EXHIBIT 2
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MASTER SEPARATION AND DISTRIBUTION 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 SEPARATION ............................................................................................ 1
1.1. Transfer of Assets............................................................................. 1
1.2. Assumption of Liabilities...................................................................... 4
1.3. Retained Assets................................................................................ 5
1.4. Retained Liabilities........................................................................... 5
1.5. Termination of Existing Intercompany Agreements................................................ 6
SECTION 2 SEPARATION CLOSING MATTERS............................................................................. 6
2.1. Separation Date................................................................................ 6
2.2. Closing of Transactions........................................................................ 6
2.3. Exchange of Secretary's Certificates........................................................... 6
2.4. Documents to be Delivered by TFS............................................................... 6
2.5. Documents to be Delivered by Brillian.......................................................... 7
SECTION 3 THE DISTRIBUTION ...................................................................................... 7
3.1. Share Distribution............................................................................. 7
3.2. Actions Prior to the Distribution.............................................................. 8
3.3. Conditions to Distribution..................................................................... 8
3.4. Modification or Abandonment.................................................................... 10
SECTION 4 EMPLOYEES AND EMPLOYEE BENEFIT MATTERS................................................................. 10
4.1. Employment of Brillian Employees............................................................... 10
4.2. Severance...................................................................................... 10
4.3. Withdrawal From TFS Plans and Establishment of Brillian Plans.................................. 11
4.4. Transfer of 401(k) Plan Account Balances....................................................... 11
4.5. Welfare Benefits Provided Under Brillian Plans................................................. 11
4.6. Stock Options.................................................................................. 12
4.7. Workers' Compensation.......................................................................... 13
4.8. Warn Act....................................................................................... 13
4.9. Information to be Provided to TFS.............................................................. 13
SECTION 5 INSURANCE MATTERS...................................................................................... 13
5.1. Insurance Prior to the Distribution Date....................................................... 13
5.2. Ownership of Existing Policies and Programs.................................................... 13
5.3. Naming of Brillian as Additional Insured....................................................... 14
5.4. Brillian Insurance Policies.................................................................... 14
5.5. Brillian Directors' and Officers' Insurance.................................................... 14
5.6. Post-Distribution Insurance Claims Administration.............................................. 14
5.7. Non-Waiver of Rights to Coverage............................................................... 15
5.8. Scope of Affected Policies of Insurance........................................................ 15
SECTION 6 CERTAIN COVENANTS...................................................................................... 15
6.1. Further Instruments............................................................................ 15
6.2. Exchange of Information........................................................................ 16
6.3. Confidentiality................................................................................ 17
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TABLE OF CONTENTS
(CONTINUED)
PAGE
6.4. Privileged Matters............................................................................. 18
6.5. Non-competition................................................................................ 19
6.6. Governmental Approvals......................................................................... 20
6.7. Cooperation in Obtaining New Agreements........................................................ 20
6.8. Condition of Transferred Assets................................................................ 20
6.9. Reconciliation of Accounts Receivable.......................................................... 20
SECTION 7 INDEMNIFICATION ....................................................................................... 21
7.1. Indemnification by TFS......................................................................... 21
7.2. Indemnification by Brillian.................................................................... 21
7.3. Procedure for Indemnification.................................................................. 21
7.4. Direct Claims.................................................................................. 22
7.5. Adjustment of Indemnifiable Losses............................................................. 23
7.6. No Third Party Beneficiaries................................................................... 24
7.7. Joint Defense Agreements....................................................................... 24
7.8. Special Notices................................................................................ 24
SECTION 8 DISPUTE RESOLUTION..................................................................................... 25
8.1. General ...................................................................................... 25
8.2. Negotiation.................................................................................... 25
8.3. Non-Binding Mediation.......................................................................... 25
8.4. Proceedings.................................................................................... 25
8.5. Pay and Dispute................................................................................ 25
SECTION 9 MISCELLANEOUS ......................................................................................... 25
9.1. No Representations or Warranties............................................................... 25
9.2. Limitation of Liability........................................................................ 26
9.3. Survival....................................................................................... 26
9.4. Expenses....................................................................................... 26
9.5. Entire Agreement............................................................................... 26
9.6. Amendment...................................................................................... 27
9.7. No Third-Party Beneficiaries................................................................... 27
9.8. Governing Law.................................................................................. 27
9.9. Termination.................................................................................... 27
9.10. Notices ...................................................................................... 27
9.11. Counterparts................................................................................... 27
9.12. Binding Effect and Assignment.................................................................. 27
9.13. Severability................................................................................... 27
9.14. Failure or Indulgence and Remedies............................................................. 28
9.15. Authority...................................................................................... 28
9.16. Interpretation................................................................................. 28
9.17. Conflicting Agreements......................................................................... 28
9.18. Definitions.................................................................................... 28
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EXHIBIT INDEX
Exhibit A - Certificate of Secretary of TFS............................................................... A-1
Exhibit B - Certificate of Secretary of Brillian.......................................................... B-1
Exhibit C - Assignment and Assumption Agreement........................................................... C-1
Exhibit D - Transition Services Agreement................................................................. D-1
Exhibit E - Tax Sharing Agreement......................................................................... E-1
Exhibit F - Intellectual Property Agreement............................................................... F-1
Exhibit G - Real Property Sublease Agreement.............................................................. G-1
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SCHEDULES
Schedule 1.1(a) ........... Brillian Balance Sheet
Schedule 1.1(d) ........... Personal Property Leases
Schedule 1.1(e) ........... Transferred Intellectual Property
Schedule 1.1(f) ........... Trademarks
Schedule 1.1(g) ........... Contracts
Schedule 1.1(h) ........... Permits and Licenses
Schedule 1.1(j) ........... Subsidiaries, Joint Ventures, and Minority Interests
Schedule 1.1(m) ........... Loans to Transferred Employees
Schedule 1.2(g) ........... Loan Guarantees
Schedule 1.3(f) ........... Retained Intellectual Property
Schedule 4.1............... Transferred Employees
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MASTER SEPARATION AND DISTRIBUTION AGREEMENT
This Master Separation and Distribution 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 9.18
hereof.
