Conduct of Business Prior to the Closing Except as contemplated on Schedule 4.1, or with the written consent of Buyer, which may not be unreasonably withheld, conditioned or delayed, during the period from the date hereof until the earlier of the Closing and the termination of this Agreement in accordance with its terms, Seller shall (i) conduct the Business in the ordinary course of business, (ii) use commercially reasonable efforts to preserve the Business’s business organization and relationships with third parties (including lessors, licensors, suppliers, distributors and customers) and keep available the service of their present employees and service providers, and (iii) continue to obtain all necessary consents and provide required notices in connection with any Acquired Agreement to be acquired by Buyer in this Agreement. Without limiting the generality of the foregoing, and except as otherwise permitted in this Agreement or with the prior written consent of Buyer (which shall not be unreasonably withheld, conditioned or delayed), Seller shall not, during the period from the date hereof until the earlier of the Closing and the termination of this Agreement in accordance with its terms, directly or indirectly do, or propose or commit to do, or otherwise cause to occur, any of the following with respect to any member of the Company Group:
(a) make any change in or amendment to its organizational documents;
(b) declare, set aside, make or pay any dividend or other distribution, other than distributions paid solely in cash;
(i) except in the ordinary course of business, (A) enter into any Contract that, had it been entered into prior to the date of this Agreement, would be a Material Contract or an Affiliate Contract, or (B) materially amend, modify, terminate or cancel (x) any existing Material Contract or (y) any Contract that, had it been entered into or amended prior to the date of this Agreement, would be a Material Contract, (ii) fail to perform any of its material obligations under all Contracts relating to or affecting the Assets or Business, or (iii) amend, terminate or cancel any Acquired Agreement, any Acquired IP or Acquired Lease (other than the termination of any such agreement in accordance with its terms);
(d) enter into any agreement that restricts the ability of any member of the Company Group to engage or compete in any line of business, or enter into any agreement that restricts the ability of any member of the Company Group to enter a new line of business;
(e) except in the ordinary course of business, discontinue any business material to the Business or sell, lease, license, transfer or otherwise dispose or permit the cancellation, abandonment or dedication to the public domain of any of the material property rights (including Intellectual Property) or assets of the Business, other than as required pursuant to existing Contracts or commitments;
(f) acquire (by merger, consolidation, purchase, or other acquisition of equity interests or assets) any Person or any material properties or assets of any Person, except for acquisitions of properties, assets, inventory and equipment in the ordinary course of business;
(g) incur any Indebtedness, issue any debt securities, or assume, guarantee or endorse, or otherwise as an accommodation become responsible for, the obligations of any Person;
(h) make any loans, advances or capital contributions to, or investments in, any other Person, or forgive, cancel or compromise any debt or claim, in each case, other than in the ordinary course of business;
(i) fail to pay its debts, Taxes and other obligations when due;
(j) except as required by applicable Law or the terms of any Company Benefit Plan as in effect on the date of this Agreement, (A) amend, terminate, enter into or adopt any Company Benefit Plan (or any arrangement that would be a Company Benefit Plan if it was in effect on the date hereof) or any collective bargaining agreement; (B) grant or increase the compensation or benefits or other pay (including base salary or hourly rate, bonus, severance, termination, commissions and incentive compensation) of any Business Employee or other individual service provider of the Business; (C) pay, grant, or increase any severance or termination pay to (or otherwise amend any such existing arrangement with) any current or former Business Employee or other individual service provider of the Business; (D) accelerate the vesting or payment of, or fund or in any other way secure the payment, compensation or benefits under, any Company Benefit Plan or otherwise; or (E) grant any new awards, or modify the terms of any outstanding awards under any Company Benefit Plan or otherwise;
(k) hire any employee other than any hourly employee in the ordinary course of business;
(l) modify any employment arrangement with any Business Employee or terminate the employment of any Business Employee, other than (y) terminations for cause;
(m) implement or announce any group employee layoffs, plant closings, reductions in force, furloughs or temporary layoffs that would trigger notice obligations under the WARN Act;
(n) cancel, compromise or settle any material Litigation, or intentionally waive or release any material rights, with respect to the Business;
(o) make any changes to its accounting principles or practices, other than as may be required by Law or GAAP;
(p) other than in the ordinary course of business or consistent with past practices, change in any material respect the policies or practices of the Business with regard to the extension of discounts or credit to customers or collection of receivables from customers;
(q) change or revoke any Tax election or change any method of accounting for Tax purposes; in each case with respect to the Business or Assets to the extent such election or method of accounting would be binding on Buyer following the Closing Date;
(r) violate any applicable Law or Order;
(s) enter into or adopt a plan or agreement of complete or partial liquidation, dissolution, restructuring, recapitalization, merger or consolidation or other reorganization; or
(t) agree, authorize, recommend, propose or announce an intention to do any of the foregoing, or enter into any contract, agreement, commitment or arrangement to do any of the foregoing.
