in the ordinary course of business in 1481337 23 accordance with their customary practices (which shall include normal periodic performance reviews and related compensation and benefit increases); (c) Any loan to, or guarantee or assumption of any loan or obligation by Seller, CRSI or the Subsidiaries on behalf of, any officer or employee of CRSI or the Subsidiaries except advances occurring in the ordinary course of business in accordance with customary practices; (d) Any entry into any agreement, commitment, or transaction (including without limitation any borrowing, capital expenditure or capital financing) by Seller, CRSI or the Subsidiaries in respect of CRSI or the Subsidiaries except agreements, commitments or transactions contemplated by this Agreement or entered into in the ordinary course of business; (e) Any material change by CRSI or the Subsidiaries in their accounting methods, practices, or principles not otherwise required by GAAP; (f) Except as otherwise provided by the Distribution Agreement, any declaration or payment of any dividend or other distribution on or with respect to the shares of capital stock of CRSI or any Subsidiary or securities exercisable or exchangeable for, or convertible into, capital stock of CRSI or any Subsidiary, or any direct or indirect redemption, purchase or other acquisition of any shares of capital stock or other securities of CRSI or any Subsidiary; (g) Any waiver or release of any material rights of CRSI or any of the Subsidiaries, except in the ordinary course of business and for fair value, or any lapse or other loss of a material right of CRSI or any of the Subsidiaries to use its assets or conduct the Business (except as otherwise contemplated by the Distribution Agreement and the Assignment and Assumption Agreements); (h) Any sale, assignment, transfer or lease of any assets of CRSI or any Subsidiary, tangible or intangible, except (i) in the ordinary course of business, (ii) in an amount not in excess of $100,000, or (iii) as effected pursuant to the Distribution Agreement and the Assignment and Assumption Agreements; (i) Any subjection of any assets of CRSI or any Subsidiary, tangible or intangible, to any Lien, other than Permitted Liens or Liens not in excess of $100,000; (j) Any acceleration, termination, modification or cancellation of any contract, agreement or instrument listed on Schedule 3.11.1, or any contract, agreement or instrument related thereto to which CRSI or any Subsidiary is a party and to the Seller's Knowledge no party intends to take such action; 1481337 24 (k) Any change in the Business, financial condition, assets or liabilities of CRSI and the Subsidiaries which has had a Material Adverse Effect upon CRSI and the Subsidiaries, taken as a whole; or (l) Any material change in the policies of CRSI or any of the Subsidiaries with respect to the payment of accounts payable or other current Liabilities or the posting and collection of accounts receivable, including any deferral of the payment or posting and collection thereof, as applicable, PROVIDED THAT the foregoing shall not preclude CRSI and the Subsidiaries from attempting to and collecting all outstanding receivables prior to Closing, or from adopting and following other cash management actions permitted by Section 5.1.2. SECTION 3.7 PROPERTIES; LEASES; TANGIBLE ASSETS. 3.7.1 TITLE. Schedule 3.7.1 delivered hereunder sets forth a complete list of all Real Property. The Real Property listed on Schedule 3.7.1 hereof and owned, operated or used by CRSI or the Subsidiaries as of the date hereof constitute all real property necessary for CRSI and the Subsidiaries to carry on the Business as presently conducted by CRSI and the Subsidiaries. CRSI and the Subsidiaries have good and marketable title to all Real Properties and tangible assets which they purport to own, including all Real Properties and tangible assets reflected in the Adjusted December Statements, except those real properties and tangible assets disposed of in the ordinary course of business since December 31, 1997. Except as set forth on Schedule 3.7.1, neither CRSI nor any of the Subsidiaries has received notice of any increase in the assessed valuation of the Real Property and no notice of any contemplated special assessment of the Real Property has been received by CRSI or any of the Subsidiaries, and, to the Seller's Knowledge, there is no threatened increase in assessed valuation or threatened special assessment pertaining to any of the Real Property. The title to each such Real Property and tangible asset is free and clear of all Liens, except as follows (such permitted liens, collectively, the "Permitted Liens"): (a) The Lien of current Taxes not yet due and payable, or of Taxes the validity of which is being contested in good faith by appropriate proceedings; (b) Any Lien reflected on the Financial Statements, with such changes in the amount thereof as may have occurred in the ordinary course of business prior to the Closing Date; (c) Such other imperfections of title or Liens which, as of the Closing Date, will not diminish in any material way the value or diminish in any way the current use of the specific property affected thereby; and 1481337 25 (d) Any Lien identified on Schedule 3.7.1 delivered hereunder. 3.7.2 LEASES. Schedule 3.7.2 delivered hereunder identifies all leases by which CRSI and the Subsidiaries lease (a) Real Property as a lessee and (b) equipment, wherein, with respect to such equipment leases, CRSI or any Subsidiary is obligated to make payments of One Hundred Thousand Dollars ($100,000) or more per year (clauses (a) and (b), collectively, the "Material Leases" and, individually, a "Material Lease"). With respect to such Material Leases, there exist no defaults by CRSI and the Subsidiaries, as the case may be, or to the Knowledge of Seller, defaults by any third party, that adversely affect the rights and privileges under such lease of CRSI and the Subsidiaries in any material respects. 3.7.3 DOCUMENTS. (a) True, complete and correct copies of (i) all Material Leases and (ii) all deeds, title insurance policies, surveys, mortgages, agreements and other documents, instruments, agreements or understandings granting to CRSI or any of the Subsidiaries title to, or an interest in, or otherwise affecting or evidencing the state of title to any Real Property owned or purported to be owned by CRSI or any Subsidiary, together with all amendments, modifications and supplements thereto (collectively, the "Title Documents"), have been delivered or made available to the Buyer. (b) Except as set forth on Schedule 3.7.3(b), with respect to any Real Property owned or purported to be owned by CRSI or any Subsidiary, no portion thereof is subject to any pending condemnation proceeding or proceeding by any public or quasi-public authority of which CRSI or any of the Subsidiaries has received written notice and, to Seller's Knowledge, there is no threatened condemnation or proceeding with respect thereto. The physical condition of the Real Property, to Seller's Knowledge, is sufficient for the conduct of the Business as presently conducted subject to the provision of usual and customary maintenance and repair performed in the ordinary course with respect to similar properties of like age and construction. (c) Except as set forth on Schedule 3.7.3(c), there are no contracts, written or oral, to which CRSI or any of the Subsidiaries is a party, granting to any party or parties (other than CRSI or any Subsidiary) the right of use or occupancy of any portion of any of the Real Properties. SECTION 3.8 ACCOUNTS RECEIVABLE. The billed and unbilled accounts receivable of CRSI and the Subsidiaries as of December 31, 1997, statements of which have been separately furnished or made available to Buyer, accurately reflect, in accordance with GAAP, the accounts receivable of CRSI and the Subsidiaries as of such date, and such billed and unbilled accounts receivable arose from bona fide transactions which occurred in the ordinary course of business, except as disclosed 1481337 26 in Schedule 3.6.1. Except as set forth on Schedule 3.8 delivered hereunder, as of the month ended December 31, 1997 with respect to CRSI and the Subsidiaries, there is (i) no account debtor or note debtor delinquent in its payment by more than 90 days, (ii) no account debtor or note debtor that has refused or overtly threatened to refuse to pay its obligations for any reason, (iii) to the Knowledge of Seller, no account debtor or note debtor that is insolvent or bankrupt and (iv) no account receivable or note receivable is pledged to any third party by CRSI or any Subsidiary. SECTION 3.9 INVENTORY. The inventory, work in process and spare parts of CRSI and the Subsidiaries (the "Inventory") at December 31, 1997 have been acquired or manufactured in the ordinary course of business and in accordance with CRSI's and the Subsidiaries' normal inventory practices. Since December 31, 1997, CRSI and the Subsidiaries have continued to replenish their Inventory in a normal and customary manner consistent with past practices. SECTION 3.10 INTELLECTUAL PROPERTY. 3.10.1 PATENTS AND KNOW-HOW. Schedule 3.10.1 delivered hereunder sets forth a complete and accurate list of each patent, patent application and docketed invention, by date and germane case or docket number and country of origin, and each license or licensing agreement, by date, term and the parties thereto, for each patent, patent application or docketed invention, held or used by CRSI or any of the Subsidiaries and relevant to the Business (each such patent, patent application, license or licensing agreement listed thereon hereinafter termed the "Patents and Licenses"). With respect to the Patents and Licenses, and with respect to all other technology held or used by CRSI or any of the Subsidiaries, including but not limited to research and development results, computer programs, processes, trade secrets, know-how, formulae, chip designs, mask works, inventions and manufacturing, engineering, quality control, testing, operational, logistical, maintenance and other technical information and technology held or employed by CRSI and the Subsidiaries ("CRSI Technology"), and except as set forth on Schedule 3.10.1 delivered hereunder: (a) Each of CRSI and the Subsidiaries has all right, title and interest in, or a valid license to use, the Patents and Licenses and the CRSI Technology owned or licensed by it, free and clear of all Liens (other than Permitted Liens and, in the case of the Patents and Licenses and the CRSI Technology licensed to CRSI or any Subsidiary, the rights of any licensor) with all rights to make, use, and sell the property embodied in or described in the Patents and Licenses and in the CRSI Technology. The use of the Patents and Licenses or the CRSI Technology does not conflict with, infringe upon or violate any patent, patent license, patent application, trademark, trade name, trademark or trade name registration, copyright, copyright registration, service mark, brand mark or brand name or any pending application relating thereto, or any trade secret, know-how, programs or processes of any third Person; 1481337 27 (b) There are no outstanding or, to the Knowledge of Seller, threatened governmental, judicial or adversary proceedings, hearings, arbitrations, disputes or other disagreements and no notice or other written assertion of infringement has been served upon CRSI or the Subsidiaries or otherwise come to the Knowledge of Seller with respect to, any of the Patents and Licenses or the CRSI Technology; and (c) Neither the Seller nor CRSI or any of the Subsidiaries has communicated to any Person any notice or assertion of infringement or misappropriation by any Person of, or has any Knowledge of threatened infringement or misappropriation by any Person of, the Patents and Licenses or CRSI Technology. 3.10.2 TRADEMARKS AND COPYRIGHTS. Schedule 3.10.2 delivered hereunder sets forth a complete and accurate list of each trademark, trade name, and trademark and trade name registration or application, and copyright registration and application for copyright registration, by date and germane case or docket number and country of origin, and each license or licensing agreement, by date and the parties thereto, for each trademark and copyright license or license of application, held or employed by CRSI or any of the Subsidiaries (other than the name "COMSAT") (each such trademark, trade name, copyright, application, and license or licensing agreement hereafter termed the "Trademarks and Licenses"). With respect to the Trademarks and Licenses, and except as set forth on Schedule 3.10.2: (a) Each of CRSI and the Subsidiaries has all right, title and interest in, or a valid license to use, the Trademarks and Licenses owned or licensed by it, free and clear of all Liens (other than Permitted Liens and, in the case of the Trademarks and Licenses licensed to CRSI or any Subsidiary, the rights of any licensor). The use by CRSI and the Subsidiaries of the Trademarks and Licenses does not conflict with, infringe upon or violate any patent, patent license, patent application, trademark, trade name, registration or application, copyright, copyright registration or application relating thereto, of any third Person; (b) There are no outstanding or, to the Knowledge of Seller, threatened governmental, judicial or adversary proceedings, hearings, arbitrations, disputes or other disagreements, and no notice or other assertion of infringement has been served upon CRSI or any of the Subsidiaries or otherwise come to the Knowledge of Seller, with respect to any of the Trademarks and Licenses; and (c) Neither the Seller nor CRSI or any of the Subsidiaries has communicated to any Person any notice or assertion of infringement or misappropriation by any Person of, or has any Knowledge of threatened 1481337 28 infringement or misappropriation by any Person of, the Trademarks and Licenses. 3.10.3 COMPUTER SOFTWARE. Schedule 3.10.3 delivered hereunder contains a list of all computer software programs, computer data base programs and related documentation and materials which are used by CRSI and the Subsidiaries other than any computer software programs, computer data base programs and related documentation and materials subject to "shrink-wrap" licenses (such software, data bases, and related materials, the "Computer Software"). With respect to such Computer Software, and except as set forth in Schedule 3.10.3: (a) Each of CRSI and the Subsidiaries has all right, title and interest in or a license to use the Computer Software (and any materials subject to a shrink-wrap license) owned by or licensed to it, free and clear of all Liens (other than Permitted Liens and, in the case of Computer Software (and any materials subject to a shrink-wrap license) licensed to it, the rights of any licensor) or otherwise has all rights necessary to license customers of CRSI and the Subsidiaries to use the Computer Software. The use of the Computer Software by CRSI and the Subsidiaries does not conflict with, infringe upon or violate any patent, patent license, patent application, copyright, copyright registration or application, of any third Person; (b) There are no pending or, to the Knowledge of Seller, threatened governmental, judicial or adversary proceedings, hearings, arbitrations, disputes or other disagreements and no notice or other assertion of infringement has been served upon CRSI or any of the Subsidiaries or otherwise come to the Knowledge of Seller, with respect to any of the Computer Software; and (c) Neither the Seller nor CRSI or any of the Subsidiaries has communicated to any Person any notice or assertion of infringement or misappropriation by any Person of, or has any Knowledge of threatened infringement or misappropriation by any Person of, the Computer Software. SECTION 3.11 MATERIAL CONTRACTS. 3.11.1 IDENTIFICATION. Schedule 3.11.1 delivered hereunder sets forth a list, as of the date hereof, of the following matters pertaining to certain contracts and obligations to which CRSI and any of the Subsidiaries are a party (other than such contracts and obligations relating exclusively to the Excluded Assets and Liabilities): (a) All contracts, subcontracts, agreements (including teaming agreements) and other arrangements having a total value of $1,000,000 or greater (but without duplication of any contract, subcontract, agreement 1481337 29 (including any teaming agreement) or other arrangement of the type described in clauses (b) through (i) of this Subsection 3.11.1); (b) All loan, bond, surety or debt agreements (including notes and reimbursement agreements relating to letters of credit and guarantees); (c) All agreements providing for the guarantee by Seller of the obligations of CRSI or any of the Subsidiaries, including all reimbursement agreements relating to letters of credit issued on behalf of CRSI or any Subsidiary; (d) All distributorship, commission agent or consulting agreements providing for the marketing and/or sale of the products or services of CRSI or any Subsidiary; (e) All partnership, limited liability company, strategic partnership and joint venture agreements; (f) All individualized employment or consulting contracts or similar arrangements obligating CRSI or any of the Subsidiaries to pay more than $100,000 per year; (g) All contracts or licenses pursuant to which CRSI or any of the Subsidiaries has acquired a license in, or has licensed to others, intellectual property material to the Business or which requires the payment by CRSI or such Subsidiary of a fee of $100,000 or more per year; (h) All contracts, agreements, instruments or arrangements that prohibit CRSI or any Subsidiary from freely engaging in business anywhere in the world; and (i) All contracts, agreements, instruments or arrangements pursuant to which CRSI or any of the Subsidiaries purchases equipment, parts, raw materials or other items from a Person who is the sole supplier thereof in the United States to the extent such equipment, parts, raw materials or other items would, if unavailable, have a Material Adverse Effect on the Business or CRSI or any of the Subsidiaries. 