EXHIBIT 10.5
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TRANSITION SERVICES AGREEMENT
BY AND BETWEEN
THREE-FIVE SYSTEMS, INC.
AND
BRILLIAN CORPORATION
EFFECTIVE AS OF
SEPTEMBER 1, 2003
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TABLE OF CONTENTS
PAGE
SECTION 1 TRANSITION SERVICES................................................ 1
1.1.Provision of Transition Services..................................... 1
1.2.Additional Services.................................................. 1
SECTION 2 COMPENSATION....................................................... 2
2.1.Charges for Services................................................. 2
2.2.Reimbursement for Extraordinary Expenses............................. 2
2.3.Reimbursement for Ancillary Expenses................................. 2
2.4.Payments............................................................. 2
SECTION 3 OTHER MATTERS...................................................... 2
3.1.Status of Employees.................................................. 2
3.2.Proprietary Information and Rights................................... 2
SECTION 4 INDEMNIFICATION.................................................... 3
4.1.Indemnification by TFS............................................... 3
4.2.Indemnification by Brillian.......................................... 3
4.3.Procedure for Indemnification........................................ 3
SECTION 5 DISPUTE RESOLUTION................................................. 3
5.1.General.............................................................. 3
5.2.Negotiation.......................................................... 3
5.3.Non-Binding Mediation................................................ 3
5.4.Proceedings.......................................................... 4
▇.▇.▇▇▇ and Dispute...................................................... 4
SECTION 6 MISCELLANEOUS...................................................... 4
6.1.Term................................................................. 4
6.2.Effect of Termination................................................ 4
6.3.Limitation of Liability.............................................. 4
6.4.Standard of Conduct.................................................. 5
6.5.Force Majeure........................................................ 5
6.6.Entire Agreement..................................................... 5
6.7.Amendment............................................................ 5
▇.▇.▇▇ Third Party Beneficiaries......................................... 5
6.9.Governing Law........................................................ 5
6.10. Notices......................................................... 5
6.11. Counterparts.................................................... 5
6.12. Binding Effect and Assignment................................... 5
6.13. Severability.................................................... 5
6.14. Failure or Indulgence and Remedies.............................. 6
6.15. Authority....................................................... 6
6.16. Interpretation.................................................. 6
6.17. No Joint Venture or Partnership................................. 6
6.18. Definitions..................................................... ▇
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▇▇▇▇▇▇▇▇ 1.............. Document Control Services
Schedule 2.............. Legal Matters Administration Services
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TRANSITION SERVICES AGREEMENT
This Transition Services Agreement (this "Agreement") is
entered into as of September 1, 2003, by and between Three-Five Systems, Inc., a
Delaware corporation ("TFS"), and Brillian Corporation, a Delaware corporation
("Brillian"). Capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to such terms in Section 6.18 hereof.
RECITALS
WHEREAS, TFS and Brillian are parties to certain agreements
including that certain Master Separation and Distribution Agreement, dated as of
September 1, 2003 (the "Separation Agreement"); and
WHEREAS, as a material inducement to Brillian entering into
the Separation Agreement, TFS has agreed to provide, or cause to be provided,
certain services to Brillian for a temporary period following the "Separation"
pursuant to the Separation Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements set forth below and in the Separation Agreement,
the parties agree as follows:
SECTION 1
TRANSITION SERVICES
1.1 PROVISION OF TRANSITION SERVICES. TFS shall provide
to, or cause to be provided to, Brillian the Transition Services as provided
herein. It is understood by the parties that the scope of services to be
provided under this Section 1 is expected to be substantially consistent with
TFS's recent historical practice in providing the Transition Services to the
Microdisplay Business unless otherwise stated in this Agreement. Subject to the
limitations contemplated hereby, TFS agrees to provide, or cause to be provided,
the Transition Services to Brillian in a manner consistent with the manner TFS
has heretofore performed such services for the Microdisplay Business. Without
limiting the generality of the Transition Services to be provided by TFS to
Brillian as described in the Schedules hereto, the parties agree as follows:
(a) Brillian's independent auditor shall have
the right at Brillian's expense to audit any monthly summary statement;
provided, however, that such audit occurs within thirty (30) days after
Brillian's receipt of the monthly summary statement. All information provided by
TFS to Brillian's auditor shall, at the option of TFS, be subject to a
non-disclosure agreement entered into between the auditor and TFS;
(b) TFS shall provide Brillian an electronic
copy of its consolidated corporate financial records produced by TFS for each of
fiscal 1999, 2000, 2001, and 2002; and
(c) TFS shall cooperate in good faith with
Brillian with respect to the transition of the employer relationship from TFS to
Brillian subsequent to the Separation, Brillian's permit and licensing
requirements, and similar transition matters.