Cooperation Prior to the Distribution (a) L-3 and Spinco shall prepare, and L-3 shall mail to the holders of L-3 Common Stock, the Information Statement, which shall set forth appropriate disclosure concerning Spinco, the Distribution and any other appropriate matters. L-3 and Spinco shall also prepare, and Spinco shall file with the Commission, the Form 10, which shall include the Information Statement. L-3 and Spinco shall use commercially reasonable efforts to cause the Form 10 to become effective under the Exchange Act.
(b) L-3 shall cause L-3 Corp, as the sole shareholder of Spinco, to approve and adopt the Spinco employee benefit plans contemplated by the Employee Matters Agreement and L-3 and Spinco shall cooperate in preparing, filing with the Commission under the Securities Act and causing to become effective not later than the Distribution Date any registration statements or amendments thereto that are appropriate to reflect the establishment of or amendments to any employee benefit plan of Spinco contemplated by the Employee Matters Agreement, including a Form S-8 with respect thereto.
(c) Spinco shall take all such action as may be necessary or appropriate under the securities or blue sky laws of states or other political subdivisions of the United States in connection with the transactions contemplated by this Agreement or any Ancillary Agreement.
(d) Spinco shall prepare, file, and use all reasonable efforts to cause to be approved prior to the Record Date, the application to permit listing of the Spinco Common Stock on the NYSE.
Actions Prior to the Distribution Prior to the Effective Time and subject to the terms and conditions set forth herein, the Parties shall take, or cause to be taken, the following actions in connection with the Distribution:
Operations Prior to the Closing Date (a) Except as set forth in Schedule 7.4 or as contemplated by this Agreement or except with the written approval of Buyer, which Buyer agrees shall not be unreasonably withheld or delayed, Seller shall use its reasonable efforts to operate and shall use its reasonable efforts to cause the Company to carry on the Business only in the ordinary course and substantially as presently operated. Consistent with the foregoing, Seller shall cause the Company to keep and maintain the material assets of the Company in good operating condition and repair and shall use its reasonable best efforts consistent with good business practice to maintain the business organization of the Company intact and preserve the goodwill of the employees, brokers, lenders and others having business relations with the Company. In connection therewith, Seller shall not, and shall not permit the Company to, with respect to any employee of the Company, (i) transfer such employee to Seller or an Affiliate of Seller, (ii) offer such employee employment by Seller or an Affiliate of Seller after the Closing Date or (iii) otherwise attempt to persuade any such employee to terminate his or her relationship with the Company or not to continue employment with the Company after the Closing.