RECITALS
WHEREAS, TFS develops, inter alia, liquid crystal on silicon
microdisplay technologies incorporating pixels having a pixel pitch that is less
than 50 microns (50(micro)m) (the "Microdisplay Business");
WHEREAS, the Board of Directors of TFS has determined that it
would be advisable and in the best interests of TFS and its stockholders for TFS
to transfer to Brillian the business, operations, assets, and liabilities
related to the Microdisplay Business;
WHEREAS, TFS has agreed to transfer and assign, or cause to be
transferred and assigned, to Brillian substantially all of the assets and
properties of the Microdisplay Business held by TFS and one or more of its
Subsidiaries, and Brillian has agreed to assume certain liabilities and
obligations arising out of or relating to the Microdisplay Business
(collectively, the "Separation");
WHEREAS, the Board of Directors of TFS has determined that it
would be advisable and in the best interests of TFS and its stockholders for TFS
to distribute on a pro-rata basis to the holders of record of TFS common stock,
par value $.01 per share (the "TFS Common Stock"), without any consideration
being paid by such holders, all of the outstanding shares of Brillian common
stock, par value $.01 per share (the "Brillian Common Stock") owned directly and
indirectly by TFS (the "Distribution");
WHEREAS, for federal income tax purposes, the Separation and
Distribution are intended to qualify for tax-free treatment under Sections 355
and 368(a)(1)(D) of the Code; and
WHEREAS, it is appropriate and desirable to set forth the
principal corporate transactions required to effect the Separation and the
Distribution and certain other agreements that will govern the relationship of
TFS and Brillian following the Distribution.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements set forth below, the parties agree as follows:
SECTION 1
SEPARATION
1.1. TRANSFER OF ASSETS. Subject to the terms and
conditions of this Agreement, on or prior to September 15, 2003 (the
"Distribution Date"), TFS shall convey, assign, transfer, contribute, and set
over, or cause to be conveyed, assigned, transferred, contributed, and set over,
to Brillian, and Brillian shall accept and receive, all right, title, and
interest of TFS in and to the tangible and intangible assets of the Microdisplay
Business (all of such assets being hereinafter referred to as the "Transferred
Assets"), including without limitation the following:
(a) BALANCE SHEET ASSETS. All assets reflected
or disclosed on the unaudited pro forma balance sheet of the Microdisplay
Business as of September 1, 2003 attached as Schedule 1.1(a) hereto (the
"Brillian Balance Sheet"), including all machinery, equipment, furniture, and
other tangible personal property, whether owned or leased, used primarily in the
operation of the Microdisplay Business, subject to acquisitions, dispositions,
and adjustments in the ordinary course of the Microdisplay Business, consistent
with past practice, after such date.
(b) RECEIVABLES.
(i) Except as set forth in Section
1.3(g) hereof, all notes receivable, lease receivables, prepayments (other than
prepaid insurance), advances, and other receivables arising out of or produced
by the Microdisplay Business and owing by any Persons (the "Receivables");
(ii) all cash payments received after
the Distribution Date on account of the receivables listed in Section 1.1(b)(i);
(iii) all manufacturers' warranties or
guarantees related to the Transferred Assets or related to any of the Assumed
Liabilities; and
(iv) any and all manufacturers' or
third-party service or replacement programs relating to the Transferred Assets.
(c) INVENTORIES. All supplies, packaging, and
other inventories related to the Microdisplay Business.
(d) PERSONAL PROPERTY LEASES. The machinery,
equipment, and other tangible personal property leases (the "Personal Property
Leases") set forth on Schedule 1.1(d) hereto.