1.2. ADDITIONAL SERVICES. In the event that Brillian
reasonably determines that there are additional services that TFS has
historically provided to the Microdisplay Business that are not
included in the Transition Services, then the parties agree to negotiate in good
faith to add such services to the Transition Services on substantially the same
terms and conditions as set forth in this Agreement.
SECTION 2
COMPENSATION
2.1. CHARGES FOR SERVICES. In consideration for the
provision of the Document Control Services provided under Schedule 1 hereunder,
Brillian shall pay TFS, not later than the 15th day of each month, $57.00 per
man hour. In consideration for the provision of the Legal Matters Administration
Services provided under Schedule 2 hereunder, Brillian shall pay TFS, not later
than the 15th day of each month, $100 per hour.
2.2. REIMBURSEMENT FOR EXTRAORDINARY EXPENSES. It is
understood by the parties that all expenses paid or incurred by TFS in the
ordinary course of providing the Transition Services are included in the charges
for such services described in Section 2.1 above and will not be separately
reimbursed by Brillian. In the event that (a) TFS pays or incurs additional
out-of-pocket expenses, not in the ordinary course, in providing the Transition
Services pursuant to this Agreement, or (b) Brillian requests that TFS perform
services outside the current scope of the Transition Services (including any
increase in the scope of the Transition Services due to a material increase in
Brillian's business), Brillian shall, upon submission of supporting
documentation, promptly reimburse TFS for all such reasonable, extraordinary
expenses; provided, however, that all such expenses shall be approved in writing
in advance by Brillian.
2.3. REIMBURSEMENT FOR ANCILLARY EXPENSES. Brillian shall
promptly reimburse TFS for any out-of-pocket costs and expenses that TFS incurs
on behalf of and at the request of Brillian with respect to telephone, freight,
and other outsourced services provided that such costs and expenses are
consistent with past practices when TFS performed such telephone, freight, and
other services for the Microdisplay Business and TFS provides reasonable
supporting documentation.
2.4. PAYMENTS. TFS shall deliver to Brillian an invoice
and reasonable supporting documentation for all out-of-pocket expenses
contemplated by Section 2.2 and Section 2.3.
SECTION 3
OTHER MATTERS
3.1. STATUS OF EMPLOYEES. All employees and
representatives of TFS providing Transition Services hereunder to Brillian
during the term of this Agreement shall be deemed for purposes of all
compensation and employee benefits to be employees or representatives solely of
TFS or its affiliates and not to be employees or representatives of Brillian or
any of its affiliates or to be independent contractors thereof. In performing
their respective duties hereunder, all such employees and representatives of TFS
or its affiliates shall be under the direction, control, and supervision of TFS
(and not of Brillian or its affiliates) and TFS shall have the sole right to
exercise all authority with respect to the employment (including termination of
employment), assignment, and compensation of such employees and representatives.
3.2. PROPRIETARY INFORMATION AND RIGHTS. Each party
acknowledges that it possesses and will continue to possess information that
belongs to the other, which information has commercial value and is not in the
public domain. The proprietary information of each party will be and remain the
sole property of such party and its assigns. Each party shall use the same
degree of care which it normally uses to protect its own proprietary information
to prevent the disclosure to third parties of the other party's proprietary
information. Neither party shall make any use of the proprietary information of
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the other, except as contemplated or required by the terms of this Agreement or
any other written agreement between the parties. Notwithstanding the foregoing,
this Section 3.2 shall not apply to any information that a party can demonstrate
(a) was, at the time of disclosure to it, in the public domain through no fault
of such party, (b) was received after disclosure to it from a third party who
had a lawful right to disclose such information to it, or (c) was independently
developed by the receiving party.