(b) In addition, and without limiting Section 7.4(a), except as expressly contemplated by this Agreement or except with the express written approval of Buyer (which Buyer agrees shall not be unreasonably withheld or delayed), Seller shall not, with respect to the Equity Interests, the Company or the Business, and Seller cause the Company not to:
(i) amend its articles of incorporation or by-laws (or similar organizational documents);
(ii) issue, grant, sell or encumber any shares of its capital stock or other securities, or issue, grant, sell or encumber any security, option, warrant, put, call, subscription or other right of any kind, fixed or contingent, that directly or indirectly calls for the acquisition, issuance, sale, pledge or other disposition of any shares of its capital stock or other securities or make any other changes in the equity capital structure of the Company;
(iii) make any change in the Business or the operations of the Company outside the ordinary course of business;
(iv) make any capital expenditure or enter into any contract or commitment therefor in excess of $50,000; provided that, in the ordinary course of business consistent with past practice, the Company may originate loans secured by 1-to-4 family residential real estate in an aggregate principal amount not to exceed $2,000,000 per month; provided further that Seller shall not originate any loans secured by real estate on behalf of the Company or transfer any loans secured by real estate to the Company;
(v) (A) enter into any Contract which would have been a Company Agreement if in effect on the date hereof, (B) enter into any Contract which would require the consent of a third party in connection with the consummation of the transactions contemplated by this Agreement or (C) modify, amend, terminate or grant any consent or waiver under any Company Agreement or any Contract that would have been a Company Agreement if it were in effect on the date hereof;
(vi) sell, lease (as lessor), transfer or otherwise dispose of (including any transfers from the Company to Seller or any of its Affiliates), or mortgage or pledge, or impose or suffer to be imposed any Encumbrance on, any of (A) the Equity Interests or (B) the assets or properties of the Company, other than, in the case of this clause (B), Permitted Encumbrances;
(vii) cancel any debts owed to or claims held by the Company (including the settlement of any claims or litigation) other than in the ordinary course of the Business consistent with past practice;
(viii) create, incur or assume, or agree to create, incur or assume, any Indebtedness or enter into, as lessee, any capitalized lease obligations (as defined in Statement of Financial Accounting Standards No. 13), other than in the ordinary course of business;
(ix) accelerate or delay collection of any notes or accounts receivable in advance of or beyond their regular due dates or the dates involving more than $25,000 when the same would have been collected in the ordinary course of the Business consistent with past practice;
(x) delay or accelerate payment of any account payable or other liability of the Company beyond or in advance of its due date or the date involving more than $25,000 when such liability would have been paid in the ordinary course of the Business consistent with past practice;
(xi) except as expressly contemplated by Section 7.9, make, or agree to make, any distribution or other disposition of assets (other than cash and cash equivalents) to Seller or any of its Affiliates;
(xii) institute any material increase in any profit-sharing, bonus, incentive, deferred compensation, insurance, pension, retirement, medical, hospital, disability, welfare or other employee benefit plan with respect to employees of the Company, except for payments related to stay bonus, transaction completion bonus, severance payments or other similar payments made on or prior to the Closing Date as a result of this Agreement or the transactions contemplated hereby;
(xiii) make any material increase in the compensation of the employees of the Company, other than changes made in accordance with normal compensation practices and consistent with past compensation practices;
(A) except as required by applicable Requirements of Law, prepare or file any Tax Return inconsistent with past practice or, on any such Tax Return, take any position, make any election, or adopt any method that is inconsistent with positions taken, elections made or methods used in preparing or filing similar Tax Returns in prior periods (including positions, elections or methods that would have the effect of deferring income to periods ending after the Closing Date or accelerating deductions to periods ending on or before the Closing Date), or (B) settle or otherwise compromise any claim related to Taxes, enter into any closing agreement or similar agreement related to Taxes, otherwise settle any dispute relating to Taxes, or request any ruling or similar guidance with respect to Taxes;
(xv) make any change in the accounting policies applied in the preparation of the financial statements contained in Schedule 5.4, unless such change is required by GAAP;
(xvi) originate, acquire, hold, sell, transfer, securitize or hedge loans secured by real estate; provided that, in the ordinary course of business consistent with past practice, the Company may originate loans secured by 1-to-4 family residential real estate in an aggregate principal amount not to exceed $2,000,000 per month; provided further that Seller shall not originate any loans secured by real estate on behalf of the Company or transfer any loans secured by real estate to the Company; or
(xvii) make any material change in internal control over financial reporting, other than any change required by GAAP or any change made by Seller with respect to all of its Controlled Affiliates.