(e) INTELLECTUAL PROPERTY. All copyrights,
interfaces, methodologies, patents, patent applications, and software to the
extent the foregoing are used primarily in connection with the Microdisplay
Business, including the following (collectively, the "Transferred Intellectual
Property"):
(i) those set forth on Schedule 1.1(e)
hereto;
(ii) all business and technical
Information, nonpatented inventions, discoveries, processes, formulations, trade
secrets, know-how, and technical data used primarily in connection with the
Microdisplay Business made or conceived by employees, consultants, or
contractors of TFS or its Subsidiaries as to which TFS or its Subsidiaries have
rights under any agreement or otherwise relating to the foregoing;
(iii) all business and technical
Information, nonpatented inventions, discoveries, processes, formulations, trade
secrets, know-how, and technical data used primarily in connection with the
Microdisplay Business made or conceived by third parties as to which TFS or its
Subsidiaries have rights pursuant to executory agreements with said third
parties relating to the foregoing; and
(iv) all permits, grants, contracts,
agreements, and licenses running to or from TFS or its Subsidiaries relating to
the foregoing and all rights that are associated with the foregoing.
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(f) TRADEMARKS. All U.S., state, and foreign
trademarks, service marks, logos, trade dress, and trade names (including all
assumed or fictitious names under which TFS is conducting the Microdisplay
Business), whether registered or unregistered, including all goodwill associated
with the foregoing, and all registrations and pending applications to register
the foregoing to the extent the foregoing are used or intended to be used
primarily in connection with the Microdisplay Business, including those set
forth on Schedule 1.1(f) hereto.
(g) CONTRACTS. All of the following contracts,
agreements, arrangements, leases (other than Personal Property Leases),
manufacturers' warranties, memoranda, understandings, and offers open for
acceptance of any nature, whether written or oral (collectively, the
"Contracts"):
(i) all contracts related to
acquisitions or divestitures of assets or stock related primarily to the
Microdisplay Business, including contracts related to the transactions set forth
on Schedule 1.1(g) hereto, except to the extent indicated on Schedule 1.1(g)
hereto;
(ii) all service, license, maintenance,
and support contracts with customers related primarily to the Microdisplay
Business, including those set forth on Schedule 1.1(g) hereto;
(iii) all supplier Contracts related
primarily to the Microdisplay Business relating either to raw materials or
distributed products, including those set forth on Schedule 1.1(g) hereto;
(iv) all joint development and alliance
contracts related primarily to the Microdisplay Business, including those set
forth on Schedule 1.1(g) hereto;
(v) all contracts with third parties
related primarily to the Microdisplay Business relating to services provided to,
or for the benefit of, Brillian, including those set forth on Schedule 1.1(g)
hereto; and
(vi) all other contracts and purchase
orders related primarily to the Microdisplay Business.
(h) PERMITS AND LICENSES. All permits,
approvals, licenses, franchises, authorizations, and other rights granted by any
Governmental Authority, including those relating to environmental matters, held
or applied for by TFS or its Subsidiaries and that are used primarily in the
Microdisplay Business or that relate primarily to the Transferred Assets,
including those set forth on Schedule 1.1(h) hereto, and all other consents,
grants, and other rights that are used primarily for the lawful ownership of the
Transferred Assets or the operation of the Microdisplay Business and that are
legally transferable to Brillian.
(i) CLAIMS AND INDEMNITIES. All rights, claims,
demands, causes of action, judgments, decrees, and rights to indemnity or
contribution, whether absolute or contingent, contractual or otherwise, in favor
of TFS relating primarily to the Microdisplay Business, including the right to
▇▇▇, recover, and retain such recoveries and the right to continue in the name
of Brillian or TFS and its Subsidiaries, as appropriate, any pending actions
relating to the foregoing, and to recover and retain any damages therefrom.
(j) SUBSIDIARIES, JOINT VENTURES, AND MINORITY
INTERESTS. All shares of capital stock or equity or debt or other interests
owned by TFS or its Subsidiaries in the Subsidiaries, joint ventures, and
minority investments set forth on Schedule 1.1(j) hereto.
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(k) BOOKS AND RECORDS. All books and records
(including all records pertaining to customers, suppliers, and personnel),
wherever located, that relate primarily to the operation of the Microdisplay
Business.
(l) SUPPLIES. All office supplies, production
supplies, spare parts, purchase orders, forms, labels, shipping material, art
work, catalogues, sales brochures, operating manuals, and advertising and
promotional material and all other printed or written material that relate
primarily to the operation of the Microdisplay Business.
(m) LOANS TO TRANSFERRED EMPLOYEES. All loans,
notes, or other debts owed to TFS or its Subsidiaries by any Transferred
Employees, including those set forth on Schedule 1.1(m) hereto.
(n) TAX CREDITS. Any right, title, or interest
in any tax refund, credit, or benefit to which Brillian or any of its
Subsidiaries is entitled in accordance with the terms of the Tax Sharing
Agreement.
(o) OTHER ASSETS. All other assets, tangible or
intangible, including all goodwill, that are used primarily in or relate
primarily to the operation of the Microdisplay Business, including, without
limitation, e-mail addresses, domain names, and websites.