SECTION 4
INDEMNIFICATION
4.1. INDEMNIFICATION BY TFS. TFS shall indemnify, defend,
and hold harmless Brillian and its Subsidiaries, and each of their respective
directors, officers, employees, and agents from and against any and all losses
incurred or suffered by Brillian or its Subsidiaries in connection with any
Action or threatened Action by a third party arising out of or due to any
failure to perform, or violation of, any provision of this Agreement that is to
be performed or complied with by TFS or its Subsidiaries.
4.2. INDEMNIFICATION BY BRILLIAN. Brillian shall
indemnify, defend, and hold harmless TFS and its Subsidiaries, and each of their
respective directors, officers, employees, and agents from and against any and
all losses incurred or suffered by TFS or its Subsidiaries in connection with
any Action or threatened Action by a third party arising out of or due to any
failure to perform, or violation of, any provision of this Agreement that is to
be performed or complied with by Brillian or its Subsidiaries.
4.3. PROCEDURE FOR INDEMNIFICATION.
(a) GENERAL. The procedures that apply to any
claim for indemnification made by TFS or Brillian pursuant to the indemnities
provided in Section 4.1 and Section 4.2 shall be as set forth in Section 7 of
the Separation Agreement.
SECTION 5
DISPUTE RESOLUTION
5.1. GENERAL. Resolution of any and all disputes arising
from or in connection with this Agreement, whether based on contract, tort, or
otherwise (collectively, "Disputes"), shall be exclusively governed by and
settled in accordance with the provisions of this Section 5.
5.2. NEGOTIATION. The parties shall make a good faith
attempt to resolve any Dispute through negotiation. Within thirty (30) days
after notice of a Dispute is given by either party to the other party, each
party shall select a negotiating team comprised of vice president-level or above
employees of such party and shall meet within thirty (30) days after the end of
the first thirty (30) day period to attempt to resolve the matter. During the
course of negotiations under this Section 5.2, all reasonable requests made by
one party to the other for Information, including requests for copies of
relevant documents, will be honored. The specific format for such negotiations
will be left to the discretion of the designated negotiating teams but may
include the preparation of agreed-upon statements of fact or written statements
of position furnished to the other party.
5.3. NON-BINDING MEDIATION. In the event that any Dispute
is not settled by the parties within fifteen (15) days after the first meeting
of the negotiating teams under Section 5.2, the parties will attempt in good
faith to resolve such Dispute by non-binding mediation in accordance with the
American Arbitration Association Commercial Mediation Rules. The mediation shall
be held within thirty (30) days of the end of such fifteen (15) day negotiation
period of the negotiating teams. Except as provided below in Section 5.4, no
litigation for the resolution of such dispute may be commenced until the parties
attempt in good faith to settle the dispute by such mediation in accordance with
such rules and
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either party has concluded in good faith that amicable resolution through
continued mediation of the matter does not appear likely. The costs of mediation
shall be shared equally by the parties to the mediation. Any settlement reached
by mediation shall be recorded in writing, signed by the parties, and shall be
binding on them.
5.4. PROCEEDINGS. Nothing herein shall prohibit either
party from initiating litigation or other judicial or administrative proceedings
if such party would be substantially harmed by a failure to act during the time
that such good faith efforts are being made to resolve the Dispute through
negotiation or mediation. In the event that litigation is commenced under this
Section 5.4, the parties agree to continue to attempt to resolve any Dispute
according to the terms of Section 5.2 and Section 5.3 during the course of such
litigation proceedings under this Section 5.4.