3.11.2 FULL FORCE AND EFFECT. Except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application referring to or affecting enforcement of creditors' rights, and by general equitable principles and except as set forth on Schedule 3.11.2 delivered hereunder, all agreements, contracts and obligations identified on Schedule 3.11.1 are valid and binding against CRSI or the Subsidiary a party thereto and, to the Knowledge of Seller, any other party thereto except to the extent that enforceability 1481337 30 of a Government Contract may be limited by (i) the unfunded support of such Government Contract or program to which such Government Contract relates, and (ii) the right of the customer to terminate any Government Contract for convenience. Except as set forth on Schedule 3.11.2, each of CRSI and each of the Subsidiaries have in all material respects performed all the obligations required to be performed by it to date, and is not in default or alleged to be in default in any material respect, under any agreement, contract or obligation specified on Schedule 3.11.1, and there exists no event, condition or occurrence which, after notice or lapse of time, or both, would constitute such a default by CRSI or any of the Subsidiaries of any such agreement, contract or obligation. To the Knowledge of Seller, and except as set forth on Schedule 3.11.2, the parties (other than CRSI or any Subsidiary) to the agreements, contracts or obligations specified on Schedule 3.11.1 are not in default in any material respect of their respective obligations under such agreements, contracts or obligations. CRSI has furnished or made available to Buyer true and complete copies of all documents listed on Schedule 3.11.1 or complete descriptions of all material terms of any oral contract or arrangement listed on Schedule 3.11.1. SECTION 3.12 LITIGATION AND INVESTIGATION. Except as set forth on Schedule 3.12 delivered hereunder, neither CRSI nor any of the Subsidiaries have been served as a party in, or have become or been made a party to, any pending suits, actions or proceedings, or to the Knowledge of Seller any investigations by a Governmental Authority, which, if adversely determined, would result in liability in excess of $25,000, and neither CRSI nor any of the Subsidiaries have, to the Knowledge of Seller, received notice of any threatened suits, actions or proceedings, or any threatened investigations which, if adversely determined, would result in liability in excess of $25,000, nor any which seek to enjoin this Agreement. Except as set forth on Schedule 3.12, neither Seller, CRSI nor any of the Subsidiaries has received any written opinion or memorandum or other written legal advice from legal counsel to the effect that CRSI or any Subsidiary is exposed, from a legal standpoint, to any liability or disadvantage which may be material to the Business or to CRSI's or any of the Subsidiaries' financial condition, operations, property or affairs. SECTION 3.13 TAXES. Except as set forth on Schedule 3.13 delivered hereunder: (a) CRSI and the Subsidiaries have to the date hereof timely filed and shall prior to the Closing Date timely file all material Tax Returns which have been or shall be required to have been filed by them on or before the Closing Date, including, without limitation, the Tax Returns of any consolidated, combined or unitary group of which CRSI or the Subsidiaries is or has been a member and with respect to which CRSI or any of the Subsidiaries is required to file a material Tax Return, and have paid all material Taxes due to any authority required to have been paid by them on or prior to the date hereof. The Tax Returns filed and to be filed on or before the Closing Date with 1481337 31 respect to CRSI and the Subsidiaries are and shall be true, correct and complete in all material respects; (b) None of Seller, CRSI or the Subsidiaries has received notice that any Taxing authority has asserted against CRSI or any Subsidiary any deficiency or claim for Taxes and no issue has been raised in any audit by any Taxing authority which, by application of similar principles, reasonably could be expected to result in a proposed deficiency for any period not so examined; (c) All Tax deficiencies asserted or assessments against CRSI or any of the Subsidiaries have been paid or finally settled with no remaining amounts owed (including interest and penalties); (d) There is no pending or, to the Knowledge of Seller, threatened action, audit, proceeding or investigation with respect to CRSI or any of the Subsidiaries involving (i) the assessment or collection of Taxes or (ii) a claim for refund made by any of them with respect to Taxes previously paid; (e) All material amounts that are required to be collected or withheld by CRSI and the Subsidiaries, or with respect to Taxes of CRSI and the Subsidiaries, have been duly collected or withheld, and all such material amounts that are required to be remitted to any Taxing authority have been duly remitted; (f) There are no outstanding waivers of any statute of limitations with respect to the assessment of any Tax against CRSI or any Subsidiary; (g) Neither CRSI nor any Subsidiary has taken action that would have the effect of deferring any material Tax liability from any period ending on or before the Closing Date to any period ending after such date, including any change in the method of accounting, but excluding any election or method of accounting that it would not be unusual for a taxpayer in the business of CRSI or any Subsidiary, as the case may be, to make or employ in the ordinary course of business; (h) Neither CRSI nor any Subsidiary has taken any action the income with respect to which will be taken into account under the installment method in a taxable period ending after the Closing Date; (i) There are no material Liens for Taxes due and payable upon the assets of CRSI or any Subsidiary, and no action to the Knowledge of the Seller has been instituted against CRSI or any Subsidiary that would reasonably result in any such Lien; 1481337 32 (j) Neither CRSI nor any of the Subsidiaries (i) has made an election to be treated as a "consenting corporation" under Section 341(f) of the Code or (ii) is a "personal holding company" within the meaning of Section 542 of the Code. Neither CRSI nor any of the Subsidiaries has agreed, nor is required, to make any adjustment under Section 481(a) of the Code by reason of a change in accounting method or otherwise. Neither CRSI nor any of the Subsidiaries will incur a Tax Liability resulting from ceasing to be a member of a consolidated or combined group that had previously filed consolidated, combined or unitary Tax returns; (k) Neither CRSI nor any of the Subsidiaries is party to a tax-sharing agreement, allocation agreement or other contractual obligation to pay the tax obligations of, or indemnify, any other Person with respect to any Tax; (l) There is no Contract covering any Person that individually or collectively could, as a result of the transactions contemplated hereby, or otherwise, give rise to the payment of an amount by CRSI or any of the Subsidiaries which would be nondeductible by reason of Section 280G of the Code; (m) No power of attorney has been executed by CRSI or any of the Subsidiaries with respect to any matter relating to Taxes which will remain in force after the Closing Date; (n) There are no outstanding requests for rulings or determinations in respect of any Tax pending (i) between CRSI or any of the Subsidiaries and any Taxing authority or (ii) between Seller or any member of Seller's consolidated, combined or unitary group and any Taxing authority that would affect CRSI or any of the Subsidiaries; (o) CRSI and the Subsidiaries are registered to do business in the states and localities set forth in Schedule 3.3 and CRSI and the Subsidiaries file Tax Returns in the states and localities set forth in Schedule 3.3; and (p) Seller has delivered or made available to Buyer complete copies of all CRSI and Subsidiary Tax Returns (or relevant extracts thereof in the case of consolidated, combined or unitary Tax Returns) for all Tax periods ending on or after December 31, 1994. 1481337 33 SECTION 3.14 EMPLOYEES; COMPENSATION; LABOR. 3.14.1 EMPLOYEES AND COMPENSATION. Seller has delivered or made available to Buyer prior to the date of this Agreement complete and correct copies of all written employment agreements of individuals employed in the Business which call for annual compensation (together with bonuses) of $100,000 or greater. Schedule 3.14.1(a) delivered hereunder lists (i) all executive compensation plans, bonus plans, incentive compensation plans, deferred compensation agreements, employee pension plans or retirement plans, employee profit sharing plans, employee stock purchase plans, group life insurance, hospitalization insurance or other plans providing for benefits for the employees of the Business (the "Employees"); (ii) all individuals employed in the Business (other than the Excluded Employees) who receive annual compensation (together with bonuses) of $100,000 or greater, and such individual's current salary; and (iii) all material employment policies, procedures, manuals, and other similar rules, regulations and by-laws regarding the general conduct, compensation, labor relations and employment of the Employees. 3.14.2 CERTAIN LABOR MATTERS. Except as set forth on Schedule 3.14.2 delivered hereunder: (a) There is no union representing the interests of any of the Employees, and to the Knowledge of Seller there are no such Employees seeking or attempting to organize other union representation; (b) There are neither pending nor, to the Knowledge of Seller, threatened any strikes, work stoppages, work disruptions or employment disruptions by any of the Employees; (c) There are neither pending nor, to the Knowledge of Seller, threatened any suits, actions, administrative proceedings, hearings, arbitrations or other proceedings between Seller or CRSI or any Subsidiary and any of the Employees or former Employees; (d) Neither CRSI nor any of the Subsidiaries is delinquent in payments to any of its Employees for any wages, salaries, commissions, bonuses or other direct compensation for any services performed by them to date or amounts required to be reimbursed to such Employees; (e) To the Knowledge of Seller, no employee of CRSI or any Subsidiary listed on Schedule I intends to terminate his or her employment or engagement with CRSI or any Subsidiary as a result of the transaction contemplated by this Agreement, and no regional manager or facility manager or officer of CRSI or any Subsidiary has terminated such employment or engagement during the six month period prior to the date hereof; and 1481337 34 (f) Each welfare benefit plan covering present or former Employees of CRSI and the Subsidiaries which is a "group health plan," within the meaning of Section 5000 of the Code, has been maintained in compliance with Section 4980B of the Code and Title I, Subtitle B, part 6 of ERISA and no Tax payable on account of Section 4980B of the Code has been or is expected to be incurred. 3.14.3 EMPLOYEE BENEFIT PLANS; ERISA. Schedule 3.14.3 delivered hereunder lists each employee benefit plan or arrangement maintained or contributed to by CRSI or any Subsidiary that is either an "employee pension benefit plan," or "employee welfare benefit plan" as such terms are defined in Section 3 of the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder ("ERISA"), which covers any current or former employee of CRSI and the Subsidiaries (each such plan is hereinafter referred to as an "ERISA Plan"). Buyer has been provided with copies of each bonus, deferred compensation, incentive compensation, stock purchase or stock option plan maintained or contributed to by CRSI or any Subsidiary. Except as set forth on Schedule 3.14.3: (a) Neither CRSI nor any Subsidiary has ever contributed to a multi-employer plan, as defined in Section 3(37) of ERISA, which could result in any liability after Closing to the Buyer; (b) To the Knowledge of Seller, no fiduciary of any retirement plan covering present or former employees of CRSI and the Subsidiaries has engaged in a "prohibited transaction" (as that term is defined in Section 4975 of the Code and Section 406 of ERISA) which could subject CRSI or any Subsidiary to a penalty tax imposed by Section 4975 of the Code or Section 402(i) of ERISA; (c) All contributions to the retirement plans covering present or former employees of CRSI and the Subsidiaries have been timely made, and no retirement plan has an "accumulated funding deficiency" within the meaning of Section 412 of the Code; (d) No retirement plan covering present or former employees of CRSI and the Subsidiaries subject to Title IV of ERISA has incurred any liability under such title other than for the payment of premiums to the Pension Benefit Guaranty Corporation ("PBGC"), all of which have been paid when due; and (e) No retirement plan covering present or former employees of CRSI and the Subsidiaries has been terminated within the last 5 years, nor have there been any "reportable events" (as that term is defined in Section 4043 of 1481337 35 ERISA and the regulations thereunder) within the last 5 years which would present a risk that any such retirement plan would be terminated. SECTION 3.15 ENVIRONMENTAL MATTERS. 3.15.1 ENVIRONMENTAL PERMITS. Except as set forth in Schedule 3.15.1 delivered hereunder, each of CRSI and the Subsidiaries has obtained all permits, licenses and other authorizations relating to its business and operations and which are required under the Environmental Laws. Schedule 3.15.1 sets forth (i) all such permits, licenses and other authorizations issued under the Environmental Laws obtained by CRSI and the Subsidiaries, and (ii) a description and good faith estimate by Seller of the cost of capital expenditures (if any) that may be necessary to maintain or qualify for each such permit, license or other authorization. 3.15.2 NO VIOLATION. Except as set forth in Schedule 3.15.2 delivered hereunder, and with respect to their business and operations, CRSI and the Subsidiaries are in compliance with all terms and conditions of the required permits, licenses and authorizations (except to the extent any such failure to be in compliance would not lead to a Liability or Loss in excess of $10,000), and CRSI and the Subsidiaries are also in compliance with all Environmental Laws and all other limitations, restrictions, conditions, standards, requirements, schedules and timetables contained therein (except to the extent any such failure to be in compliance would not lead to a Liability or Loss in excess of $10,000). 3.15.3 NO NOTICE. Except as set forth in Schedule 3.15.3 delivered hereunder, there is no pending or overtly threatened civil or criminal litigation, notice of violation or of potential liability or administrative action or other Proceeding against CRSI or any Subsidiary or involving any Real Property that relates in any way to the Environmental Laws that, if determined adversely against CRSI or any Subsidiary, would lead to a liability or Loss in excess of $10,000. 3.15.4 NO BASIS FOR LIABILITY. Except as set forth in Schedule 3.15.4 delivered hereunder, with respect to the current or past business or operations of CRSI, the Subsidiaries or the Real Property, there are no events, conditions, circumstances, activities, practices, incidents, actions or plans which may interfere with or prevent continued compliance with the Environmental Laws, or which may give rise to any common law or other liability under the Environmental Laws, or otherwise form the basis of any material claim, action, demand, suit, proceeding, hearing, study, or investigation by a Governmental Authority or other Person which may be brought under the Environmental Laws or which is based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling, or the emission, discharge, release or threatened release into the environment, of any Hazardous Materials. 1481337 36 3.15.5 UNDERGROUND IMPROVEMENTS. Except as set forth in Schedule 3.15.5 delivered hereunder: (a) no Real Property contains any underground improvements, including underground storage tanks or underground piping attached to such storage tanks, used currently or in the past for the management of Hazardous Materials, and no portion of such Real Property is or has been used as a dump or landfill or consists of or contains filled in land; and (b) no Real Property sold or otherwise transferred by CRSI or such Subsidiary prior to the CRSI Acquisition Date contained prior to the CRSI Acquisition Date any underground improvements, including underground storage tanks or underground piping attached to such storage tanks, used in the past for the management of Hazardous Materials, and no portion of such Real Property was, on or prior to the CRSI Acquisition Date, used as a dump or landfill or consisted of or contained filled in land. 3.15.6 RECORDS. Seller has furnished to Buyer accurate and complete information pertaining to the environmental history of the Real Property to the extent such Real Property is or was related to the operation of CRSI and the Subsidiaries. To the extent such Real Property is not or was not so related, Seller has furnished Buyer with accurate and complete information pertaining to the environmental history of the Real Property to the best of the Seller's Knowledge. 3.15.7 LIENS. No Lien in favor of any Person relating to or in connection with any claim under any Environmental Law has been filed or attached to the Real Property currently owned, operated or leased or purported to be owned, operated or leased by CRSI or any of the Subsidiaries. SECTION 3.16 GOVERNMENT CONTRACTS. 3.16.1 COMPLIANCE. Except as set forth in Schedule 3.16.1 delivered hereunder, with respect to each and every Government Contract or Government Bid: (i) Seller, CRSI and the Subsidiaries have complied with all material terms and conditions of such Government Contract or Government Bid; (ii) CRSI and the Subsidiaries have complied in all material respects with all requirements of all Laws or agreements pertaining to such Government Contract or Government Bid; (iii) all representations and certifications executed, acknowledged or set forth in or pertaining to such Government Contract or Government Bid were complete and correct in all material respects as of their effective date, and CRSI and the Subsidiaries have complied in all material respects with all such representations and certifications; (iv) neither the United States government nor any prime contractor, subcontractor or other Person has notified CRSI or any Subsidiary, either in writing or, to the Knowledge of Seller, orally, that CRSI or any Subsidiary has breached or violated any statute, regulation, certification, representation, clause, 1481337 37 provision or requirement pertaining to such Government Contract or Government Bid; (v) no termination for convenience, termination for default, cure notice or show cause notice is currently in effect pertaining to such Government Contract or Government Bid; (vi) no material cost incurred by CRSI or the Subsidiaries pertaining to such Government Contract or Government Bid has been formally questioned or challenged or, to the Knowledge of Seller, is the subject of any investigation or has been disallowed by the United States government; (vii) no money due to CRSI or the Subsidiaries pertaining to such Government Contract or Government Bid has been withheld or set off nor has any claim been made to withhold or set off money and CRSI and the Subsidiaries are entitled to all progress payments received with respect thereto; and (viii) each Government Contract is valid and subsisting (except to the extent such validity or subsistence may be limited by (i) the unfunded support of such Government Contract or program to which such Government Contract relates, and (ii) the right of the customer to terminate any Government Contract for convenience). To the extent that any clause in the previous sentence is qualified by the word "material," the representation contained in such clause is deemed qualified only to the extent that if the representation were subsequently determined to be inaccurate or false, that such inaccuracy or misstatement would not lead to a liability or Loss in excess of $10,000. 3.16.2 INVESTIGATIONS. Except as set forth in Schedule 3.16.2 delivered hereunder: (i) neither Seller in respect of the Business nor CRSI or any Subsidiary or any of their respective directors, officers or employees are subject to any indictment by any United States government entity or under investigation by Seller, CRSI or any Subsidiary, nor are any of them, to the Knowledge of Seller, under any administrative, civil or criminal investigation, and none of CRSI or any Subsidiary nor, to the Knowledge of Seller, any of their respective directors, officers or employees has received notice of any administrative, civil or criminal investigation, in each case in respect of any alleged irregularity, misstatement or omission arising under or relating to any Government Contract or Government Bid; and (ii) during the last three years, neither Seller nor CRSI or any Subsidiary have conducted or initiated any internal investigation or made a voluntary disclosure to the United States government, with respect to any alleged irregularity, misstatement or omission arising under or relating to a Government Contract or Government Bid. Except as set forth in Schedule 3.16.2, there exists no irregularity, misstatement or omission arising under or relating to any Government Contract or Government Bid that has led to any of the consequences set forth in clause (i) or (ii) of the immediately preceding sentence or any other damage, penalty assessment, recoupment of payment or disallowance of cost that would lead to a liability or Loss in excess of $10,000. 3.16.3 ABSENCE OF CLAIMS. Except as set forth in Schedule 3.16.3 delivered hereunder, there exist no outstanding claims asserted against CRSI or any Subsidiary, either by the United States government or by any prime contractor, subcontractor, vendor or other Person, arising under or relating to any Government Contract or Government Bid. Except as set forth in Schedule 3.16.3, CRSI and the 1481337 38 Subsidiaries have no interest in any pending or, to Seller's Knowledge, potential claim against the United States government or any prime contractor, subcontractor or vendor arising under or relating to any Government Contract or Government Bid. Schedule 3.16.3 lists each Government Contract which to Seller's Knowledge is currently under audit (other than routine audits conducted in the ordinary course of business) by the United States government or any other Person that is a party to such Government Contract. 3.16.4 ELIGIBILITY. Except as set forth in Schedule 3.16.4 delivered hereunder, (i) neither CRSI nor any Subsidiary has been debarred or suspended from participation in the award of contracts with the United States Department of Defense or any other United States government entity (excluding for this purpose ineligibility to bid on certain contracts due to generally applicable bidding requirements), (ii) there exist no facts or circumstances that would warrant the institution of suspension or debarment proceedings or the finding of nonresponsibility or ineligibility on the part of CRSI or any Subsidiary or any director or officer of any thereof, (iii) no payment has been made by CRSI or any Subsidiary, or by any person on behalf of CRSI or any Subsidiary, in violation of, or requiring disclosure pursuant to, the Foreign Corrupt Practices Act, and (iv) CRSI's and the Subsidiaries' cost accounting and procurement systems and the associated entries reflected in their financial statements with respect to the Government Contracts are in compliance in all material respects with all Laws. SECTION 3.17 COMPLIANCE WITH LAWS. 3.17.1 GENERAL. CRSI and the Subsidiaries are in compliance in all material respects with all applicable Laws relating to the operation of the Business, except in respect of those Laws pertaining to contracting with and procurement by the U.S. Government or any prime contractor thereof or other Person acting on behalf of the U.S. Government, which are addressed specifically in Section 3.16 herein. 