(c) The Company shall keep all insurance policies set forth on Schedule 5.22, or suitable replacements therefor, in full force and effect through the Closing Date.
Conduct of Business Prior to the Effective Time Except as expressly permitted herein, set forth in Section 6.1 of the Company Schedule of Exceptions, or required by Law, from the Execution Date through the Effective Time or the termination of this Agreement pursuant to its terms, the Company shall, and cause its Subsidiaries to, conduct its business in all material respects in the ordinary course of its business consistent with past practice and, to the extent consistent therewith, use its reasonable best efforts to maintain and preserve substantially intact its business organization and the goodwill of those having business relationships with it. Without limiting the foregoing, and except as otherwise expressly contemplated by this Agreement or as set forth in Section 6.1 of the Company Schedule of Exceptions, or required by Law, from the Execution Date through the Effective Time or the termination of this Agreement pursuant to its terms, the Company shall not, nor shall it permit any of its Subsidiaries to, without the prior written consent of Parent:
(a) Declare, set aside or pay any dividends on or make any other distributions (whether in cash, stock, equity securities or property) in respect of any capital stock or split, combine or reclassify any capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for any capital stock, other than any such transaction by a wholly-owned Subsidiary of it that remains a wholly-owned Subsidiary of it after consummation of such transaction in the ordinary course of business; provided, however, that nothing herein shall be construed as prohibiting the Company from granting Company Options that are Ordinary Course Grants (as defined below);
(b) Purchase, redeem or otherwise acquire, directly or indirectly, any shares of its capital stock or the capital stock of its Subsidiaries, other than repurchases of unvested shares at cost or for de minimis consideration in connection with either the termination of the employment relationship with any employee or upon the resignation of any director or consultant, in each case, pursuant to stock option or purchase agreements in effect on the date hereof;
(c) Issue, deliver, sell, authorize, pledge or otherwise encumber any shares of capital stock, or subscriptions, rights, warrants or options to acquire any shares of capital stock or any securities convertible into shares of capital stock, or enter into other agreements or commitments obligating it to issue any such securities or rights, other than: (A) issuances of Company Common Stock upon the exercise of Company Options, Company Warrants or other rights of the Company existing on the date hereof in accordance with their present terms or granted pursuant to clauses (B) or (C) hereof, (B) grants of stock options to purchase Company Common Stock granted in the ordinary course of business consistent with past practice and on Ordinary Course Terms (as defined below) to new Company employees under the Company Option Plans outstanding on the date hereof, (C) grants of stock options to purchase Company Common Stock granted to existing Company employees (other than to directors and officers), under the Company Option Plans outstanding on the date hereof in the ordinary course of business consistent with past practice in connection with annual compensation reviews or ordinary course promotions and in each case on Ordinary Terms, and (D) subject to Section 3.7(b), issuances of Company Common Stock pursuant to the Company ESPP; provided, however, that the stock option grants pursuant to clause (C) shall not exceed grants of options to acquire 25,000 shares of Company Common Stock to all such individuals in the aggregate (the grants described, and subject to the limitations, in clauses (B) and (C), the “Ordinary Course Grants”, and for purposes of this Section 6.1, “Ordinary Course Terms” shall mean options to purchase Company Common Stock with the following terms (i) a per share exercise price that is no less than the current market price at the time of grant of a share of Company Common Stock and (ii) a vesting schedule no more favorable than one-quarter (1/4) on the one-year anniversary of the date of grant, and one-forty-eighth (1/48) on each monthly anniversary of the date of grant thereafter;