5.5. PAY AND DISPUTE. Except as provided herein or in any
Ancillary Agreement, in the event of any dispute regarding payment of a
third-party invoice (subject to standard verification of receipt of products or
services), the party named in a third party's invoice must make timely payment
to such third party, even if the party named in the invoice desires to pursue
the dispute resolution procedures outlined in this Section 5. If the party that
paid the invoice is found pursuant to this Section 5 to not be responsible for
such payment, such paying party shall be entitled to reimbursement, with
interest accrued at a compound annual rate of the Prime Rate plus 2%, from the
party found responsible for such payment.
SECTION 6
MISCELLANEOUS
6.1. TERM. This Agreement is intended to be a master
agreement and shall be construed as a separate agreement for each and every
service provided under this Agreement. Any termination of this Agreement with
respect to any service shall not terminate this Agreement with respect to any
other service then being provided under this Agreement. The parties anticipate
that the Transition Services will not be needed for more than one year(s)
subsequent to the Separation. Accordingly, the initial term of this Agreement
shall be from the Separation Date until one year(s) following the Separation
Date, and may thereafter be renewed and extended for monthly periods as may be
mutually agreed to by the parties hereto in a written supplement to this
Agreement; provided, however, this Agreement or any one or more of the
Transition Services may be terminated (a) upon mutual agreement of Brillian and
TFS, (b) at Brillian's option upon 45 days' advance written notice to TFS, or
(c) at TFS's option upon Brillian's failure to pay amounts due hereunder within
30 days after written notice thereof, provided that TFS is not in breach of this
Agreement.
6.2. EFFECT OF TERMINATION. Following any termination of
this Agreement with respect to any or all of the Transition Services to be
provided hereunder, TFS and Brillian shall cooperate in good faith to transfer
and/or retain all records and take all other action necessary or reasonably
requested by the other to enable Brillian and its successors and assigns to make
alternative service arrangements substantially consistent with those
contemplated by this Agreement. The rights and obligations of the parties under
Section 4 shall survive any termination of this Agreement.
6.3. LIMITATION OF LIABILITY. IN NO EVENT SHALL TFS OR
BRILLIAN BE LIABLE TO THE OTHER PARTY FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT,
INCIDENTAL, OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY
THEORY OF LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS
AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
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6.4. STANDARD OF CONDUCT. TFS shall use its commercially
reasonable efforts to perform the Transition Services consistent with the manner
in which such Transition Services have heretofore been provided by TFS with
respect to the Microdisplay Business.
6.5. FORCE MAJEURE. Each party will be excused for any
failure or delay in performing any of its obligations under this Agreement,
other than the obligations to make payments pursuant to Section 2 hereof for
services rendered, if such failure or delay is caused by any act of God or the
public enemy, any accident, explosion, fire, storm, earthquake, flood, or any
other circumstance or event beyond the reasonable control of such party.
6.6. ENTIRE AGREEMENT. This Agreement and the Schedules
attached hereto constitute the entire agreement between the parties with respect
to the subject matter hereof and supersede all prior negotiations,
understandings, agreements, and arrangements, both oral and written, among the
parties hereto with respect to such subject matter.
6.7. AMENDMENT. No change or amendment will be made to
this Agreement except by an instrument in writing signed on behalf of each of
the parties to this Agreement.
6.8. NO THIRD PARTY BENEFICIARIES. This Agreement is
solely for the benefit of the parties hereto and their respective Subsidiaries,
successors, and permitted assigns and shall not confer upon any other Person any
rights or remedies hereunder.
6.9. GOVERNING LAW. This Agreement shall be governed,
construed, and enforced in accordance with the laws of the state of Delaware as
to all matters regardless of the laws that might otherwise govern under the
principles of conflicts of laws applicable thereto.
6.10. NOTICES. Any notice, demand, offer, request or other
communication required or permitted to be given by either party pursuant to the
terms of this Agreement shall be in writing and shall be deemed effectively
given the earlier of (a) when received, (b) when delivered personally, (c) one
business day after being delivered by facsimile (with receipt of appropriate
confirmation), (d) one business day after being deposited with an overnight
courier service, or (e) four days after being deposited in the U.S. mail, First
Class with postage prepaid, and addressed to the attention of the party's Chief
Executive Officer at the address of its principal executive office or such other
address as a party may request by notifying the other in writing.