3.17.2 EXPORT CONTROL. Except as set forth on Schedule 3.17.2, each of CRSI and the Subsidiaries has in respect of the Business (a) all licenses for any pending export transactions in connection with past or current contracts to which CRSI or any Subsidiary is a party, (b) all licenses and clearances for the disclosure of information to foreign persons and (c) all registrations with United States governmental entities with authority to implement applicable export control Laws. Neither Seller, CRSI nor any Subsidiary has participated directly or indirectly in any boycotts or other similar practices in violation of the regulations of the United States Department of Commerce or Section 999 of the Code or any export control Laws. 3.17.3 SECURITY CLEARANCES. Except to the extent prohibited by the National Industrial Security Program Operating Manual of the U.S. Department of 1481337 39 Defense, Schedule 3.17.3 sets forth all facility clearances held by CRSI or any Subsidiary, or by Seller in connection with the Business. SECTION 3.18 INSURANCE. Schedule 3.18 sets forth a correct and complete list of all policies of insurance (other than any surety or performance bond policy, which are specifically listed on Schedule 3.11.1 pursuant to Section 3.11.1(b)) maintained by CRSI or any Subsidiary and applicable to the Business other than workers' compensation policies. Each of CRSI and each Subsidiary is in compliance with the terms of all policies and instruments listed on Schedule 3.18. No insurance company or other Person has mandated in an agreement binding on CRSI or any Subsidiary a requirement of continued insurance coverage that has not been complied with. Also included on Schedule 3.18 is a list of all claims in excess of $50,000 currently pending under any of the policies set forth on Schedule 3.18. Neither CRSI nor any Subsidiary has received any notification of cancellation of any of such insurance policies and has no claim outstanding which could be expected to cause a material increase in the insurance rates. To Seller's Knowledge, no facts or circumstances exist that would relieve any insurer under any such policies of their obligations to satisfy in full any claim of CRSI or any Subsidiary thereunder. Neither CRSI nor any Subsidiary has received any notice that (i) any of such policies has been or will be cancelled or terminated or will not be renewed on substantially the same terms as are now in effect or (ii) the premium on any of such policies will be materially increased on the renewal thereof. SECTION 3.19 BROKERS. Seller has not paid or become obligated to pay any fee or commission to any broker, finder, investment banker or other intermediary in connection with the transactions contemplated by this Agreement, other than Morgan Stanley & Co. Incorporated. SECTION 3.20 DISCLOSURE. To the Knowledge of Seller, no representation or warranty of Seller contained in this Agreement and no Schedule or Exhibit delivered hereunder contains any untrue statement of material fact or omits to state a material fact necessary to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. To the Knowledge of Seller, there is no fact, circumstance or condition which has had or could reasonably be expected to have a Material Adverse Effect on CRSI and the Subsidiaries taken as a whole, which has not been set forth in this Agreement, the Schedules or the Exhibits. SECTION 3.21 RELATED PARTY TRANSACTIONS. Except as set forth on Schedule 3.21, and except for compensation to employees of CRSI or any Subsidiary for services rendered in the ordinary course of business, no current or former Affiliate of CRSI or any "Associate" (as defined in the rules and regulations promulgated under the Exchange Act) thereof, is presently, or during the last three fiscal years has been (i) a party to any agreement or transaction with CRSI or any of the Subsidiaries (including, but not limited to, any contract or agreement providing for 1481337 40 the furnishing of services by, or rental of real or personal property from, or otherwise requiring payments to, any such Affiliate or Associate); or (ii) the direct or indirect owner of an interest in any Person which is a present or potential competitor, supplier or customer of CRSI or any of the Subsidiaries (other than non-affiliated holdings in publicly held companies), nor does any such Person receive income from any source other than CRSI or any Subsidiary which relates to the business of, or should properly accrue to, CRSI or any Subsidiary. Except as set forth on Schedule 3.21, neither CRSI nor any of the Subsidiaries has provided a Guaranty of any of its Affiliates' obligations. SECTION 3.22 BANK ACCOUNTS. Schedule 3.22 contains a correct and complete list of the names of each bank or other financial institution in which CRSI or any of the Subsidiaries has an account or safe deposit box, and the names of all Persons authorized to draw thereon or to have access thereto. SECTION 3.23 CONFLICTS OF INTEREST. Neither CRSI, the Seller, the Subsidiaries nor any officer, employee, agent or other Person acting on behalf of CRSI, the Seller, or any of the Subsidiaries has, directly or indirectly, given or agreed to give any money, gift or similar benefit to be paid or conferred by CRSI or any Subsidiary (other than legal price concessions and lawful business entertainment to customers and vendors in the ordinary course of business) to any customer, supplier, employee or agent of a customer or supplier, or official or employee of any Governmental Authority or other Person who was, is, or may be in a position to help or hinder the business of CRSI or any of the Subsidiaries (or assist in connection with any actual or proposed transaction) that (i) might subject CRSI or any of the Subsidiaries to any damage or penalty in any Proceeding, (ii) if not given in the past, would have resulted in a Material Adverse Effect on CRSI or any of the Subsidiaries, or (iii) if not continued in the future, could reasonably be expected to have a Material Adverse Effect on CRSI or any of the Affiliates. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF TBG AND BUYER Each of TBG and Buyer hereby jointly and severally represents and warrants to Seller, as of the date hereof and as of the Closing Date, as follows: SECTION 4.1 CORPORATE STATUS AND AUTHORITY OF TBG AND BUYER. Each of TBG and Buyer is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has the requisite corporate power and authority to own, lease and operate its properties and to carry on its business as currently conducted and to enter into and perform this Agreement and the Ancillary Agreements to which it is a party and to consummate the 1481337 41 transactions contemplated hereby and thereby. The execution, delivery and performance by each of TBG and Buyer of this Agreement and the Ancillary Agreements to which it is a party have been duly authorized by all requisite corporate action on the part of TBG and Buyer. This Agreement is and, when executed at the Closing, each Ancillary Agreement to which it is a party will be a valid and binding obligation of each of TBG and Buyer, enforceable against each of them in accordance with its respective terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application referring to or affecting the enforcement of creditors' rights, or by general equitable principles. SECTION 4.2 NO CONFLICTS, ETC. 4.2.1 NO CONFLICTS. The execution, delivery and performance by each of TBG and Buyer of this Agreement and the Ancillary Agreements to which each is a party and the consummation of the transactions contemplated hereby and thereby will not: (a) conflict with or result in a breach of any provision of their respective charter documents or by-laws; (b) result in a default (or give rise to any right to termination, cancellation or acceleration after lapse of time or the giving of notice or both) under any of the terms, conditions or provisions of any loan agreement, note, bond, mortgage, deed of trust or indenture to which each of them is a party; and (c) violate any Laws applicable to or binding upon TBG or Buyer or their respective properties or assets. 4.2.2 CONSENTS AND APPROVALS. Except as set forth on Schedule 4.2.2 delivered hereunder, no consent, approval, determination or authorization of or filing with any Governmental Authority is required on the part of TBG or Buyer in connection with the execution and delivery by TBG or Buyer of this Agreement and the Ancillary Agreements to which each of them is a party or the consummation by each of them of the transactions contemplated hereby or thereby, except for: (a) the pre-merger notification filings required to be made by Seller and Buyer under the HSR Act; (b) the filing by Buyer required by the Department of Defense Industrial Security Regulation (DOD 5220.22-R) or the Department of Defense Industrial Security Manual (DOD 5220.22-M); and 1481337 42 (c) the joint notification required pursuant to the Exon-Florio Amendment. SECTION 4.3 SUFFICIENT FUNDS. Buyer has, or TBG will cause Buyer to have, sufficient funds to deliver the Purchase Price to Seller at the Closing and to pay off the Note in accordance with its terms. SECTION 4.4 BROKERS. None of TBG or Buyer has paid or become obligated to pay any fee or commission to any broker, finder, investment banker or other intermediary in connection with the transactions contemplated by this Agreement. SECTION 4.5 PURCHASE FOR INVESTMENT. Buyer is acquiring the Shares for its own account for purposes of investment and not with a view or intent to any distribution thereof. Buyer understands and acknowledges that the offer and sale of the Shares as contemplated hereby have not been registered under the Securities Act, any state "Blue Sky" law, or any applicable foreign law or regulation, and that any subsequent transfer or offer to transfer by Buyer or any representative thereof of the Shares are subject to registration requirements or other restrictions arising under such laws and regulations in the absence of an available exemption therefrom. The stock certificates representing the Shares to be delivered at Closing as contemplated by Section 2.5.2 will carry a legend to such effect. ARTICLE V COVENANTS SECTION 5.1 CONDUCT OF THE BUSINESS. 5.1.1 ORDINARY COURSE. Except as permitted or contemplated by this Agreement or as otherwise consented to by Buyer in writing, such consent not to be unreasonably withheld or delayed, during the period from the date of this Agreement to the Closing, Seller will cause CRSI and the Subsidiaries to conduct the Business and their operations in the ordinary course consistent with past practices and shall not permit CRSI or the Subsidiaries to: (a) make or permit to be made any change in their Certificates of Incorporation or by-laws or issue any stock, bonds, other corporate securities or rights to acquire any securities; (b) classify, combine, split, subdivide or redeem or otherwise repurchase any of their capital stock or issue, deliver, pledge or encumber any capital stock or other securities equivalent to or exchangeable for capital stock 1481337 43 or, except as contemplated by the Distribution Agreement, declare or make any dividend or other distribution with respect to capital stock to Seller or any other of their shareholders or Affiliates of the Seller; (c) mortgage, pledge or subject to any other Lien any of their assets, tangible or intangible, except for Permitted Liens; (d) sell, assign or transfer any material assets of the Business, except in the ordinary course of business; (e) sell, assign or transfer any material proprietary rights, except in the ordinary course of business; (f) enter into any contract or commitment or submit any proposal for a contract or commitment, or engage in any transaction, involving an amount in excess of $500,000 other than in the ordinary course of business consistent with past practices; PROVIDED HOWEVER, that the Seller shall provide the Buyer with two days prior written notice of all contracts or commitments or proposals for contracts, commitments or potential transactions involving an amount in excess of $1,000,000 unless the giving of such notice shall materially and adversely affect the ability of CRSI or the Subsidiary to secure or submit such contract or commitment or proposal for contract, commitment or potential transaction (in which case Seller shall give Buyer oral notice thereof as promptly as practicable but in no event later than one day prior to securing or submitting such contract or commitment or proposal for contract, commitment or potential transaction); (g) increase compensation for employees except upon normal review consistent with past practices; (h) make any material changes in personnel, except that CRSI or any Subsidiary may discharge any officer or employee notwithstanding that such discharge may result in a material change in personnel; (i) fail to maintain existing insurance relating to their property and assets; (j) acquire or agree to acquire by merger, consolidation or purchase of capital stock or a material portion of assets or by any other manner, any business or any entity; (k) amend in any material respect Welfare Plans or Employee Plans; 1481337 44 (l) enter into transactions with Affiliates having a total value in excess of $100,000, except in conjunction with the procurement or provision of routine administrative, accounting, payroll, cash management and legal services in the ordinary course of business consistent with past custom and practice; (m) incur capital expenditures in excess of amounts set forth in the 1998 fiscal year capital expenditures budget, a copy of which is attached as Schedule 5.1(m); (n) delay or postpone the payment of accounts payable or other obligations and liabilities or change the current policy and principles followed in the posting of accounts receivable, other than in the ordinary course of business consistent with past custom and practice; or (o) incur any new indebtedness for borrowed money (other than loans and advances from Seller in the ordinary course and consistent with past custom and practice). 5.1.2 CASH MANAGEMENT. Notwithstanding any other provision of this Agreement, during the period from the date hereof through the Closing Date, Seller shall be permitted to manage the intercompany loans and advances between Seller and CRSI and the Subsidiaries, including taking the following steps, all of which shall be done in a commercially reasonable manner: (a) minimize cash balances held by CRSI and the Subsidiaries; (b) collect any and all outstanding receivables on the books of CRSI and the Subsidiaries, including accelerating the billing, posting and collecting of such receivables, and accelerating the completion and shipment to customers of work-in-progress; (c) offer incentives to CRSI and the Subsidiaries management (which shall be at the expense of Seller) consistent with the objectives of clause (b) of this Section 5.1.2; (d) defer capital expenditures which are not contractually required; (e) prevent pre-payment or acceleration of payment of trade payables; and 1481337 45 (f) take other commercially reasonable cash management actions, so long as such actions do not have a Material Adverse Effect on CRSI or any Subsidiary; PROVIDED THAT in no event shall this Section 5.1.2 permit Seller to draw any Exchange Proceeds from the Business in a manner that would be inconsistent with the provisions of Section 5.17. SECTION 5.2 ACCESS TO INFORMATION. 5.2.1 ACCESS. Between the date of this Agreement and the Closing Date, Seller shall, during mutually agreeable hours (I) give Buyer and its authorized representatives upon prior notice reasonable access, during normal business hours, to personnel, books, records, offices and other facilities and properties of CRSI or any Subsidiary, as the case may be, (II) permit Buyer to make such inspections thereof as Buyer may reasonably request, and (III) furnish Buyer with such financial and operating data and other information with respect to the Business, results of operations and properties of CRSI and the Subsidiaries as Buyer may from time to time reasonably request; PROVIDED HOWEVER, that any such inquiry shall be conducted in such a manner as not to interfere unreasonably with the business operations of CRSI or any Subsidiary; and, PROVIDED FURTHER, that Seller is under no obligation to disclose to Buyer any (a) "Classified Information" not in compliance with the DIS Industrial Security Regulation, the DIS Industrial Security Manual and any other applicable government security regulations, (b) information the disclosure of which is restricted by contract except in strict compliance with the applicable contract, (c) any information regarding contracts, proposals or bids for which Seller or CRSI or any Subsidiary and Buyer are competitors or potential competitors, or (d) any information that is subject to the attorney client privilege or work product doctrine. 5.2.2 CONFIDENTIALITY. Any information provided or obtained pursuant to this Section 5.2 herein shall be held by TBG and Buyer and its representatives in accordance with and shall be subject to the terms of the Confidentiality Agreement between TBG and Seller dated May 1997 (the "Confidentiality Agreement"), except (X) all obligations of TBG and Buyer in this regard will terminate upon completion of the Closing, (Y) with respect to financial or other information relating solely to Seller, in which case such Confidentiality Agreement shall continue with respect thereto, and (Z) that Buyer's covenant to refrain from purchasing any security issued by Seller as provided therein shall continue for the period stated therein. 5.2.3 NOTICE TO SELLER. TBG and Buyer agree to notify Seller in writing, promptly upon TBG's or Buyer's or their authorized representatives' discovery, of any information received by TBG or Buyer prior to the Closing Date relating to the operations of CRSI or any Subsidiary, as the case may be, which to the belief of TBG or Buyer constitutes (or would constitute) or indicates (or would indicate) a breach of any representation, warranty or covenant made by Seller herein. 1481337 46 SECTION 5.3 FILINGS AND AUTHORIZATIONS. Seller and Buyer (or where applicable TBG) shall, as promptly as practicable after the date hereof, file or supply, or cause to be filed or supplied, or will make or take, or cause to be made or taken, the following: (a) All notifications and information required to be filed or supplied pursuant to the HSR Act (including any request for additional information and documents or production of personnel for administrative interviews made pursuant to the HSR Act) and all information, documents or interviews reasonably requested by state or local officials in connection with the transactions contemplated hereby; (b) All such other filings and submissions under Laws applicable to them, or to their subsidiaries and affiliates, as may be required for it to consummate the transactions contemplated by this Agreement, including all Laws relating to the Federal Communications Commission and the filings and notifications to be supplied pursuant to the Exon-Florio Amendment; and (c) All other actions necessary, proper and reasonable for them to fulfill their obligations hereunder and to consummate the transactions contemplated by this Agreement. SECTION 5.4 TAX MATTERS. 5.4.1 TAX RETURNS. (a) Seller shall be the sole and exclusive agent of CRSI and the Subsidiaries in any and all matters relating to the U.S. Federal income tax liability of the consolidated group of which Seller is the common parent (the "Seller Consolidated Group") for all consolidated return years. Seller shall, INTER ALIA, have the right with respect to any Federal consolidated returns which it files (I) to determine (X) the manner in which such returns shall be prepared and filed, including, without limitation, the manner in which any item of income, gain, loss, deduction or credit shall be reported, (Y) whether any extensions of the due dates for filing of such returns or of the applicable statutes of limitations may be requested and (Z) the elections that will be made by any member of the Seller Consolidated Group, (II) to file and prosecute any claim for refund, and (III) to determine whether any refunds, to which the Seller Consolidated Group may be entitled, shall be paid by way of refund or credited against the tax liability of the Seller Consolidated Group. CRSI and the Subsidiaries hereby irrevocably appoint Seller as agent and attorney-in-fact to take such action (including the execution of documents) as Seller may deem appropriate to effect the foregoing. 