1.2. ASSUMPTION OF LIABILITIES. Except as expressly
limited in this Section 1, Brillian shall assume, effective on or before the
Distribution Date, and pay, comply with, and discharge all contractual and other
liabilities of TFS arising out of or relating to the Microdisplay Business,
whether due or to become due (all of such liabilities being hereinafter referred
to as the "Assumed Liabilities"), including, without limitation, the following:
(a) BALANCE SHEET LIABILITIES. All liabilities
of TFS that are reflected, disclosed, or reserved for on the Brillian Balance
Sheet, as such liabilities may be increased or decreased in the operation of the
Microdisplay Business from the date of the Brillian Balance Sheet through the
Separation Date in the ordinary course of business consistent with past
practice;
(b) LEASES AND CONTRACTS. All liabilities of TFS
under or related to the Personal Property Leases and the Contracts, such
assumption to occur as (i) assignee if such Personal Property Leases or
Contracts are assignable and are assigned or otherwise transferred to Brillian,
or (ii) subcontractor, sublessee, or sublicensee if assignment of such Personal
Property Leases or Contracts or the proceeds thereof is prohibited by law, by
the terms thereof, or by the other contracting party;
(c) WARRANTIES. All warranty, performance, and
similar obligations entered into or made by TFS prior to the Distribution Date
with respect to the products or services of the Microdisplay Business;
(d) EMPLOYEE CLAIMS. All liabilities of TFS in
connection with claims of past or current employees of the Microdisplay Business
or of Transferred Employees, except as otherwise expressly provided in this
Agreement;
(e) VIOLATION OF LAW. All liabilities of TFS
related to any and all actions asserting a violation of any law, rule, or
regulation related to or arising out of the operations of the Microdisplay
Business, whether before or after the Separation Date;
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(f) TAXES. All liabilities for which Brillian is
liable in accordance with the terms of the Tax Sharing Agreement; and
(g) LOAN GUARANTEES. All guarantees of TFS
relating to the Microdisplay Business, including those set forth on Schedule
1.2(g) hereto.
(h) OTHER LIABILITIES. All other liabilities of
TFS relating to the Microdisplay Business, whether existing on the date hereof
or arising at any time or from time to time after the date hereof, and whether
based on circumstances, events, or actions arising heretofore or hereafter,
whether or not such liabilities shall have been disclosed herein, and whether or
not reflected on the books and records of TFS or Brillian or the Brillian
Balance Sheet.
1.3. RETAINED ASSETS. Notwithstanding anything to the
contrary herein, the following assets (the "Retained Assets") are not, and shall
not be deemed to be, Transferred Assets:
(a) CASH. Cash and cash equivalents, any cash on
hand or in bank accounts, certificates of deposit, commercial paper, and similar
securities, except for (i) deposits securing bonds, letters of credit, leases,
and all other obligations related to the Microdisplay Business, and (ii)
$22,000,000;
(b) TAX REFUNDS. Any right, title, or interest
in any tax refund, credit, or benefit to which TFS or any of its Subsidiaries is
entitled in accordance with the terms hereof or of the Tax Sharing Agreement;
(c) RETAINED LIABILITIES. Any amounts accrued on
the books and records of TFS or its Subsidiaries or the Microdisplay Business
with respect to any Retained Liabilities;
(d) EMPLOYEE BENEFITS. Except as provided in
Section 4, assets relating to the provision of benefits to present or former
employees of the Microdisplay Business;
(e) TRADEMARKS. Any intellectual property rights
in and to the name "Three-Five Systems" and the related emblem design, and any
variants thereof, and the trademarks and trade names used by TFS or its
Subsidiaries in relation to its present business exclusive of the Microdisplay
Business, except as provided in the Intellectual Property Agreement;
(f) RETAINED INTELLECTUAL PROPERTY. Any rights
in and to the intellectual property set forth on Schedule 1.3(f) hereto, except
as provided in the Intellectual Property Agreement; and
(g) ACCOUNTS RECEIVABLE. All accounts receivable
arising out of or incurred by the Microdisplay Business and owing by any Persons
and all payments relating thereto (the "Accounts Receivable"), subject to
reconciliation as provided in Section 6.9 hereof.
1.4. RETAINED LIABILITIES. Notwithstanding anything to the
contrary in this Agreement, neither Brillian nor any of its Subsidiaries shall
assume any of the following liabilities of TFS or its Subsidiaries
(collectively, the "Retained Liabilities"):
(a) EMPLOYEE BENEFITS. Except as provided in
Section 4, the liabilities under all of the TFS Plans;
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(b) TAXES. All liabilities for which TFS is
liable in accordance with the terms of the Tax Sharing Agreement; and
(c) ACCOUNTS PAYABLE. All accounts payable and
accrued accounts payable (including uninvoiced receipts for which TFS or
Brillian has received materials but for which an invoice has not yet been
received) arising out of or incurred by the Microdisplay Business and owing to
any Persons (the "Accounts Payable"), subject to reconciliation as provided in
Section 6.9 hereof.
1.5. TERMINATION OF EXISTING INTERCOMPANY AGREEMENTS.
Except as otherwise contemplated by this Agreement, all agreements between TFS
and Brillian and all other intercompany arrangements and courses of dealing,
whether or not in writing and whether or not binding, in effect immediately
prior to the Distribution Date, shall be terminated and be of no further force
and effect from and after the Distribution Date.