6.11. COUNTERPARTS. This Agreement, including the Schedules
attached hereto and the other documents referred to herein, may be executed in
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
6.12. BINDING EFFECT AND ASSIGNMENT. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective legal representatives and successors, and nothing in this Agreement,
express or implied, is intended to confer upon any other Person any rights or
remedies of any nature whatsoever under or by reason of this Agreement. This
Agreement may not be assigned by any party hereto. This Agreement may be
enforced separately by TFS and Brillian.
6.13. SEVERABILITY. If any term or other provision of this
Agreement or the Schedules attached hereto is determined by a nonappealable
decision by a court, administrative agency, or arbitrator to be invalid,
illegal, or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to either party. Upon such determination that any term or other
provision is invalid,
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illegal, or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the fullest extent possible.
6.14. FAILURE OR INDULGENCE AND REMEDIES. No failure or
delay on the part of either party hereto in the exercise of any right hereunder
shall impair such right or be construed to be a waiver of, or acquiescence in,
any breach of any representation, warranty, or agreement herein, nor shall any
single or partial exercise of any such right preclude other or further exercise
thereof or of any other right. All rights and remedies existing under this
Agreement or the Schedules attached hereto are cumulative to, and not exclusive
of, any rights or remedies otherwise available.
6.15. AUTHORITY. Each of the parties hereto represents to
the other that (a) it has the corporate or other requisite power and authority
to execute, deliver, and perform this Agreement, (b) the execution, delivery,
and performance of this Agreement by it have been duly authorized by all
necessary corporate or other actions, (c) it has duly and validly executed and
delivered this Agreement, and (d) this Agreement is a legal, valid, and binding
obligation, enforceable against it in accordance with its terms subject to
applicable bankruptcy, insolvency, reorganization, moratorium, or other similar
laws affecting creditors' rights generally and general equity principles.
6.16. INTERPRETATION. The headings contained in this
Agreement, in any Schedule hereto, and in the table of contents to this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Any capitalized term used in any
Schedule but not otherwise defined therein, shall have the meaning assigned to
such term in this Agreement. When a reference is made in this Agreement to a
Section or Schedule, such reference shall be to a Section of, or a Schedule to,
this Agreement unless otherwise indicated.
6.17. NO JOINT VENTURE OR PARTNERSHIP. Notwithstanding
anything to the contrary, this Agreement shall not be deemed to create a joint
venture or partnership among the parties hereto.
6.18. DEFINITIONS. Unless otherwise defined in this
Agreement, capitalized terms shall have the meanings ascribed thereto in the
Separation Agreement. As used in this Agreement, the following terms shall have
the following meanings:
(a) "AGREEMENT" shall mean this Transition
Services Agreement.
(b) "BRILLIAN" shall have the meaning set forth
in the preamble of this Agreement.
(c) "DOCUMENT CONTROL SERVICES" shall mean all
service relating to the management, storage, and retrieval of Brillian
documentation, as further specified in Schedule 1.
(d) "LEGAL MATTERS ADMINISTRATION SERVICES"
shall mean services provided by the General Counsel of TFS, as further specified
in Schedule 2.
(e) "SEPARATION AGREEMENT" shall have the
meaning set forth in the Recitals to this Agreement.
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(f) "TFS" shall have the meaning set forth in
the Recitals to this Agreement.
(g) "TRANSITION SERVICES" shall mean the
aggregate of all Document Control Services, Legal Matters Administration
Services, and other services provided hereunder.
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IN WITNESS WHEREOF, the parties have executed and delivered
this Transition Services Agreement as of the date first written above.
THREE-FIVE SYSTEMS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Executive Vice President and Chief
Financial Officer
BRILLIAN CORPORATION
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Vice President and Chief Financial Officer
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