1481337 47 (b) Subject to Section 5.4.4(d) hereof, Seller shall have the sole right, at its sole expense and for its sole benefit, to prepare and file any Tax Return, amended Tax Return, or claim for refund, and to prosecute any claim for refund, with respect to any Taxes paid or payable by CRSI and any of the Subsidiaries with respect to periods ending on or prior to the Closing Date. (c) Buyer shall file or cause to be filed when due all returns in respect of Taxes of CRSI and the Subsidiaries for taxable years or periods ending after the Closing Date and shall pay or cause to be paid the Taxes shown to be due on any such return. Upon notification and satisfactory documentation from Buyer at least fifteen days prior to the due date of such return, Seller shall pay to Buyer the Taxes paid with such return that Seller is liable for pursuant to Section 5.4.2(b) of this Agreement; PROVIDED, HOWEVER, that the Buyer's failure to satisfy the procedure described in this sentence shall not in any way limit its right to indemnification under this Agreement. (d) Subject to Section 5.4.4(d) hereof, Buyer shall have the sole right, at its sole expense and for its sole benefit (except as provided in Section 5.4.2(b) hereof), to prepare and file any Tax Return, amended Tax Return, or claim for refund, and to prosecute any claim for refund, with respect to any Taxes paid or payable by CRSI and any of the Subsidiaries with respect to periods ending after the Closing Date. (e) In the event Buyer causes or permits CRSI and the Subsidiaries to sell assets on the Closing Date or take any other actions not in the ordinary course of business that would result in the reporting of income on Seller's consolidated return pursuant to Treas. Reg. ss. 1.1502-76(b)(1)(ii), Buyer agrees that such income should be reported on Buyer's consolidated return pursuant to the "next day" rule of Treas. Reg. ss. 1.1502-76(b)(1)(ii)(B). If Seller incurs any liability for Taxes because of such actions, Buyer agrees to indemnify Seller for such liability. 5.4.2 INDEMNITY. (a) Seller hereby agrees to indemnify and hold CRSI and the Subsidiaries harmless with respect to any Tax Liability of the Seller Consolidated Group where such Liability arises solely by reason of any of CRSI and the Subsidiaries being severally liable for any Taxes of the Seller Consolidated Group pursuant to Treas. Reg. ss. 1.1502-6 or any similar provision of foreign, state or local law. (b) Seller shall indemnify and hold Buyer harmless from and against, and pay and reimburse Buyer for, any and all Taxes of the Seller Consolidated Group or any member thereof (other than non-income Taxes of CRSI or any Subsidiary reserved against on the Adjusted December Statements or accrued 1481337 48 or incurred consistent with past practices from December 31, 1997 to the Closing Date which were not due and payable prior to the Closing Date and reflected in the books and records of CRSI or any Subsidiary as of the Closing Date) for any taxable year or period ending on or before the Closing Date and the portion of any such Taxes for any taxable year or period ending thereafter that is attributable to the portion of such year or period prior to the Closing Date, and Seller shall be entitled to all refunds of such Taxes. (c) Buyer shall indemnify and hold the Seller harmless from and against, and pay and reimburse Seller for, any and all Taxes due by CRSI and the Subsidiaries or any affiliated group of which CRSI or the Subsidiaries become members after the Closing Date for any Taxable year or period beginning on or after the Closing Date and the portion of any such Taxes for any period beginning before and ending after the Closing Date that is attributable to the portion of such year or period beginning on or after the Closing Date, and Buyer shall be entitled to all refunds of such Taxes. (d) Notwithstanding anything in this Agreement to the contrary, the Seller's indemnity under this Agreement shall not include any liability for Taxes resulting from Buyer's election, if any, pursuant to Code Section 338. 5.4.3 TAX LIABILITY. Whenever it is necessary for purposes of this Section 5.4 to determine the Tax Liability of CRSI or any of the Subsidiaries for a taxable year or period that begins before and ends after the Closing Date, the determination shall be made by assuming that the entity had a Taxable year that ended at the close of the Closing Date, except that exemptions, allowances or deductions that are calculated on an annual basis, such as the deduction for depreciation, shall be apportioned on a time basis. 5.4.4 TAX CONTESTS. (a) The party obliged to provide indemnification under this Section 5.4 (the "Tax Indemnitor") shall assume and direct the defense or settlement of any hearing, arbitration, suit or other proceeding (each a "Tax Contest") commenced, filed or otherwise initiated or convened to investigate or resolve the existence and extent of a liability with respect to which the Tax Indemnitor would have an indemnification obligation under this Section 5.4 ("Tax Indemnification Liability"). The Tax Indemnified Party shall have the right to participate, at its own cost and expense, in the defense of such Tax Contest, it being understood that the Tax Indemnitor shall control such Tax Contest. (b) The Tax Indemnitor shall pay all out-of-pocket expenses and other costs related to the Tax Indemnified Liability, including but not limited to fees for attorneys, accountants, expert witnesses or other consultants retained by the Tax Indemnitor and/or the party entitled to be indemnified under this 1481337 49 Section 5.4 (the "Tax Indemnified Party") (other than fees for attorneys, accountants, expert witnesses or other consultants retained solely by the Tax Indemnified Party), and incurred at any time during which the Tax Indemnitor is controlling and directing the Tax Contest in respect of which such fees are incurred. To the extent that any such expenses and other costs have been or are paid by a Tax Indemnified Party, the Tax Indemnitor shall promptly reimburse the Tax Indemnified Party therefor. (c) Any Tax Indemnified Party shall give written notice to the Tax Indemnitor of any settlement proposed by the Taxing authority. The Tax Indemnitor shall have the right, in its sole discretion, to settle any claim for which indemnification has been sought under this Section 5.4, subject to Section 5.4.4(d) below. (d) Notwithstanding anything to the contrary contained herein, the Seller shall consult with Buyer and shall not file any amended Tax Return or refund claim or enter into any settlement with respect to any Tax matter without Buyer's prior written consent if the effect of such action would be to increase directly or indirectly the liability for Taxes of CRSI, the Subsidiaries or Buyer for any Taxable period (or portions thereof) beginning after the Closing Date. In the event that Buyer withholds the prior written consent required by the preceding sentence within [ten] days after Seller's request therefor, unless the parties otherwise agree in writing, Buyer shall assume the defense and settlement of the Tax matter at issue at its own cost and expense, PROVIDED, HOWEVER, that Seller's indemnification on liability under this Agreement with respect to such Tax matter shall be limited to the indemnification liability Seller would have had if Buyer had given Seller such written consent at the time Buyer assumed the defense of the Tax matter. If Buyer so assumes the defense and settlement of a Tax matter, and the Tax Contest in which such Tax matter arises involves other Tax matters, the parties shall use their best efforts to cause the Tax matter the defense and settlement of which Buyer assumed to be the subject of a separate proceeding. If such severance is not possible, notwithstanding Buyer's assumption of the defense and settlement of such Tax matter, Seller shall have the right to choose the forum for the Tax Contest, and Buyer shall not enter into any settlement with respect to such Tax matter without Seller's prior written consent if the effect of such action would be to increase directly or indirectly Seller's indemnification liability hereunder. Notwithstanding anything to the contrary contained herein, Buyer shall consult with Seller and shall not file any amended Tax Return or refund claim or enter into any settlement with respect to any Tax matter without Seller's prior written consent if the effect of such action would be to increase directly or indirectly the liability for Taxes of CRSI, the Subsidiaries or Seller for any Taxable period (or portions thereof) beginning on or before the Closing Date. 1481337 50 5.4.5 COOPERATION. (a) Seller and Buyer shall provide each other with such assistance and documents, without charge and in a timely fashion, as may be reasonably requested by either of them in connection with (i) the preparation of any Tax Return, (ii) the conduct of any Tax Contest, or (iii) any other matter that is the subject of this Agreement. Such assistance shall include, without limitation: (i) the provision on demand of books, records, Tax Returns, documentation or other information relating to any relevant Tax Return; (ii) the execution of any document that may be necessary or reasonably helpful in connection with the filing of any Tax Return, or in connection with any Tax Contest, including, without limitation, the execution of powers of attorney and extensions of applicable statutes of limitations; and (iii) the use of reasonable efforts to obtain any documentation from any Governmental Authority or other Person that may be necessary or reasonably helpful in connection with the foregoing. Each party shall make its employees and facilities available on a mutually convenient basis to facilitate such cooperation. (b) Seller and each other member of the Seller Consolidated Group, and CRSI and the Subsidiaries, shall retain or cause to be retained all Tax 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) with respect to the Taxable periods to which such Tax Returns and other documents relate or until the expiration of any additional period that either Buyer or Seller, as the case may be, may reasonably request in writing with respect to specifically designated material records or documents. If Seller or any other member of the Seller Consolidated Group, or Buyer, CRSI or any of the Subsidiaries, intends to destroy any material and relevant records or documents, Seller or Buyer, as the case may be, shall provide the other party with advance notice and the opportunity to copy or take possession of such records or 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 documents must be retained. SECTION 5.5 PURCHASE SUPPORT AGREEMENT. From and after the execution hereof but prior to the Closing, CRSI and Seller shall convert their existing intracompany purchase support orders into a purchase support agreement (the "Purchase Support Agreement") based upon arms-length commercial terms and conditions for the provision by CRSI and the Subsidiaries of the goods and services identified on Schedule 5.5 delivered hereunder to Seller and its affiliates from and after Closing. 1481337 51 SECTION 5.6 NAME AND MARKS. 5.6.1 BUYER'S OBLIGATIONS. Buyer acknowledges and agrees that by this Agreement it is obtaining no rights or licenses with respect to the names "COMSAT," "COMSAT Corporation" or any derivative thereof or to the logo belonging to COMSAT, or to any other names, trademarks or logos owned by or associated with COMSAT or its affiliates other than those which are specifically identified on Schedule 3.10.2. To that end, as soon as practicable after Closing but no later than 120 days after the Closing Date, Buyer shall remove and change signage, change and substitute promotional and advertising material in whatever medium, change stationery and packaging and take all such other steps as may be required or appropriate to eliminate reference to COMSAT or otherwise indicate that there no longer exists any connection or relationship between Seller and their affiliates on the one hand, and CRSI and the Subsidiaries on the other; PROVIDED THAT nothing herein shall obligate Buyer to change or copy over any engineering drawings, prints or copies of correspondence, invoices and other documents prepared prior to the expiration of such 120 day period or any "COMSAT" logo or name affixed to any inventory or product of CRSI or any Subsidiary acquired or manufactured prior to the expiration of 90 days following the Closing Date, and PROVIDED FURTHER THAT nothing herein shall be deemed to preclude Buyer, CRSI or any Subsidiary from using the letter "C" as the initial letter of a corporate name or a name used for marketing or communication purposes. 5.6.2 SELLER'S OBLIGATIONS. Seller and the Excluded Subsidiaries shall cease all commercial use of the names and trademarks identified on Schedule 3.10.2 from and after the Closing Date. SECTION 5.7 NOTICE TO BUYER. Throughout the period between the date of this Agreement and the Closing, Seller shall promptly notify Buyer in writing of any event or development that comes to Seller's Knowledge which is reasonably expected to have a Material Adverse Effect upon CRSI or any of the Subsidiaries. SECTION 5.8 FURTHER ASSURANCES. From time to time after the Closing, the parties hereto agree that each shall, at its own expense, execute and deliver, or cause to be executed and delivered, such documents and instruments as may be reasonably requested by the other in order more effectively to consummate the transactions contemplated by this Agreement. SECTION 5.9 PUBLIC ANNOUNCEMENTS. Seller and Buyer will consult and agree with each other before issuing any press release or otherwise making any public statement with respect to this Agreement and the transactions contemplated hereby, and shall not issue any such press release or make any such public statement prior to such consultation and agreement, except to the extent that public disclosure of the transactions contemplated hereby are mandated by applicable Laws, and prior 1481337 52 consultation and agreement with respect to such disclosure is not possible in order to comply therewith. SECTION 5.10 COMPANY RECORDS. 5.10.1 RETENTION. With respect to the books and records of CRSI and the Subsidiaries relating to matters prior to the Closing Date, Buyer shall retain copies of all Tax Returns, related schedules and workpapers, and all material records and other documents relating thereto existing on the date hereof or created through or with respect to taxable periods ending on or before or including the Closing Date, until six months after the expiration of the statute of limitations (including extensions) of the taxable years to which such Tax Returns and other documents relate. 5.10.2 COOPERATION WITH RESPECT TO EXAMINATIONS AND CONTROVERSIES. Buyer shall use all reasonable efforts to cooperate with Seller and its representatives, in a prompt and timely manner, in conjunction with any inquiry, audit, examination, investigation, dispute or litigation involving any Tax Return relating to CRSI or the Subsidiaries filed or required to be filed by or for Seller for any taxable period beginning before the Closing Date, and relating to any federal, state or local Taxes. Such cooperation shall include, but not be limited to, making available to Seller, during normal business hours, and within ten (10) days of any reasonable request therefor, all books, records and information, and the assistance of all officers and employees, necessary or useful in connection with any Tax inquiry, audit, examination, investigation, dispute, litigation or any other matter. 5.10.3 REMEDY FOR FAILURE TO COMPLY. If Seller reasonably determines that Buyer is not fulfilling its obligations in a reasonable manner under Section 5.10.2, Seller shall have the right to appoint, at the reasonable expense of Buyer, an independent entity such as a nationally-recognized public accounting firm to assist Buyer in meeting its obligations under Section 5.10.2. Such entity shall have complete access to all books and records and information, and the complete cooperation of all officers and employees of Buyer as reasonably requested by Seller. SECTION 5.11 ACCESS TO REAL PROPERTIES. After the Closing, Buyer hereby agrees, upon reasonable prior written notice and during mutually agreeable hours, to give Seller and its authorized representatives reasonable access to all Real Properties of CRSI and the Subsidiaries, and to permit Seller and its authorized representatives to make such inspections thereof (including a Phase I or Phase II environmental inspection) and to carry out such work thereon as Seller may reasonably request, so as to enable Seller to comply with any notice, order or other directive of any Governmental Authority made under any Environmental Law in respect of the ownership by CRSI and the Subsidiaries of such properties prior to Closing, so long as such access does not interfere materially with the operations of the Business by the Buyer. 1481337 53 SECTION 5.12 COOPERATION OF BUYER. Buyer shall cooperate with Seller in all matters relating to the actual or potential obligations or liabilities of Seller in connection with any Environmental Law (including, without limitation, Seller's compliance with any judicial or administrative notice or order issued under the authority of any Environmental Law) in respect of the Real Property of CRSI and the Subsidiaries; such cooperation shall include but not be limited to providing Seller with access to all locations and facilities reasonably necessary for environmental monitoring, and providing Seller access to all information reasonably requested by Seller (including providing Seller with all Phase I and Phase II environmental reports caused to be prepared by Buyer (or, after the Closing, by CRSI or any subsidiary thereof) in respect of any Real Property promptly after receipt thereof) concerning the origin, amounts, concentrations, chemical contents, and fate and transport of any Hazardous Materials. SECTION 5.13 DISCLOSURE SCHEDULES. 5.13.1 DELIVERY. Concurrently with the execution hereof, Seller is delivering to Buyer the disclosure Schedules required to be delivered by Seller hereunder. By its execution hereof, Buyer acknowledges that the Schedules delivered by Seller concurrently with the execution hereof are in form and substance acceptable to Buyer. 5.13.2 INTERPRETATION. Matters reflected on the Schedules delivered hereunder are not necessarily limited to matters required by this Agreement to be reflected in such Schedules. Any such additional matters are set forth for informational purposes and do not necessarily include other matters of a similar nature. A disclosure contained in any of the Schedules delivered hereunder, which pellucidly identifies information that clearly and on its face is relevant or applicable to one or more Schedules to this Agreement, constitutes disclosure for such other Schedules to the extent this Agreement requires such disclosure. The exhibits and attachments to the Schedules form an integral part of the Schedules and are incorporated by reference for all purposes as if set forth fully therein. SECTION 5.14 EMPLOYEE BENEFIT MATTERS. 5.14.1 EMPLOYEE BENEFIT DEFINITIONS. The following terms, as used herein, shall have the following meanings: (a) "CRSI Employee" means each person who, on the Closing Date, is an employee of CRSI or any Subsidiary other than any Excluded Employee. (b) "Employee Plans" means each "employee benefit plan," as such term is defined in Section 3(3) of ERISA, which (I) is or has been entered into, maintained or contributed to by Seller or any of its affiliates and (II) covers any CRSI Employee. 1481337 54 (c) "Welfare Plans" means each "employee welfare plan" as such term is defined in Section 3(l) of ERISA. (d) "Excluded Employees" means each person who is listed on Schedule 5.14.1 hereof. 