SECTION 2
SEPARATION CLOSING MATTERS
2.1. SEPARATION DATE. Unless otherwise provided in this
Agreement, or in any agreement to be executed in connection with this Agreement,
the effective time and date of each transfer of property, assumption of
liability, license, undertaking, or agreement in connection with the Separation
shall be 12:01 a.m., Arizona time, September 1, 2003 or such other date as may
be fixed by the Board of Directors of TFS (the "Separation Date").
2.2. CLOSING OF TRANSACTIONS. Unless otherwise provided
herein, the closing of the transactions contemplated in Section 1 shall occur by
the lodging of each of the executed instruments of transfer, assumptions of
liability, undertakings, agreements, instruments, and other documents executed
or to be executed with ▇▇▇▇▇▇▇▇▇ Traurig, LLP, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇
▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, to be held in escrow for delivery as provided in
Section 2.3 below.
2.3. EXCHANGE OF SECRETARY'S CERTIFICATES. Upon receipt of
a certificate of the Secretary or an Assistant Secretary of TFS in the form
attached to this Agreement as Exhibit A, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, LLP shall deliver to
Brillian on behalf of TFS all of the items required to be delivered by TFS
pursuant to Section 2.4 of this Agreement and each such item shall be deemed to
be delivered to Brillian as of the Separation Date upon receipt of such item.
Upon receipt of a certificate of the Secretary or an Assistant Secretary of
Brillian in the form attached to this Agreement as Exhibit B, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
LLP shall deliver to TFS on behalf of Brillian all of the items required to be
delivered by Brillian pursuant to Section 2.5 of this Agreement and each such
item shall be deemed to be delivered to TFS as of the Separation Date upon
receipt of such item.
2.4. DOCUMENTS TO BE DELIVERED BY TFS. On the Separation
Date, TFS will deliver, or will cause its appropriate Subsidiaries to deliver,
to Brillian all of the following items and agreements (collectively, together
with all agreements and documents contemplated by such agreements, the
"Ancillary Agreements"):
(a) ASSIGNMENT AGREEMENT. A duly executed
Assignment and Assumption Agreement substantially in the form attached hereto as
Exhibit C (the "Assignment Agreement");
(b) STOCK CERTIFICATES. Certificates
representing the stock and investments in the Subsidiaries and other holdings of
TFS set forth on Schedule 1.1(j) with duly executed stock powers in the form
proper for transfer;
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(c) TRANSITION SERVICES AGREEMENT. A duly
executed Transition Services Agreement substantially in the form attached hereto
as Exhibit D (the "Transition Services Agreement");
(d) TAX SHARING AGREEMENT. A duly executed Tax
Sharing Agreement substantially in the form attached hereto as Exhibit E (the
"Tax Sharing Agreement");
(e) INTELLECTUAL PROPERTY AGREEMENT. A duly
executed Intellectual Property Agreement substantially in the form attached
hereto as Exhibit F (the "Intellectual Property Agreement");
(f) REAL PROPERTY SUBLEASE. A duly executed Real
Property Sublease Agreement substantially in the form attached hereto as Exhibit
G (the "Real Property Sublease");
(g) OFFICER RESIGNATIONS. Resignations of each
person who is an officer or director of TFS or any of its Subsidiaries,
immediately prior to the Separation Date, and who will be employees of Brillian
from and after the Separation Date; and
(h) OTHER AGREEMENTS. Such other agreements,
documents, or instruments as the parties may agree are necessary or desirable in
order to achieve the purposes hereof, including, without limitation, those
documents referred to in Section 6.1.
2.5. DOCUMENTS TO BE DELIVERED BY BRILLIAN. On the
Separation Date, Brillian will deliver, or will cause its appropriate
Subsidiaries to deliver, to TFS all of the following items and agreements:
(a) COUNTERPARTS. In each case where Brillian is
a party to any agreement or instrument referred to in Section 2.4, a duly
executed counterpart of such agreement or instrument; and
(b) OTHER AGREEMENTS. Such other agreements,
documents, or instruments as the parties may agree are necessary or desirable in
order to achieve the purposes hereof, including, without limitation, those
documents referred to in Section 6.1.
SECTION 3
THE DISTRIBUTION
3.1. SHARE DISTRIBUTION.
(a) DELIVERY OF SHARES FOR DISTRIBUTION. Prior
to the Distribution Date, TFS shall deliver to Brillian the certificate for
1,000 shares of Brillian Common Stock held by TFS and representing all of the
outstanding Brillian Common Stock, and Brillian shall cancel such certificate
and issue and deliver to TFS in exchange therefor an omnibus stock certificate
representing that number of shares of Brillian Common Stock equal to the total
number of shares distributable pursuant to Section 3.1(b) hereof. TFS shall then
deliver such omnibus certificate to the Distribution Agent.