5.14.2 WELFARE PLANS FOLLOWING THE CLOSING. (a) Except to the extent changes are required by applicable law or collective bargaining, from the Closing Date to December 31, 1998, Buyer will maintain its own Welfare Plans for the benefit of the CRSI Employees that provide benefits that are reasonably similar, taken as a whole, to the medical, disability, vision, dental, life insurance, flexible spending accounts and severance benefits offered to CRSI Employees by CRSI and the Subsidiaries as of the Closing Date (the "CRSI Welfare Plans"). Buyer will give each CRSI Employee full credit for purposes of eligibility and vesting under any such plans or arrangements maintained by Buyer, CRSI or any Subsidiary pursuant to this Subsection 5.14.2 to the extent such CRSI Employee's service is recognized for such purposes under Seller's plans. (b) Buyer's Welfare Plans shall not contain a clause excluding coverage for preexisting conditions (other than pre-existing conditions excluded by CRSI's Welfare Plans) and shall provide that any expenses incurred by a CRSI Employee on or before the Closing Date shall be taken into account for the purposes of satisfying deductible and coinsurance requirements and satisfaction of maximum out-of-pocket provisions under the Buyer's Welfare Plans to the extent such expenses are incurred during the same plan year in which the Closing Date takes place. (c) For purposes of providing "group health plan" (as that term is described in ERISA Section 607(1)) continuation coverage pursuant to the provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, including subsequent statutory amendments ("COBRA"), coverage under the group health plans offered by Buyer to CRSI Employees pursuant to this Subsection 5.14.2 will be considered to have commenced on the Closing Date and all CRSI Employees and their dependents shall be considered as of the Closing Date to be covered by a "group health plan" which does not contain any exclusion or limitation with respect to any preexisting condition. (d) Seller shall be responsible for the payment of all Welfare Plan claims incurred by CRSI Employees and their covered dependents prior to the Closing Date whether or not reported by the Closing Date. Buyer shall be responsible for the payment of all claims incurred under the Welfare Plans after the Closing Date. (e) Seller shall be responsible for providing health care continuation coverage pursuant to the requirements of COBRA, to the extent required by COBRA, for CRSI Employees and/or their dependents who had a "qualifying event" under COBRA prior to or on the Closing Date. Buyer shall be responsible for providing 1481337 55 health care continuation coverage pursuant to COBRA, for all Employees and/or their dependents who had a "qualifying event" under COBRA after the Closing Date. (f) Notwithstanding any possible inferences to the contrary, neither Seller nor Buyer intends for this Section 5.14 to create any rights or obligations except as between Seller and Buyer, and no past or present Employees of Seller or Buyer shall be treated as third party beneficiaries of this Section 5.14. 5.14.3 RETENTION AGREEMENTS. Schedule 5.14.3 delivered hereunder sets forth a list and description (including the amounts payable) of all written employee retention agreements covering the CRSI Employees. Effective on the Closing Date, Buyer shall assume and discharge all obligations and liabilities under such employee retention agreements arising after the Closing Date, and Buyer agrees to release Seller and indemnify Seller and hold Seller harmless from, and pay and reimburse Seller for, all obligations and liabilities arising thereunder after the Closing Date. Any payments due an Employee under any such retention agreement on the Closing Date shall be shared equally between Seller and Buyer (except for any payments due an Excluded Employee, which shall be paid by Seller). Buyer further agrees to indemnify Seller and hold Seller harmless from and against, and pay and reimburse Seller for, all obligations and liabilities and other amounts payable to any CRSI Employee to the extent such obligation, liability or other amount shall become due and payable by Seller on account of the termination of such CRSI Employee's employment with Buyer or any of its affiliates following the Closing. 5.14.4 SAVINGS PROGRAM. On the Closing Date, CRSI Employees eligible to participate in the COMSAT Corporation Savings & Profit Sharing Plan (the "Seller's Savings Plan") shall commence participating in a defined contribution plan or plans sponsored by Buyer. Buyer shall cause such plans to be amended to waive any waiting period for eligibility to participate in such plans. To the extent permitted by Seller's Savings Plan and Section 401(k)(10) of the Code, each CRSI Employee shall be permitted during the period between the Closing and the end of the second calendar year following the Closing Date, to receive a distribution from Seller's Savings Plan, make a direct rollover in accordance with Section 401(a)(31) of the Code, or leave his or her account balances in Seller's Savings Plan. Seller shall take such action as may be necessary, if any, to permit each CRSI Employee to make a direct rollover from Seller's Savings Plan in accordance with Section 401(a)(31) of the Code. The assets transferred in the direct rollover shall be in the form of cash. On or prior to the Closing, Seller shall take all actions necessary to fully vest the CRSI Employees, who are currently partially vested, in Seller's Savings Plan. 5.14.5 VACATION AND HOLIDAYS. As of the Closing Date, Buyer shall adopt, at its expense, vacation and holiday plans or policies for the CRSI Employees to succeed the vacation and holiday plans or policies of Seller, CRSI or any Subsidiary covering the CRSI Employees, as the case may be. Until December 31, 1997, such plans shall be substantially equivalent to the plans Seller, CRSI or any Subsidiary 1481337 56 would have provided to the CRSI Employees had they remained employed by Seller, CRSI or such Subsidiary, and Seller shall have no liability or obligation to pay or provide any vacation or holiday payments claimed on or after the Closing Date. 5.14.6 WARN ACT COMPLIANCE. Buyer agrees to comply with all provisions of, and discharge all liabilities arising under, the WARN Act with respect to the CRSI Employees for a period of not less than 60 days following the Closing Date. 5.14.7 EXCLUDED EMPLOYEES. On or prior to the Closing, Seller shall have the right to make offers of employment to the Excluded Employees to the extent any of them are not employees of Seller or any subsidiary of Seller (other than CRSI and the Subsidiaries). Buyer shall not, directly or indirectly through another Person, (i) induce or attempt to induce any Excluded Employee that has accepted Seller's offer of employment to leave the employ of Seller or any of its Affiliates, or in any way interfere with the relationship between Seller and its Affiliates, on the one hand, and any such Excluded Employee, on the other hand, without the prior written consent of Seller (it being understood and agreed by the parties hereto that the solicitation of employees by Buyer, either directly or indirectly, through advertisements or other means of solicitation that are general in nature and do not relate specifically to such Excluded Employees shall not constitute a violation of this clause (i)), or (ii) hire any such Excluded Employee who was an employee of Seller or any of its Affiliates until six months after such Excluded Employee's employment relationship with Seller or its Affiliate has been terminated, without the prior written consent of Seller. SECTION 5.15 ADMINISTRATION OF ACCOUNTS. 5.15.1 IN TRUST FOR BUYER. All payments and reimbursements made by any third party after the Closing Date in the name of or to Seller to which Buyer, CRSI or any Subsidiary is entitled in accordance with this Agreement and the transactions contemplated hereby shall be held by Seller in trust for the benefit of Buyer and, promptly upon receipt by Seller of any such payment or reimbursement, Seller shall pay over to Buyer the amount of such payment or reimbursement without right of set off. 5.15.2 IN TRUST FOR SELLER. All payments and reimbursements made by any third party after the Closing Date in the name of or to Buyer, CRSI or any Subsidiary to which Seller is entitled in accordance with this Agreement and the transactions contemplated hereby shall be held by Buyer in trust for the benefit of Seller and, promptly upon receipt by Buyer of any such payment or reimbursement, Buyer shall pay over to Seller the amount of such payment or reimbursement without right of set off. 1481337 57 SECTION 5.16 NEGOTIATIONS WITH OTHERS. From and after the date hereof, unless and until this Agreement shall have been terminated in accordance with its terms, the Seller shall not (i) directly or indirectly solicit or initiate discussions with any Person other than the Buyer or any of its Affiliates, involving the possible acquisition of all or part of the Business or CRSI or any Subsidiary (other than the Excluded Assets and Liabilities) and (ii) enter into any transaction with any Person, other than the Buyer or any of its affiliates, involving the possible acquisition of all or part of the Business or CRSI or any Subsidiary (other than the Excluded Assets and Liabilities). The Seller shall notify the Buyer of any unsolicited offer or proposal to enter into discussions or to buy all or part of the Business of CRSI or any Subsidiary (other than the Excluded Assets and Liabilities), and shall provide the Buyer with a copy thereof. SECTION 5.17 EXCHANGE PROCEEDS. If, between the date hereof and the Closing, CRSI and/or any of the Subsidiaries receives any proceeds in consideration for the exchange of any of its assets or Real Properties (other than the Excluded Assets and Liabilities), whether from the sale of any such assets or Real Properties, from insurance proceeds payable on account of any loss or casualty to such assets or Real Properties, any proceeds from the taking of any such assets or Real Properties pursuant to the power of eminent domain, or any other proceeds from whatever source (the "Exchange Proceeds"), CRSI shall immediately notify Buyer of CRSI's or any Subsidiaries' receipt of such Exchange Proceeds and shall consult with Buyer with respect to the application of such Exchange Proceeds. Any Exchange Proceeds received by CRSI and/or the Subsidiaries shall either be used to purchase replacement assets or Real Properties or be retained by CRSI or such Subsidiary. SECTION 5.18 NONCOMPETITION AND NONSOLICITATION. 5.18.1 NONCOMPETITION. The Seller acknowledges that it has or will become familiar with the trade secrets and other confidential information concerning CRSI and the Subsidiaries. Therefore, Seller agrees that, during the period beginning on the Closing Date and ending on the date that is 18 months after the Closing Date (the "Non-Compete Period"), the Seller shall not directly or indirectly own, manage, control, participate in, consult with, render services for, or in any manner engage in any business competing with the Business (the "Competing Business"). Notwithstanding the aforesaid, nothing herein shall prohibit the Seller from: (i) being a passive owner of not more than 10% of the outstanding equity securities of any class of a corporation or other Person which is publicly traded, so long as Seller has no active participation in the business of such Person; (ii) acquiring a Person engaged in a Competing Business outside of the United States so long as the aggregate value of any such acquisition (after cumulating the aggregate value of all other such acquisitions) does not exceed $160 million; (iii) acting as a sub-contractor to any prime contractor engaged in a project or program that is a Competing Business, so long as the activity or work to be performed as a sub-contractor does not compete directly with the activity or work being performed by CRSI or any of the 1481337 58 Subsidiaries as of or prior to the Closing Date; (iv) offering services or products currently offered by, under active development by or contemplated for active development by (as evidenced by written documentation in existence on the date hereof evidencing an intent to proceed with active development in the future), Seller or any of its Affiliates (other than CRSI and the Subsidiaries); (v) licensing any technology developed by COMSAT Laboratories, a division of Seller ("COMSAT Labs"); (vi) acquiring a Person engaged in a Competing Business (a "Competing Target") where such Competing Business represents less than 10% of the Competing Target's assets or revenues; (vii) selling, or causing to be sold, any or all of the capital stock, or any or all of the assets of, Seller or any of Seller's Affiliates to a Person engaged in a Competing Business; (viii) owning, directly or indirectly, the Excluded Assets and Liabilities and engaging in the business represented thereby; (ix) providing services to or through the INTELSAT and Inmarsat satellite systems; and (x) owning any shares of capital stock of, and having one or more seats on the Board of Directors of, Calian Technologies, Inc.; (xi) engaging in a transaction by which the shareholders of Seller or the then-existing Board of Directors or management team no longer control the business and affairs of Seller and its Affiliates; or (xii) engaging in a Competing Business by which Seller and its Affiliates would derive on an annual basis revenues in excess of $20 million. 5.18.2 NONSOLICITATION. During the period beginning on the date hereof and ending on the second anniversary of the Closing Date (the "Non-Solicit Period"), Seller shall not directly or indirectly through another Person: (i) induce or attempt to induce any employee of CRSI or any Subsidiary thereof to leave the employ of CRSI or such Subsidiary, or in any way interfere with the relationship between CRSI or any such Subsidiary, on the one hand, and any employee thereof, on the other hand, without the prior written consent of Buyer (it being understood and agreed by the parties hereto that the solicitation of employees by Seller, either directly or indirectly, through advertisements or other means of solicitation that are general in nature and do not relate specifically to the employees of CRSI or any Subsidiary shall not constitute a violation of this clause (i)); or (ii) hire any person who was an employee of CRSI or such Subsidiary without the prior written consent of Buyer. Similarly, during the Non-Solicit Period, Buyer and its Affiliates (including CRSI and the Subsidiaries) shall not directly or indirectly through another Person: (i) induce or attempt to induce any employee of COMSAT Labs or any of the Excluded Employees to leave the employ of Seller and its Affiliates or in any way interfere with the relationship between Seller and any such employee without the prior written consent of Seller (it being understood and agreed by the parties hereto that the solicitation of employees by Buyer, either directly or indirectly, through advertisements or other means of solicitation that are general in nature and do not relate specifically to such employees of Seller shall not constitute a violation of this clause (i)); or (ii) hire any employee of COMSAT Labs until six months after such individual's employment relationship with Seller or its Affiliates has been terminated, without the prior written consent of Seller. 1481337 59 5.18.3 VALIDITY. The invalidity or unenforceability of any provision of this Section 5.18, in whole or by virtue of the following sentence in part, shall not affect the validity or enforceability of any other provision of this Section 5.18 or of any other provision of this Agreement, all of which shall to the full extent consistent with applicable law continue in full force and effect. In addition, if any provision of Section 5.18 shall be adjudged to be excessively broad as to duration, geographical scope, activity or subject, the parties hereto intend such provision shall be deemed modified to the minimum degree necessary to make such provision valid and enforceable under applicable law and that such modified provision shall thereafter be enforced to the fullest extent possible. SECTION 5.19 EXCLUDED CONTRACTS. With respect to each contract, subcontract or other agreement or arrangement listed or described in Schedule III hereto (collectively, the "Excluded Contracts"), Seller will use all reasonable efforts to obtain the approval or consent to the transfer or novation of such Excluded Contract to Seller or a wholly owned subsidiary of Seller (other than CRSI or any Subsidiary), and all rights, obligations and liabilities in, to and under such Excluded Contracts. SECTION 5.20 FINANCIAL REPORTS. Prior to the Closing Date, within 25 days after the end of each monthly accounting period, the Seller shall deliver to the Buyer an unaudited financial report of CRSI and the Subsidiaries, which report shall be prepared in accordance with GAAP and which shall include (i) a profit and loss statement for such monthly accounting period, (ii) a balance sheet as of the last day of such monthly accounting period and (iii) a statement showing the net intercompany loans and advances between Seller and CRSI and the Subsidiaries as of the last day of such monthly accounting period. In addition, within 35 days after the end of each monthly accounting period, but no later than the Closing Date, Seller shall deliver to Buyer, prepared in accordance with GAAP, a statement of cash flows for such monthly accounting period. SECTION 5.21 GREENBANK SURETY BOND. On or as soon as practicable following the Closing Date, Seller shall use commercially reasonable efforts to cause CRSI to be released from all of its liabilities and obligations in respect of the surety bond, dated September 6, 1991, issued by Reliance Insurance Company in the amount of $10,000,000.00 for the benefit of Associated Universities, Inc. (the "Greenbank Bond") by causing to be issued and delivered to Associated Universities, Inc. a surety bond in substitution of the Greenbank Bond. The surety bond issued in replacement of the Greenbank Bond shall be issued substantially in the form of, and in the full amount then available to be drawn under, the Greenbank Bond as at the Closing Date. The Seller shall pay and reimburse Buyer promptly for any and all costs, expenses and liabilities incurred by Buyer or CRSI in connection with the Greenbank Bond, including without limitation all amounts drawn under the Greenbank Bond by the beneficiary thereof and any fees payable to the issuer thereof in connection therewith. In the event CRSI is not fully released from its obligations under the 1481337 60 Greenbank Bond on or before the Closing Date, Seller shall cause to be issued to Buyer on the Closing Date, a letter of credit from a financial institution reasonably acceptable to Buyer, in the face amount of the maximum amount then available to be drawn under the Greenbank Bond, as collateral security for Seller's obligations to indemnify and reimburse Buyer hereunder for all draws under the Greenbank Bond. Buyer shall return such letter of credit for cancellation to the issuing bank thereof promptly upon CRSI being fully discharged from its obligations under the Greenbank Bond. ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER SECTION 6.1 CONDITIONS. The obligations of Buyer under this Agreement to perform Article II herein shall be subject to the fulfillment on or prior to the Closing Date of all of the following conditions precedent: 6.1.1 REPRESENTATIONS AND WARRANTIES ACCURATE. The representations and warranties of Seller contained in this Agreement or any Ancillary Agreement herein shall be true in all material respects at and as of the Closing Date as if such representations and warranties were made at and as of the Closing Date (except (i) that representations and warranties that are made as of a specific date need be true in all material respects only as of such date, and (ii) that any representation and warranty that is qualified by a standard of materiality shall be true and correct as stated herein). 6.1.2 PERFORMANCE BY SELLER. Seller shall have performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement to be performed and complied with by it prior to or on the Closing Date. 6.1.3 GOVERNMENT AUTHORIZATIONS. (a) All applicable waiting periods under the HSR Act shall have expired or been terminated. (b) All authorizations, determinations, approvals, consents and waivers of any Governmental Authority or any other Person necessary for the lawful consummation of the transactions contemplated by this Agreement ("Consents") shall have been obtained, other than such Consents which, if not obtained, are not reasonably expected to have a Material Adverse Effect on CRSI or any of the Subsidiaries after giving effect to the Closing hereunder. 1481337 61 (c) There shall exist no action, suit, investigation or proceeding pending on the Closing Date or any injunction issued by any court of competent jurisdiction which (i) would restrain, limit the ability to consummate, make unlawful or prohibit the consummation of the transactions contemplated by this Agreement, or (ii) in the good faith opinion of Buyer could reasonably be expected to have a Material Adverse Effect on CRSI or the Subsidiaries, taken as a whole. (d) All authorizations, determinations, consents or waiver of the Committee on Foreign Investment in the United States pursuant to the Exon-Florio Amendment shall have been obtained. 