(b) DISTRIBUTION OF SHARES. TFS shall instruct
the Distribution Agent to distribute, beginning on the Distribution Date, to
holders of TFS Common Stock on the Record Date, the number of shares of Brillian
Common Stock equal to the product of (i) the number of shares of TFS Common
Stock owned by such holder on the Record Date, multiplied by (ii) the
Distribution Ratio, and as soon thereafter as reasonably practicable, cash, if
applicable, in lieu of fractional shares obtained in the manner provided in
Section 3.1(c) hereof. Brillian agrees to provide to the Distribution Agent
sufficient certificates in such denominations as the Distribution Agent may
request in order to effect the
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Distribution. All of the shares of Brillian Common Stock issued in the
Distribution shall be fully paid, nonassessable, and free of preemptive rights.
TFS stockholders shall not be required to pay cash or other consideration for
the Brillian Common Stock received in the Distribution.
(c) FRACTIONAL SHARES. No certificate or scrip
representing fractional shares of Brillian Common Stock shall be issued as part
of the Distribution. In lieu of receiving fractional shares, each holder of TFS
Common Stock who would otherwise be entitled to receive a fractional share of
Brillian Common Stock pursuant to the Distribution will receive cash for such
fractional share. TFS shall instruct the Distribution Agent to determine the
number of whole shares and fractional shares of Brillian Common Stock allocable
to each holder of record or beneficial owner of TFS Common Stock on the Record
Date, to aggregate all such fractional shares into whole shares, to sell the
whole shares obtained thereby in the open market at then prevailing prices on
behalf of holders or beneficial owners who otherwise would be entitled to
receive fractional share interests, and to distribute to each such holder or for
the benefit of each such beneficial owner such holder's or owner's ratable share
of the total proceeds (net of total selling expenses) of such sale; provided,
however, that the Distribution Agent shall have sole discretion to determine
when, how, through which broker-dealer, and at what price to make its sales;
provided, further, that the broker-dealer shall not be an affiliate of TFS or
Brillian.
(d) OBLIGATION TO PROVIDE INFORMATION. TFS and
Brillian, as the case may be, will provide to the Distribution Agent all share
certificates and any information required in order to complete the Distribution
on the basis specified above.
3.2. ACTIONS PRIOR TO THE DISTRIBUTION. On or before the
Distribution Date, TFS and Brillian shall use their reasonable commercial
efforts to do and accomplish the following:
(a) SEC FILINGS. TFS and Brillian shall prepare
and mail, prior to the Distribution Date, to the holders of TFS Common Stock,
such information concerning the Microdisplay Business and the Distribution and
such other matters as TFS shall reasonably determine are necessary and as may be
required by law. TFS and Brillian will prepare, and Brillian will, to the extent
required under applicable law, file with the Securities and Exchange Commission
(the "SEC") any registration statement or other documentation that TFS and
Brillian determine is necessary or desirable to effectuate the Distribution, and
TFS and Brillian shall each use its reasonable commercial efforts to obtain all
necessary approvals from the SEC with respect thereto as soon as practicable.
(b) BLUE SKY. TFS and Brillian shall take and
shall cause any of their Subsidiaries to take all such actions as may be
necessary or appropriate under the securities or blue sky laws of any applicable
states (and any comparable laws under any foreign jurisdiction) in connection
with the Distribution.
(c) NASDAQ LISTING. Brillian shall prepare and
file, and shall use its reasonable commercial efforts to have approved, an
application for the listing of the Brillian Common Stock on the Nasdaq National
Market.
(d) SATISFACTION OF CONDITIONS. TFS and Brillian
shall take and shall cause any of their Subsidiaries to take all reasonable
steps necessary and appropriate to cause the conditions set forth in Section 3.3
hereof to be satisfied and to effect the Distribution on the Distribution Date.
3.3. CONDITIONS TO DISTRIBUTION. The following are
conditions to the consummation of the Distribution. The conditions are for the
sole benefit of TFS and shall not give rise to or create any duty on the part of
TFS or the Board of Directors of TFS to waive or not waive any such condition.
8
(a) APPROVAL BY TFS BOARD OF DIRECTORS. This
Agreement and the transactions contemplated hereby, including the declaration of
the Distribution, shall have been duly approved by the Board of Directors of TFS
in accordance with applicable law and the certificate of incorporation, as
amended, and bylaws of TFS;
(b) RECEIPT OF IRS PRIVATE LETTER TAX RULING.