6.1.4 OPINION OF COUNSEL. Buyer shall have received the opinion of (i) Crowell & Moring LLP, special counsel for Seller, in form and substance reasonably acceptable to Buyer, and (ii) Warren Y. Zeger, Vice President, Secretary and General Counsel of Seller, in form and substance reasonably acceptable to Buyer. 6.1.5 SURVEYS. With respect to each of the Real Properties, Buyer shall have obtained a survey prepared in accordance with the 1992 ALTA/ACSM standards, which survey shall enable Buyer to obtain at its option an ALTA title insurance policy insuring valid fee and/or leasehold ownership (as applicable), subject only to those exceptions and encumbrances satisfactory to Buyer in its reasonable discretion; PROVIDED, HOWEVER, that the provisions of this Section 6.1.5 shall constitute a condition to Buyer's obligation to perform Article II herein only for a period of 45 days commencing on the date of this Agreement. 6.1.6 ENVIRONMENTAL. Buyer shall be satisfied in all material respects with results of its Phase I environmental due diligence investigation of CRSI and the Subsidiaries which shall be performed by representatives for Buyer; PROVIDED, HOWEVER, that the provisions of this Section 6.1.6 shall constitute a condition to Buyer's obligation to perform Article II herein only for a period of 45 days commencing on the date of this Agreement. 6.1.7 ABSENCE OF ADVERSE CHANGE. Since December 31, 1997, there shall have been no change which has or has had a Material Adverse Effect on CRSI and the Subsidiaries, taken as a whole. 6.1.8 SECURITY CLEARANCE. Buyer shall have received notice from the Department of Defense that the facility security clearances will be permitted to continue at the same levels of all facility security clearances previously issued to CRSI and the Subsidiaries and in effect on the date of this Agreement to the extent such facility clearances are necessary for the operation of the Business. 1481337 62 6.1.9 COMPLIANCE WITH ISRA. Seller shall have complied with all applicable requirements of ISRA and shall have received evidence of such compliance from the New Jersey Department of Environmental Protection ("NJDEP"), with respect to the Real Property located in New Jersey, in form and substance satisfactory to Buyer. Seller shall be responsible for making all notifications required by ISRA and shall provide to Buyer copies of all submissions to NJDEP by Seller and all correspondence from NJDEP to Seller. Seller shall conduct at its sole expense any remediation, cleanup investigation, monitoring, sampling or analysis required under ISRA ("ISRA Remediation"). Any ISRA Remediation need not be completed prior to Closing so long as Seller has complied with its obligations under the first sentence of this paragraph. In the event any ISRA Remediation is not completed prior to Closing, Buyer shall have the right, but not the obligation, to conduct any ISRA Remediation or any portion thereof in place of Seller in the event Seller is not diligently proceeding with such ISRA Remediation. Seller shall reimburse Buyer for all reasonable costs, expenses, or other liabilities incurred by Buyer in connection with such activities, including any costs, expenses or liabilities associated with the off-site disposal or treatment of any excavated materials. The reimbursement for all such costs, expenses or other liabilities shall be made within 30 days of receipt of documentation of such costs from Buyer. 6.1.10 GREENBANK NOVATION. The Seller shall have obtained the approval and consent to the transfer or novation of the GreenBank Contract to the Seller or a wholly-owned subsidiary of Seller (other than CRSI or any Subsidiary), and a mutual release of claims in a form attached hereto as Exhibit H, executed by Associated Universities, Inc. and the other parties thereto. To the extent that Seller shall not have obtained the executed novation and mutual release of claims prior to March 31, 1998, the parties hereto, at their option, may mutually agree to negotiate in good faith the terms of a new agreement pursuant to which the transactions contemplated by this Agreement will be effected by a transfer of assets and liabilities of CRSI (including the capital stock of the Subsidiaries but not including the Excluded Assets and Excluded Liabilities). 6.1.11 EXPORT LICENSES. Buyer and/or CRSI and the Subsidiaries shall have obtained any requisite export licenses for the continuation of the Business from and immediately after the Closing Date. 6.1.12 ANCILLARY AGREEMENTS. Each of the Ancillary Agreements shall have been executed and delivered by the parties thereto. SECTION 6.2 WAIVER. Buyer may waive in writing fulfillment of any or all the conditions set forth in Section 6.1 of this Agreement. 1481337 63 ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER SECTION 7.1 CONDITIONS. The obligations of Seller under this Agreement to perform Article II herein shall be subject to the fulfillment on or prior to the Closing Date, of all of the following conditions precedent: 7.1.1 REPRESENTATIONS AND WARRANTIES ACCURATE. The representations and warranties of Buyer contained in Article IV herein shall be true in all material respects (except that any representation and warranty that is qualified by a standard of materiality shall be true and correct as stated herein) at and as of the Closing Date as if such representations and warranties were made at and as of the Closing Date. 7.1.2 PERFORMANCE BY BUYER. Buyer shall have performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement to be performed and complied with by it prior to or on the Closing Date. 7.1.3 GOVERNMENT AUTHORIZATIONS. (a) All applicable waiting periods under the HSR Act shall have expired or been terminated. (b) All consents shall have been obtained. (c) There shall exist no action, suit, investigation or proceeding pending on the Closing Date or any injunction issued by any court of competent jurisdiction which would restrain, limit the ability to consummate, make unlawful or prohibit the consummation of the transactions contemplated by this Agreement. 7.1.4 OPINION OF COUNSEL. Seller shall have received the opinion of O'Sullivan Graev & Karabell, LLP, special counsel to Buyer, in form and substance reasonably acceptable to Seller. 7.1.5 CHANGE OF NAME. Seller shall have received a certificate of Amendment to the Certificate of Incorporation of CRSI and any Subsidiary using the name "COMSAT", in each case in due form for filing with the appropriate governmental agency, providing for the deletion of the name "COMSAT" from their respective corporate names. 1481337 64 SECTION 7.2 WAIVER. Seller may waive in writing fulfillment of any or all of the conditions set forth in Section 7.1 of this Agreement. ARTICLE VIII INDEMNIFICATION SECTION 8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. 8.1.1 OF THE SELLER. The representations and warranties of the Seller contained in Article III herein shall survive the Closing and shall remain in full force and effect for the benefit of the Buyer until March 31, 2000, except that (a) the representations and warranties contained in Section 3.13 relating to Taxes, shall survive for any Taxable year or any period ending on or prior to the Closing Date until ninety (90) days after the last date on which the relevant tax authority is entitled to assess or reassess CRSI and the Subsidiaries with respect to such Taxable period and (b) the representations and warranties contained in Sections 3.2, 3.3, 3.4, 3.5, 3.19 and 3.21 (the "Fundamental Representations") and the representations and warranties contained in Section 3.15 shall survive for a period of ten years following the Closing Date. 8.1.2 OF THE BUYER. The representations and warranties of the Buyer contained in Article IV herein shall survive the Closing and shall remain in full force and effect for the benefit of the Seller until March 31, 2000. SECTION 8.2 GENERAL INDEMNITY. 8.2.1 INDEMNIFICATION BY SELLER. After the Closing Date and subject to provisions of this Article VIII, Seller shall indemnify and hold Buyer, CRSI, the Subsidiaries and their respective Affiliates, directors, officers, employees, agents and representatives (each, a "Buyer Indemnitee") harmless from and against, and shall pay and reimburse the Buyer Indemnitees for, any and all Losses resulting from or arising out of: (a) any breach of any representation or warranty of the Seller contained in Article III (unless Seller can prove by a preponderance of the evidence that Buyer or its representatives had actual knowledge of such breach on or prior to the Closing); (b) the nonperformance, partial or total, of any covenant or agreement of Seller contained in this Agreement, in any case to the extent not waived by Buyer; PROVIDED HOWEVER, to the extent such nonperformance shall relate to any covenant or agreement of Seller contained in Section 5.4 hereof, 1481337 65 indemnification therefor shall be governed by the provisions of Section 5.4 and not by the provisions of this Section 8.2.1; (c) (i) any environmental condition existing or event occurring on or before the Closing Date at any property currently or formerly owned, leased or used by the Seller, CRSI or any of the Subsidiaries or any predecessor thereof, or (ii) any generation, storage, treatment, disposal, transportation, shipment offsite, or other management of Hazardous Materials by the Seller, CRSI or any of the Subsidiaries or any predecessor thereof prior to the Closing Date; PROVIDED THAT this indemnity shall not extend to incremental costs incurred in remediating environmental conditions existing as of the Closing Date to the extent that the incurrence of such costs: (X) was or is not reasonably necessary to resolve or avoid a claim by a Governmental Authority or other Person or to comply with an order of a Governmental Authority, and (Y) was or is not reasonably necessary in light of applicable federal, state or other Governmental Authority action levels or cleanup standards, where such levels or standards exist. (d) any Liability relating to Employee Plans or Welfare Plans maintained by the Seller, CRSI or any of the Subsidiaries prior to Closing; (e) claims or Liabilities (including any claims or Liabilities relating to any environmental condition or any generation, storage, treatment, disposal, transportation, shipment offsite or other management of Hazardous Materials) against, or arising out of or related to actions or omissions by, any former direct or indirect subsidiary of the Seller, or any division of any subsidiary of the Seller, or CRSI or any of the Excluded Subsidiaries, in each case, not part of the Business being transferred to the Buyer hereunder including, without limitation, the Excluded Assets and Liabilities; and (f) any claims arising out of or related to the Government of Nicaragua claim and/or litigation identified on Schedule 3.11.2 delivered hereunder and the Andrew litigation matters identified on Schedule 3.12 delivered hereunder. 8.2.2 INDEMNIFICATION BY BUYER. After the Closing Date and subject to the provisions of this Article VIII, Buyer shall indemnify and hold Seller and its Affiliates and their respective officers, directors, employees, agents and representatives (each, a "Seller Indemnitee") harmless from and against, and shall pay and reimburse the Seller Indemnitees for, any and all Losses resulting from or arising out of: 1481337 66 (a) any breach of any representation or warranty of Buyer contained in Article IV (unless Buyer can prove by a preponderance of the evidence that Seller or its representatives had actual knowledge of such breach on or prior to the Closing); and (b) the nonperformance, partial or total, of any covenant or agreement of Buyer contained in this Agreement, in any case to the extent not waived by Seller; PROVIDED, HOWEVER, to the extent such nonperformance shall relate to any covenant or agreement of Buyer contained in Section 5.4 hereof, indemnification therefor shall be governed by the provisions of Section 5.4 and not by this Section 8.2.2. 8.2.3 LIMITATIONS. For purposes solely of this Section 8.2 (and not with respect to any other provision relating to indemnification in this Agreement): (a) Except as provided in Section 8.2.3(d), the Buyer Indemnitees shall not be entitled to indemnification under Sections 8.2.1(a), 8.2.1(c) and 8.2.1(f) with respect to (i) any Losses until the aggregate of all such Losses exceeds six percent of the sum of the Purchase Price and the Note Principal Amount (if applicable), as adjusted pursuant to Section 2.6 hereof (the "Indemnity Threshold"), in which case the indemnifying party shall be responsible only for such indemnifiable amount in excess of the Indemnity Threshold, and (ii) Losses (individually or in the aggregate) hereunder exceeding twenty-five percent of the sum of the Purchase Price and the Principal Amount (if applicable), (the "Indemnity Cap") as adjusted pursuant to Section 2.6 hereof. Any indemnifiable liability with respect to breach or nonperformance of a representation, warranty, covenant or agreement shall be limited to the amount of Losses sustained by the indemnified party by reason of such breach or nonperformance net of any reserves appearing on the Adjusted December Statements and specifically related to the situation in question. (b) Neither any Seller Indemnitee nor any Buyer Indemnitee shall be entitled to make any claim for indemnification under this Section 8.2 with respect to the breach of any particular representation and warranty contained herein after the date on which such representation and warranty ceases to survive pursuant to Section 8.1 herein; PROVIDED, HOWEVER, that, if prior to the date on which such representation and warranty ceases to survive, the indemnifying party shall have received written notification of a claim for indemnity hereunder specifying in reasonable detail the basis of any such claim, and such claim shall not have been finally resolved or disposed of at such date, such claim shall continue as a basis for indemnity until it is finally resolved or disposed of, subject to applicable statutes of limitation. 1481337 67 (c) In the event that an indemnified party shall be entitled to indemnification pursuant to Section 8.2.1(b), 8.2.2(b) or 5.4 hereof, as the case may be, and the event giving rise to such claim for indemnification shall also constitute a breach by the indemnifying party of one or more of its representations and warranties contained herein, then (I) the indemnified party shall not be entitled to indemnification in respect of such event pursuant to Section 8.2.1(a) or 8.2.2(a) hereof, as the case may be, and (II) the amount of all Losses for which indemnification shall be sought pursuant to Section 8.2.1(b), 8.2.2(b) or Section 5.4 hereof shall not be taken into account for the purpose of computing or satisfying the Indemnity Threshold set forth in Section 8.2.3(a) hereof. (d) The Seller hereby acknowledges and agrees that any Losses that are incurred in connection with the breach of (i) any of the Fundamental Representations or (ii) representations and warranties contained in Section 3.13, shall not be applied against or subject to either the Indemnity Threshold or dollar limitations on liability set forth in Section 8.2.3(a). 8.2.4 IVORY COAST. (a) Buyer shall cause CRSI and the Subsidiaries to indemnify and hold harmless all Seller Indemnities (including Seller) from and against, and to pay and reimburse the Seller Indemnitees for, any and all Losses resulting from or arising out of the action styled JOSE MENDOZA AND MARALI CORPORATION VS. COMMUNICATIONS SATELLITE CORPORATION (N.D. Texas) (the "Ivory Coast Commission Litigation"), but only to the extent such Losses (including, for the avoidance of doubt, all actual costs and expenses (including reasonable attorneys' fees and expenses) incurred after the Closing Date in connection with the defense of the Ivory Coast Commission Litigation) do not exceed an amount equal to (X) the Indemnity Threshold LESS (Y) any Losses incurred by all Buyer Indemnitees for which such Buyer Indemnitees would have been entitled to indemnification from Seller pursuant to Section 8.2.1, but such indemnification was not available because such Losses were less than the Indemnity Threshold as provided under Section 8.2.3(a). Any amounts paid by Buyer or CRSI and the Subsidiaries pursuant to this Section 8.2.4(a) shall apply to and be credited against the Indemnity Threshold. (b) Seller shall indemnify and hold harmless all Buyer Indemnitees (including Buyer) from and against, and shall pay and reimburse the Buyer Indemnitees for, any and all Losses resulting from or arising out of the Ivory Coast Commission Litigation (including, for the avoidance of doubt, all actual costs and expenses (including reasonable attorneys' fees and expenses) incurred after the Closing Date in connection with the defense of the Ivory Coast Commission Litigation), but only to the extent such Losses exceed the 1481337 68 indemnification obligations of CRSI and the Subsidiaries pursuant to Section 8.2.4(a). SECTION 8.3 DEFENSE OF THIRD PARTY CLAIMS. 8.3.1 NOTICE. No right to indemnification pursuant to this Article VIII shall be available to any party entitled to be indemnified hereunder (an "Indemnified Party") with respect to a claim from any Person not a party to this Agreement (any such claim, a "Claim") unless such Indemnified Party shall have delivered within the Notice Period to the party obliged to provide indemnification (an "Indemnitor") a written notice (a "Claim Notice") describing in reasonable detail the facts giving rise to the claim for indemnification hereunder and the amount, to the extent known. Notwithstanding the foregoing, in the event that a Claim Notice is not given by the Indemnified Party within the Notice Period, the Indemnified Party shall nevertheless be entitled to be indemnified for third party claims under this Section 8.3 to the extent that the Indemnitor has not been prejudiced by such time elapsed. 8.3.2 DEFENSE OF CLAIMS. Upon receipt by an Indemnitor of a Claim Notice, such Indemnitor may, if it shall have acknowledged its obligation to indemnify the Indemnified Party, assume and control the administration and defense of the Claim described therein at the Indemnitor's own expense. The Indemnified Party shall have the right to approve the Indemnitor's selection of counsel with respect to any such Claim, such approval not to be withheld unreasonably; and the Indemnified Party shall have the right to employ its own counsel in any such case, except that the fees and expenses of such counsel shall be for the account of and shall be paid by such Indemnified Party; PROVIDED HOWEVER, that the Indemnitor and the Indemnified Party shall jointly and in good faith, with the cooperation of their respective counsel, assume and control the defense of any Claim, notwithstanding the giving of such written acknowledgement by the Indemnitor, if (i) the Indemnified Party shall have been advised by counsel that there are one or more legal or equitable defenses available to it which are different from or in addition to those available to the Indemnitor and, in the reasonable opinion of the Indemnified Party, counsel for the Indemnitor could not adequately represent the interests of the Indemnified Party because such interests could be in conflict with those of the Indemnitor, (ii) such matter involved amounts likely to exceed the Indemnity Threshold or remaining indemnification obligations of the Indemnitor or (iii) such action or proceeding is reasonably likely to have a material effect on the then current financial condition, results of operations or prospects of the Indemnified Party beyond any indemnification obligations of the Indemnitor. Further, the Indemnified Party shall have the right to assume and control the defense of any Claim if the Indemnitor shall not have assumed the defense of such Claim in a timely fashion, not to exceed 30 days from the date of receipt by the Indemnitor of the Claim Notice. 8.3.3 SETTLEMENT. If the Indemnitor exercises its right to assume the defense of a Claim, it shall not make any settlement of any claims without obtaining 1481337 69 in connection therewith the consent of the Indemnified Party, which consent shall not unreasonably be withheld or delayed. If the Indemnitor does not exercise its right to assume the defense of a Claim by giving the written acknowledgement referred to in Section 8.3.2, or is otherwise restricted from so assuming by the proviso to the second sentence of Section 8.3.2, the Indemnitor nevertheless shall be entitled to participate in such defense with its own counsel and at its own expense; and in any such case, the Indemnified Party may assume the defense of the Claim, and shall not effect any settlement without the consent of the Indemnitor, which consent shall not unreasonably be withheld or delayed. 8.3.4 COOPERATION. Any Indemnified Party shall make available to any Indemnitor and its attorneys and accountants all books, records and documents relating to any Claim for which indemnification shall be sought hereunder, and access to personnel for assistance in defending such Claim, including making personnel available for deposition and trial testimony at no cost to the Indemnitor. The parties shall cooperate in good faith and render to each other reasonable assistance in the defense of any such Claim. SECTION 8.4 SPECIAL INDEMNITY. Seller shall indemnify and hold the Buyer Indemnitees harmless from and against, and shall pay and reimburse the Buyer Indemnitees for, any and all obligations, Liabilities, claims, investigations, judgments, damages, contingencies and expenses of whatever nature arising out of, resulting from or in connection with the Excluded Assets and Liabilities, and the transfer thereof by CRSI and the acceptance and assumption thereof by Seller or its Affiliates, including without limitation Seller's or its Affiliate's failure to assume or discharge in whole or in part any such obligation, Liability, claim, investigation, judgment, damage, contingency or expense, as the case may be, related to the Excluded Assets and Liabilities; PROVIDED, HOWEVER, that notwithstanding anything to the contrary contained in this Section 8.4 or any other provision hereunder, Seller shall have no obligation to indemnify, hold harmless or reimburse any Buyer Indemnitee from and against or for any failure to perform their respective obligations under the Greenbank Subcontract in accordance with its terms. Notwithstanding any provision to the contrary contained herein, the parties intend that the special indemnification provided by Seller contained in this Section 8.4 not be subject to any restriction or limitation, including any dollar threshold or other limitation. SECTION 8.5 NO CONTRIBUTION FROM COMPANY. The obligations of the Seller to indemnify pursuant to Section 8.2 are primary obligations of the Seller, subject to the limitations set forth herein. Except as specifically provided by Section 8.2.4(a) hereof, the Seller hereby waives any rights to seek or obtain indemnification or contribution from CRSI or any Subsidiary for Losses indemnified by Seller pursuant to Section 8.2 as a result of any breach by CRSI or such Subsidiary of any representation, warranty or covenant contained in this Agreement. 1481337 70 ARTICLE IX TERMINATION SECTION 9.1 TERMINATION EVENTS. Subject to the provisions of Section 9.2 herein, this Agreement may, by written notice given at or prior to the Closing in the manner hereinafter provided, be terminated and abandoned: (a) By Seller or Buyer, if a material default or breach shall be made by the other with respect to the due and timely performance of any of its respective covenants and agreements contained herein, or with respect to the due compliance with any of its respective representations and warranties contained in Article III or IV, as applicable, and after Buyer or Seller, as the case may be, shall have given to the other written notice of such material default or breach and the defaulting or breaching party shall not have substantially cured the default or breach prior to the earlier of (I) a reasonable time following notice of such default or breach (which shall not be more than 30 days following such notice) and (II) the date set forth in clause (c) of this Section 9.1 and such default or breach has not been waived; (b) By mutual written consent of Seller and Buyer; (c) By Seller or Buyer, if the Closing shall not have occurred on or before June 30, 1998 or such later date as may be agreed upon by the parties; PROVIDED, HOWEVER, that the right to terminate this Agreement under this paragraph (c) of this Section 9.1 shall not be available to either of the respective parties whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date; or (d) By Buyer if either condition precedent specified in Section 6.1.5 or 6.1.6 has not been satisfied as of the date which is 45 days following the date hereof; PROVIDED, HOWEVER, that if Seller shall not have received written notice from Buyer of its intention to terminate this Agreement pursuant to this Section 9.1(d) within 1 day following such 45 day period, then Buyer shall have no further right to terminate this Agreement pursuant this Section 9.1(d). SECTION 9.2 EFFECT OF TERMINATION. In the event this Agreement is terminated pursuant to Section 9.1, all further rights and obligations of the parties hereunder shall terminate, except that the obligations set forth in Subsection 5.2.2 and Section 10.2 herein, and under the Confidentiality Agreement shall survive and, further, that if a termination of this Agreement occurs prior to Closing pursuant to Section 9.1(a) hereof, then the non-breaching party shall have any and all rights or 1481337 71 causes of action to sue the breaching party for damages and other relief as may be afforded in law or equity for the breach hereof. ARTICLE X MISCELLANEOUS SECTION 10.1 REMEDIES; EXCLUSIVITY OF REPRESENTATIONS AND WARRANTIES; RELATIONSHIP BETWEEN THE PARTIES. 10.1.1 REMEDIES. The remedies expressly set forth in this Agreement following the Closing with respect to any breach of this Agreement are the sole and exclusive remedies for any such breach, and such remedies are intended to be non-cumulative with respect to, and shall preclude the assertion by any party of, any other remedies which would otherwise have been available in common law or by statute, except for any right that may exist to seek redress for common law fraud. 10.1.2 EXCLUSIVITY OF REPRESENTATIONS AND WARRANTIES; RELATIONSHIP BETWEEN THE PARTIES. It is the explicit intent and understanding of the parties hereto that none of the parties nor any of their respective affiliates, representatives, advisors or agents is making any representation or warranty whatsoever, oral or written, express or implied, other than those set forth in this Agreement and the Ancillary Agreements and none of the parties is relying on any statement, representation or warranty, oral or written, express or implied, made by any other party or such other party's affiliates, representatives, advisors or agents, except for the representations and warranties expressly set forth in such Agreements. EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN THIS AGREEMENT, THE PARTIES EXPRESSLY DISCLAIM ANY IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION, MERCHANTABILITY OR SUITABILITY AS TO ANY OF THE ASSETS OR LIABILITIES OF THE BUSINESS AND, EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN THIS AGREEMENT, IT IS UNDERSTOOD THAT BUYER TAKES THE ASSETS OF THE BUSINESS "AS IS" AND "WHERE IS." Without limiting the generality of, and in furtherance of, the immediately preceding sentences, TBG and Buyer acknowledge that Seller makes no representations or warranties to TBG and Buyer regarding any forecasts, projections, estimates, business plans or budgets heretofore delivered to or made available to TBG and Buyer or its affiliates, representatives, advisors or agents in respect of future revenues, expenses or expenditures, future results of operations (or any component thereof), future cash flows or future financial condition (or any component thereof) of CRSI or any Subsidiary. The parties hereto agree that this is an arm's length transaction in which the parties' undertakings and obligations are limited to the performance of their obligations under this Agreement. Buyer acknowledges that it is a sophisticated investor, that it has undertaken, and that Seller has given Buyer 1481337 72 such opportunities as it has requested to undertake, a full investigation of the Business (including CRSI's and its Subsidiaries' contracts, permits, licenses, premises, facilities, books and records), and that it has only a contractual relationship with Seller, based solely on the terms of this Agreement, and that there is no special relationship of trust or reliance between Buyer and Seller. SECTION 10.2 EXPENSES. Except as otherwise provided in this Agreement, including Sections 8.2 and 8.3 hereof, each of the respective parties to this Agreement shall pay their own costs and expenses (including all legal, accounting, broker, finder and investment banker fees) relating to this Agreement, the negotiations leading up to this Agreement and the transactions contemplated by this Agreement. SECTION 10.3 AMENDMENT. This Agreement shall not be amended or modified except by an agreement in writing duly executed by Seller and Buyer. SECTION 10.4 ENTIRE AGREEMENT. This Agreement, including the Exhibits and Schedules hereto, and the Confidentiality Agreement contain all of the terms, conditions and representations and warranties agreed upon by the parties relating to the subject matter of this Agreement and supersede all prior and contemporaneous agreements, negotiations, correspondence, undertakings and communications of the parties, oral or written, respecting such subject matter. SECTION 10.5 NOTICES. All notices, requests, demands and other communications made in connection with this Agreement shall be in writing and shall be deemed to have been duly given (I) on the date of delivery, if personally delivered to the persons identified below on a business day or, if not delivered on a business day, on the immediately succeeding business day after delivery, (II) three (3) days after mailing if mailed by certified or registered mail, postage prepaid, return receipt requested, or (III) on the date of receipt, if delivered by facsimile on a business day or, if not delivered on a business day, on the immediately succeeding business day after delivery and receipt thereof is confirmed telephonically and a copy thereof is promptly mailed to the addressee in the manner described in clause (ii) of this Section 10.5, addressed as follows: If to Seller: COMSAT Corporation 6560 Rock Spring Drive Bethesda, MD 20817 Attention: Allen E. Flower, Vice President and Chief Financial Officer Telephone: (301) 214-3660 Facsimile: (301) 214-7131 with a copy to: 1481337 73 COMSAT Corporation 6560 Rock Spring Drive Bethesda, MD 20817 Attention: Warren Y. Zeger, Esq., Vice President, Secretary and General Counsel Telephone: (301) 214-3610 Facsimile: (301) 214-7128 and to: Crowell & Moring LLP 1001 Pennsylvania Avenue, N.W. Washington, D.C. 20004-2595 Attention: William P. O'Neill, Esq. Telephone: (202) 624-2500 Facsimile: (202) 628-5116 If to TBG or to Buyer: TBG Industries, Inc. (or, in the case of Buyer, c/o TBG Industries, Inc.) 565 Fifth Avenue New York, New York 10017 Attention: Jack Haegele Telephone: (212) 850-8500 Facsimile: (212) 850-8503 with a copy to: TGB Industries, Inc. 565 Fifth Avenue New York, New York 10017 Attention: Stephen Green, Esq. Telephone: (212) 850-8500 Facsimile: (212) 850-8503 and to: O'Sullivan Graev & Karabell, LLP 30 Rockefeller Plaza New York, New York 10112 Attention: Harvey M. Eisenberg, Esq. Telephone: (212) 408-2400 Facsimile: (212) 408-2420 1481337 74 Such addresses may be changed, from time to time, by means of a notice given in the manner provided in this Section. Notices, requests, demands and other communications delivered to legal counsel of any party hereto, whether or not such counsel shall consist of in-house or outside counsel, shall not constitute duly given notice to any party hereto. SECTION 10.6 SEVERABILITY. If any provision of this Agreement is held to be unenforceable for any reason, it shall be adjusted rather than voided, if possible, in order to achieve the intent of the parties to this Agreement to the extent possible. In any event, all other provisions of this Agreement shall be deemed valid and enforceable to the full extent possible. Any provision of this Agreement that is determined by a court of competent jurisdiction to be invalid or unenforceable as to such jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. SECTION 10.7 WAIVER. Waiver of any term or condition of this Agreement by either of the respective parties shall only be effective if in writing and shall not be construed as a waiver of any subsequent breach or failure of the same term or condition, or a waiver of any other term or condition, of this Agreement. SECTION 10.8 BINDING EFFECT; ASSIGNMENT. No party to this Agreement may assign or delegate, by operation of law or otherwise, all or any portion of its rights, obligations or liabilities under this Agreement without the prior written consent of the other party to this Agreement, which it may withhold in its absolute discretion; PROVIDED THAT the Buyer may assign this Agreement and the obligation to purchase the Shares to a wholly-owned subsidiary of the Buyer, or, in connection with the consummation of the transaction contemplated hereby, to any financial institution from whom the Buyer has received financing for the purchase of the Shares, in each case upon written notice of such assignment to Seller. SECTION 10.9 NO THIRD PARTY BENEFICIARIES. Except as may be expressly provided in this Agreement, there are no intended third party beneficiaries to this Agreement and nothing herein shall confer any rights upon any person or entity which is not a party to this Agreement. No employee or contractor or agent of CRSI or any Subsidiary shall have any rights or privileges under this Agreement, which is a contract solely between two business entities. SECTION 10.10 COUNTERPARTS. This Agreement may be signed in any number of counterparts with the same effect as if the signatures to each counterpart were upon a single instrument, and all such counterparts shall, when taken together, be deemed to constitute one separate instrument. SECTION 10.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE 1481337 75 STATE OF DELAWARE WITHOUT GIVING EFFECT TO THE DOCTRINE OF CONFLICTS OF LAWS. SECTION 10.12 CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL. 10.12.1 CONSENT TO JURISDICTION. (a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any Delaware State court or Federal court sitting in the State of Delaware and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby or for recognition or enforcement of any judgment relating thereto, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such Delaware State court or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment of in any other manner provided by law. (b) Each of the parties hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby in any Delaware State or Federal court. Each of the parties hereto hereby irrevocably and unconditionally waives, to the fullest extent permitted by law, the defense of any inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each of the parties hereto irrevocably consents to service of process in the manner provided for notices in Section 10.5 hereof. Notwithstanding the foregoing, each of the parties hereto shall have the right to serve process in any other manner permitted by law. 10.12.2 WAIVER OF JURY TRIAL. (a) EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 1481337 76 (b) EACH PARTY HERETO CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE WAIVERS SET FORTH IN CLAUSE (a) OF THIS SECTION 10.12, (II) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (III) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (IV) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS IN SUCH SECTION. SECTION 10.13 CONSTRUCTION. 10.13.1 WORDS. All references in this Agreement to the singular shall include the plural where applicable, and all references to gender shall include both genders and the neuter. 10.13.2 CROSS REFERENCES. References in this Agreement to any Article shall include all Sections, Subsections and Paragraphs in such Article; references in this Agreement to any Section shall include all Subsections and Paragraphs in such Section; and references in this Agreement to any Subsection shall include all Paragraphs in such Subsection. 10.13.3 NO PRESUMPTION. In interpreting any provision of this Agreement no presumption shall be drawn against the party drafting the provision. 10.13.4 EXHIBITS AND SCHEDULES. All Exhibits and Schedules referred to herein are hereby incorporated into and made part of this Agreement. SECTION 10.14 INDEPENDENCE OF COVENANTS AND REPRESENTATIONS AND WARRANTIES. All covenants hereunder shall be given independent effect so that if a certain action or condition constitutes a default under a certain covenant, the fact that such action or condition is permitted by another covenant shall not affect the occurrence of such default, unless expressly permitted under an exception to such initial covenant. In addition, all representations and warranties hereunder shall be given independent effect so that if a particular representation or warranty proves to be incorrect or is breached, the fact that another representation or warranty concerning the same or similar subject matter is correct or is not breached will not affect the incorrectness of or a breach of such particular representation and warranty hereunder. 1481337 77 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement with legal and binding effect as of the date and year first above written. COMSAT CORPORATION By: /s/ Allen E. Flower ---------------------------- Allen E. Flower Vice President and Chief Financial Officer TBG INDUSTRIES, INC. By: /s/ Jack E. Haegele ---------------------------- Name: Jack E. Haegele Title: Chief Executive Officer PRODELIN HOLDING CORPORATION By: /s/ Jack E. Haegele ---------------------------- Name: Jack E. Haegele Title: Chief Executive Officer 1481337 78
TABLE OF CONTENTS ARTICLE I DEFINITIONS....................................................................................... 1 1.1 Definitions................................................................................ 1 ARTICLE II PURCHASE AND SALE OF SHARES; CLOSING.............................................................. 11 2.1 Certain Assets and Liabilities............................................................. 11 2.2 Purchase and Sale.......................................................................... 12 2.3 Closing.................................................................................... 12 2.4 Purchase Price............................................................................. 12 2.4.1 June Statements..................................................................... 12 2.4.2 Pre-Closing Statement............................................................... 13 2.5 Closing Deliveries......................................................................... 14 2.5.1 Purchase Price...................................................................... 14 2.5.2 Share Certificates.................................................................. 14 2.5.3 Corporate Records................................................................... 14 2.5.4 Ancillary Agreements................................................................ 14 2.5.5 Closing Documents to be Delivered by Seller......................................... 15 2.5.6 Closing Documents to be Delivered by Buyer.......................................... 15 2.6 Purchase Price Adjustment.................................................................. 15 2.6.1 Closing Statement................................................................... 15 2.6.2 Objections; Resolutions............................................................. 15 2.6.3 Workpapers.......................................................................... 16 2.6.4 Final Adjustments................................................................... 16 2.6.5 Fees and Expenses................................................................... 19 ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER.......................................................... 19 3.1 Corporate Status and Authority of Seller................................................... 19 3.2 No Conflicts, etc.......................................................................... 20 3.2.1 No Conflicts........................................................................ 20 3.2.2 Consents and Approvals.............................................................. 20 3.3 Corporate Status and Authority of CRSI and the Subsidiaries............................................................................... 20 3.4 Ownership of CRSI and the Subsidiaries..................................................... 21 3.5 Transfer of Shares......................................................................... 22 3.6 Financial Statements, etc.................................................................. 22 3.6.1 Schedules........................................................................... 22 3.6.2 Accuracy............................................................................ 