TFS shall have received a ruling from the IRS that the transactions contemplated
hereby will qualify as a tax-free transaction for federal income tax purposes
under Section 368(a)(1)(D) or Section 351 of the Code, that the Distribution
will qualify as a tax-free distribution for federal income tax purposes under
Section 355 of the Code, and that no income, gain, or loss will be recognized by
TFS, Brillian, or their respective stockholders upon the Distribution;
(c) SEC FILINGS AND APPROVALS. The parties shall
have prepared and Brillian, to the extent required under applicable law, shall
have filed with the SEC any such documentation that TFS reasonably determines is
necessary or desirable to effectuate the Distribution, and each Party shall use
commercially reasonable efforts to obtain all necessary approvals from the SEC
with respect thereto as soon as practicable;
(d) FILING AND EFFECTIVENESS OF REGISTRATION
STATEMENT; NO STOP ORDER. A registration statement on Form 10 covering the
Brillian Common Stock shall have been filed with the SEC and shall be effective,
and no stop order suspending the effectiveness of such registration statement
shall have been initiated or, to the knowledge of either of the parties,
threatened by the SEC;
(e) DISSEMINATION OF INFORMATION TO TFS
STOCKHOLDERS. Prior to the Distribution Date, the parties shall have prepared
and mailed to the holders of TFS Common Stock such information concerning
Brillian, its business, operations, and management, the Distribution, and such
other matters as TFS shall reasonably determine and as may be required by law;
(f) COMPLIANCE WITH STATE AND FOREIGN SECURITIES
AND BLUE SKY LAWS. The parties shall have taken all such action as may be
necessary or appropriate under state and foreign securities and blue sky laws in
connection with the Distribution;
(g) APPROVAL OF NASDAQ LISTING APPLICATION. The
Brillian Common Stock to be distributed in the Distribution shall have been
approved for listing on the Nasdaq National Market;
(h) RECEIPT OF VIABILITY OPINION OF FINANCIAL
ADVISOR. The TFS Board of Directors shall have received a written opinion of
▇▇▇▇▇▇▇ & Company, in form acceptable to TFS, to the effect that Brillian will
be financially viable as a separate stand-alone entity for at least 12 months
following the Distribution Date, which opinion shall not have been withdrawn or
modified;
(i) CONSENTS.
(i) GOVERNMENTAL APPROVALS. Any
material governmental approvals and consents required to permit the valid
consummation of the Distribution shall have been obtained without any conditions
being imposed that would have a material adverse effect on TFS or Brillian;
(ii) CONSENTS. TFS shall have obtained
the consent, approval, or waiver of each Person (other than the Governmental
Authorities referred to in Section 4.3(i)(i)) whose consent, approval, or waiver
shall be required in connection with the Distribution, except those for which
the failure to obtain such consents or approvals would not, in the reasonable
opinion of TFS, individually
9
or in the aggregate have a material adverse effect on TFS, Brillian, or the
consummation of the Distribution;
(j) NO ACTIONS. No action, suit, or proceeding
shall have been instituted or threatened by or before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator to restrain, enjoin, or otherwise prevent
the Distribution or the other transactions contemplated by this Agreement
(including, but not limited to, a stop order with respect to the effectiveness
of the registration statement filed with the SEC), and no order, injunction,
judgment, ruling, or decree issued by any court of competent jurisdiction shall
be in effect restraining the Distribution or such other transactions; and
(k) CONSUMMATION OF SEPARATION. The Separation
transactions contemplated by Section 1 and Section 2 of this Agreement shall
have been consummated in all material respects.
3.4. MODIFICATION OR ABANDONMENT. TFS shall, in its sole
and absolute discretion, determine the date of the consummation of the
Distribution and all terms of the Distribution, including, without limitation,
the form, structure, and terms of any transaction(s) or offering(s) to effect
the Distribution and the timing of and conditions to the consummation of the
Distribution. In addition, TFS may at any time and from time to time until the
completion of the Distribution modify or change the terms of the Distribution,
including, without limitation, by accelerating or delaying the timing of the
consummation of all or part of the Distribution or by abandoning the
Distribution. Brillian shall cooperate with TFS in all respects to accomplish
the Distribution and shall, at TFS's direction, promptly take any and all
actions necessary or desirable to effect the Distribution. TFS shall select any
financial printer, distribution, solicitation, or exchange agent, and outside
counsel for TFS; provided, however, that nothing herein shall prohibit Brillian
from engaging (at its own expense) its own financial, legal, accounting, and
other advisors in connection with the Distribution.
SECTION 4
EMPLOYEES AND EMPLOYEE BENEFIT MATTERS
4.1. EMPLOYMENT OF BRILLIAN EMPLOYEES. On the Separation
Date, Brillian shall, or shall cause its Subsidiaries to, employ each employee
of the Microdisplay Business set forth on Schedule 4.1 hereto (the "Transferred
Employees"), and TFS shall cause all such Transferred Employees to resign from
all positions as officers or employees of TFS and its Subsidiaries. Brillian and
TFS (and their respective Subsidiaries) shall use commercially reasonable
efforts to accomplish any transfers of employment required by this Section 4.1
in a timely manner. As of the Separation Date, Brillian shall assume each
employment agreement between TFS and a Transferred Employee and shall be solely
responsible for all of the obligations of the employer thereunder.
4.2. SEVERANCE.
(a) TRANSFERRED EMPLOYEES. Transferred Employees
shall not be eligible for any severance benefits from TFS or its Subsidiaries as
a result of either their employment with Brillian or its Subsidiaries or their
subsequent termination of employment with Brillian or its Subsidiaries.
(b) OTHER EMPLOYEES. Brillian (or its applicable
Subsidiary) shall have the obligation to pay severance benefits to any employee
or former employee of the Microdisplay Business whose employment terminates on
or after the Separation Date. TFS shall continue to have the obligation to pay
severance benefits to any employee or former employee of the Microdisplay
Business whose employment terminated prior to the Separation Date.
10
4.3. WITHDRAWAL FROM TFS PLANS AND ESTABLISHMENT OF
BRILLIAN PLANS.