23 3.6.3 No Undisclosed Liabilities.......................................................... 23 3.6.4 Absence of Changes.................................................................. 23 3.7 Properties; Leases; Tangible Assets........................................................ 25 3.7.1 Title............................................................................... 25 3.7.2 Leases.............................................................................. 26 3.7.3 Documents........................................................................... 26 1481337 i 3.8 Accounts Receivable........................................................................ 26 3.9 Inventory.................................................................................. 27 3.10 Intellectual Property...................................................................... 27 3.10.1 Patents and Know-How................................................................ 27 3.10.2 Trademarks and Copyrights........................................................... 28 3.10.3 Computer Software................................................................... 29 3.11 Material Contracts......................................................................... 29 3.11.1 Identification...................................................................... 29 3.11.2 Full Force and Effect............................................................... 30 3.12 Litigation and Investigation............................................................... 31 3.13 Taxes...................................................................................... 31 3.14 Employees; Compensation; Labor............................................................. 34 3.14.1 Employees and Compensation......................................................... 34 3.14.2 Certain Labor Matters............................................................... 34 3.14.3 Employee Benefit Plans; ERISA....................................................... 35 3.15 Environmental Matters...................................................................... 36 3.15.1 Environmental Permits............................................................... 36 3.15.2 No Violation........................................................................ 36 3.15.3 No Notice........................................................................... 36 3.15.4 No Basis for Liability.............................................................. 36 3.15.5 Underground Improvements............................................................ 37 3.15.6 Records............................................................................. 37 3.15.7 Liens............................................................................... 37 3.16 Government Contracts....................................................................... 37 3.16.1 Compliance.......................................................................... 37 3.16.2 Investigations...................................................................... 38 3.16.3 Absence of Claims................................................................... 38 3.16.4 Eligibility......................................................................... 39 3.17 Compliance With Laws....................................................................... 39 3.17.1 General............................................................................ 39 3.17.2 Export Control..................................................................... 39 3.17.3 Security Clearances................................................................ 39 3.18 Insurance.................................................................................. 40 3.19 Brokers.................................................................................... 40 3.20 Disclosure................................................................................. 40 3.21 Related Party Transactions................................................................. 40 3.22 Bank Accounts.............................................................................. 41 3.23 Conflicts of Interest...................................................................... 41 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF TBG AND BUYER......................................................................................... 41 4.1 Corporate Status and Authority of TBG and Buyer............................................ 41 4.2 No Conflicts, etc.......................................................................... 42 4.2.1 No Conflicts........................................................................ 42 4.2.2 Consents and Approvals.............................................................. 42 1481337 ii 4.3 Sufficient Funds........................................................................... 43 4.4 Brokers.................................................................................... 43 4.5 Purchase for Investment.................................................................... 43 ARTICLE V COVENANTS......................................................................................... 43 5.1 Conduct of the Business.................................................................... 43 5.1.1 Ordinary Course..................................................................... 43 5.1.2 Cash Management..................................................................... 45 5.2 Access to Information...................................................................... 46 5.2.1 Access.............................................................................. 46 5.2.2 Confidentiality..................................................................... 46 5.2.3 Notice to Seller.................................................................... 46 5.3 Filings and Authorizations................................................................. 47 5.4 Tax Matters................................................................................ 47 5.4.1 Tax Returns......................................................................... 47 5.4.2 Indemnity........................................................................... 48 5.4.3 Tax Liability....................................................................... 49 5.4.4 Tax Contests........................................................................ 49 5.4.5 Cooperation......................................................................... 51 5.5 Purchase Support Agreement................................................................. 51 5.6 Name and Marks............................................................................. 52 5.6.1 Buyer's Obligations................................................................. 52 5.6.2 Seller's Obligations................................................................ 52 5.7 Notice to Buyer............................................................................ 52 5.8 Further Assurances......................................................................... 52 5.9 Public Announcements....................................................................... 52 5.10 Company Records............................................................................ 53 5.10.1 Retention........................................................................... 53 5.10.2 Cooperation With Respect to Examinations and Controversies....................................................................... 53 5.10.3 Remedy for Failure to Comply........................................................ 53 5.11 Access to Real Properties.................................................................. 53 5.12 Cooperation of Buyer....................................................................... 54 5.13 Disclosure Schedules....................................................................... 54 5.13.1 Delivery. .......................................................................... 54 5.13.2 Interpretation...................................................................... 54 5.14 Employee Benefit Matters................................................................... 54 5.14.1 Employee Benefit Definitions........................................................ 54 5.14.2 Welfare Plans Following the Closing................................................. 55 5.14.3 Retention Agreements................................................................ 56 5.14.4 Savings Program..................................................................... 56 5.14.5 Vacation and Holidays............................................................... 56 5.14.6 WARN Act Compliance................................................................. 57 5.14.7 Excluded Employees.................................................................. 57 5.15 Administration of Accounts................................................................. 57 1481337 iii 5.15.1 In Trust For Buyer.................................................................. 57 5.15.2 In Trust For Seller................................................................. 57 5.16 Negotiations with Others................................................................... 58 5.17 Exchange Proceeds.......................................................................... 58 5.18 Noncompetition and Nonsolicitation......................................................... 58 5.18.1 Noncompetition...................................................................... 58 5.18.2 Nonsolicitation..................................................................... 59 5.18.3 Validity............................................................................ 60 5.19 Excluded Contracts......................................................................... 60 5.20 Financial Reports.......................................................................... 60 5.21 Greenbank Surety Bond...................................................................... 60 ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER............................................................................................. 61 6.1 Conditions................................................................................. 61 6.1.1 Representations and Warranties Accurate............................................. 61 6.1.2 Performance by Seller............................................................... 61 6.1.3 Government Authorizations........................................................... 61 6.1.4 Opinion of Counsel.................................................................. 62 6.1.5 Surveys............................................................................. 62 6.1.6 Environmental....................................................................... 62 6.1.7 Absence of Adverse Change........................................................... 62 6.1.8 Security Clearance.................................................................. 62 6.1.9 Compliance with ISRA................................................................ 63 6.1.10 Greenbank Novation.................................................................. 63 6.1.11 Export Licenses..................................................................... 63 6.1.12 Ancillary Agreements................................................................ 63 6.2 Waiver..................................................................................... 63 ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER............................................................................................ 64 7.1 Conditions................................................................................. 64 7.1.1 Representations and Warranties Accurate............................................. 64 7.1.2 Performance by Buyer................................................................ 64 7.1.3 Government Authorizations........................................................... 64 7.1.4 Opinion of Counsel.................................................................. 64 7.1.5 Change of Name...................................................................... 64 7.2 Waiver..................................................................................... 65 ARTICLE VIII INDEMNIFICATION................................................................................. 65 8.1 Survival of Representations and Warranties................................................. 65 8.1.1 Of the Seller....................................................................... 65 8.1.2 Of the Buyer........................................................................ 65 8.2 General Indemnity.......................................................................... 65 8.2.1 Indemnification by Seller........................................................... 65 1481337 iv 8.2.2 Indemnification by Buyer............................................................ 66 8.2.3 Limitations......................................................................... 67 8.2.4 Ivory Coast......................................................................... 68 8.3 Defense of Third Party Claims.............................................................. 69 8.3.1 Notice.............................................................................. 69 8.3.2 Defense of Claims................................................................... 69 8.3.3 Settlement.......................................................................... 69 8.3.4 Cooperation......................................................................... 70 8.4 Special Indemnity.......................................................................... 70 8.5 No Contribution From Company............................................................... 70 ARTICLE IX TERMINATION....................................................................................... 71 9.1 Termination Events......................................................................... 71 9.2 Effect of Termination...................................................................... 71 ARTICLE X MISCELLANEOUS..................................................................................... 72 10.1 Remedies; Exclusivity of Representations and Warranties; Relationship Between the Parties........................................................... 72 10.1.1 Remedies........................................................................... 72 10.1.2 Exclusivity of Representations and Warranties; Relationship Between the Parties.................................................. 72 10.2 Expenses................................................................................... 73 10.3 Amendment.................................................................................. 73 10.4 Entire Agreement........................................................................... 73 10.5 Notices.................................................................................... 73 10.6 Severability............................................................................... 75 10.7 Waiver..................................................................................... 75 10.8 Binding Effect; Assignment................................................................. 75 10.9 No Third Party Beneficiaries............................................................... 75 10.10 Counterparts............................................................................... 75 10.11 Governing Law.............................................................................. 75 10.12 Consent to Jurisdiction; Waiver of Jury Trial.............................................. 76 10.12.1 Consent to Jurisdiction......................................................... 76 10.12.2 Waiver of Jury Trial............................................................ 76 10.13 Construction............................................................................... 77 10.13.1 Words........................................................................... 77 10.13.2 Cross References................................................................ 77 10.13.3 No Presumption.................................................................. 77 10.13.4 Exhibits and Schedules.......................................................... 77 10.14 Independence of Covenants and Representations and Warranties................................................................................. 77 1481337 v EXHIBITS Exhibit A-1 Form of Asset Distribution and Assumption Agreement Exhibit A-2 Form of Assignment and Assumption Agreement Exhibit B Form of Promissory Note Exhibit C Form of Technology License Agreement Exhibit D Form of Transition Services Agreement Exhibit E Form of Sublease Agreement Exhibit F Form of Guarantee Assumption Agreement Exhibit G Form of Post Closing Note Exhibit H Form of Greenbank Novation Agreement Exhibit I Form of Greenbank Subcontract DISCLOSURE SCHEDULES I Knowledge of Seller II Distributed Assets and Liabilities III Excluded Contracts 2.4.1 June Statements 2.6.1 Intercompany Loans and Advances Principles and Methods 3.2.1 Conflicts as to Material Contracts 3.2.2 Consents and Approvals 3.3 Subsidiaries of CRSI; Stockholders and Capital Stock; Jurisdictions Where CRSI and the Subsidiaries are Qualified 3.4 Existing Options, Warrants, Calls, Rights, Arrangements, etc. Unissued Capital Stock of CRSI and the Subsidiaries 3.6.1 Financial Statements 3.6.4 Absence of Changes 3.7.1 Real Property 3.7.2 Leases of Real Property and Certain Equipment 3.7.3(b) Pending Condemnation Proceedings or Proceedings in Relation to Real Property 3.7.3(c) Agreements Granting Right of Use of Occupancy of Real Properties 3.8 Delinquent Accounts Receivable 3.10.1 Patents and Licenses 3.10.2 Trademarks, Copyrights and Licenses 3.10.3 Computer Software 3.11.1 Material Contracts 3.11.2 Material Contract Exceptions 3.12 Litigation and Investigation 3.13 Taxes 1481337 vi 3.14.1 Employees; Benefit Plans; Employment Policies 3.14.2 Certain Labor Matters 3.14.3 Employee Benefit Plans; ERISA 3.15.1 Environment Permits 3.15.2 Violation of Environmental Laws 3.15.3 Notice of Violation of Environmental Laws 3.15.4 Basis for Liability 3.15.5 Underground Improvements, Dumps and Land Fills Subject to Environmental Laws 3.16.1 Noncompliance with Government Contracts 3.16.2 Investigations with respect to Government Contracts 3.16.3 Outstanding Claims with respect to Government Contracts 3.16.4 Non-Eligibility with respect to Government Contracts 3.17.2 Noncompliance with Export Control 3.17.3 Facility Security Clearances 3.18 Insurance Policies 4.2.2 Consents and Approvals 4.2.2(ii) Filings Required by the Department of Defense Industrial Security Regulation or Department of Defense Industrial Security Manual 5.1(m) 1997 or 1998 Fiscal Year Capital Expenditures 5.5 Goods and Services to be Supplied by CRSI and Subsidiaries subject to the "Purchase Support Agreement" 5.14.1 Excluded Employees 5.14.3 Employee Retention Agreements 1481337
vii EX-18 3 EXHIBIT 18 Exhibit 18 May 8, 1998 Comsat Corporation 6560 Rock Spring Drive Bethesda, MD 20817 Dear Sirs: At your request, we have read the description included in your Quarterly Report on Form 10-Q to the Securities and Exchange Commission for the quarter ended March 31, 1998, of the facts relating to the corporation's changes in its accounting policies for the cost of satellites lost at launch or in orbit and for satellite performance incentive payments. We believe, on the basis of the facts so set forth and other information furnished to us by appropriate officials of the corporation, that the accounting changes described in note 3 of Form 10-Q are alternative accounting principles that are preferable under the circumstances. We have not audited any consolidated financial statements of Comsat Corporation and its consolidated subsidiaries as of any date or for any period subsequent to December 31, 1997. Therefore, we are unable to express, and we do not express, an opinion on the facts set forth in the above-mentioned Form 10-Q, on the related information furnished to us by officials of the corporation, or on the financial position, results of operations, or cash flows of Comsat Corporation and its consolidated subsidiaries as of any date or for any period subsequent to December 31, 1997. Yours truly, /S/ DELOITTE & TOUCHE LLP - -------------------------- DELOITTE & TOUCHE LLP Washington, D.C. EX-27 4 FINANCIAL DATA SCHEDULE
5 (Replace this text with the legend) 0000022698 COMSAT 1000 U. S. DOLLARS 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 1.00 7,995 0 157,585 0 0 332,693 2,594,975 1,207,420 1,960,346 274,967 458,458 0 0 414,630 226,996 1,960,346 0 144,717 0 65,945 59,096 0 11,332 5,519 (1,669) 3,850 0 0 0 3,850 0.08 0.07
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