(a) TFS PLANS. No later than the Distribution
Date, Transferred Employees shall cease to participate in the TFS employee
benefit plans and programs (the "TFS Plans"), except as otherwise specifically
provided in this Section 4.
(b) BRILLIAN PLANS. No later than the
Distribution Date, Brillian or a Brillian Subsidiary shall establish its own
employee benefit plans and programs for the benefit of eligible employees of
Brillian and its Subsidiaries that shall be substantially similar to the TFS
Plans, including, but not limited to, a 401(k) savings plan (the "Brillian
401(k) Plan"), a medical and dental plan, a group vision care plan, a cafeteria
plan, a group term life and accidental death and dismemberment plan, and a
long-term disability plan.
4.4. TRANSFER OF 401(k) PLAN ACCOUNT BALANCES. Subject to
applicable law and the provisions of the Three-Five Systems, Inc. 401(k) Profit
Sharing Plan (the "TFS 401(k) Plan"), as soon as administratively practicable
following the establishment of the Brillian 401(k) Plan, or effective as of any
other date as agreed to in writing by the plan administrator for the TFS 401(k)
Plan and the plan administrator for the Brillian 401(k) Plan, the account
balances (including outstanding loans) of all TFS 401(k) Plan participants who
are Transferred Employees shall be transferred from the TFS 401(k) Plan to the
Brillian 401(k) Plan. Each Transferred Employee shall receive credit for all
purposes under the Brillian 401(k) Plan for periods of service with TFS or any
of its Subsidiaries. The plan administrator for the Brillian 401(k) Plan shall
take any other action reasonably requested by the plan administrator for the TFS
401(k) Plan that is necessary or advisable, in the opinion of the plan
administrator for the TFS 401(k) Plan, to maintain the tax-qualified status of
the TFS 401(k) Plan or to avoid the imposition of any penalties with respect to
such plan.
4.5. WELFARE BENEFITS PROVIDED UNDER BRILLIAN PLANS.
(a) PRIOR SERVICE. Each Transferred Employee who
becomes eligible to participate in a Brillian welfare benefit plan shall be
credited under such plan with (i) any deductibles and copayments paid by such
employee during the same plan year under the medical or dental plan maintained
by TFS and (ii) periods of service with TFS or any of its Subsidiaries for all
purposes under such plan. Amounts paid under a TFS medical or dental plan that
have been taken into account for purposes of determining each Transferred
Employee's lifetime maximum benefits under such TFS medical or dental plan shall
be taken into account for purposes of determining such Transferred Employee's
lifetime maximum benefits under such Brillian medical or dental plan.
(b) BRILLIAN RESPONSIBILITY. Brillian (or its
applicable Subsidiary) shall pay all costs associated with the provision of
disability benefits to any employee or former employee of the Microdisplay
Business, other than an employee or former employee whose long-term disability
benefits commenced prior to the earlier of (i) the Distribution Date, or (ii)
the effective date of the Brillian long-term disability insurance plan. Any
employee or former employee of the Microdisplay Business receiving benefits
under the TFS long-term disability insurance plan prior to such date shall
continue to receive benefits under the terms of such plan and the insurance
contract used to fund such plan, and neither Brillian nor any Brillian
Subsidiary shall be charged for the payment of such benefits.
(c) TFS RESPONSIBILITY. TFS (or its applicable
Subsidiary) shall pay all claims under the TFS medical plan (including dental
benefits) relating to Transferred Employees that have been incurred but not paid
prior to the earlier of (i) the Distribution Date, or (ii) the effective date of
the Brillian medical plan, but only if claims for such costs are submitted in
written form to the authorized agents of TFS (or its applicable Subsidiary)
during the nine-month period beginning on such date.
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(d) CAFETERIA PLAN. As of the earlier of (i) the
Distribution Date, or (ii) the date Brillian adopts a cafeteria plan, within the
meaning of Section 125 of the Code, for the benefit of its employees, Brillian
(or its applicable Subsidiary) shall assume all of the obligations of TFS under
its cafeteria plan with respect to participants who are Transferred Employees.
4.6. STOCK OPTIONS.
(a) TREATMENT OF TFS OPTIONS. As of the
Distribution Date, each outstanding nonqualified option to purchase shares of
TFS Common Stock that was granted on or before the Separation Date shall be
converted into both an adjusted TFS option and a substitute option to purchase
shares of Brillian Common Stock. The treatment of such TFS options will be
identical for those employees who remain employees of TFS immediately after the
spin-off and for Transferred Employees. The TFS nonqualified options shall be
converted in a manner that preserves the aggregate exercise price of each
option, which will be allocated between the adjusted TFS option and the
substitute Brillian option based on a comparison of the market capitalization of
TFS and the market capitalization of Brillian after the Record Date. Both
options, when combined, will preserve the intrinsic value of the existing TFS
option, and each will preserve the ratio of the exercise price to the fair
market value of the stock subject to the TFS option.
(b) GRANT OF SUBSTITUTE OPTIONS. The number of
shares of Brillian Common Stock subject to the substitute option shall be equal
to (i) the number of shares of TFS Common Stock subject to the existing TFS
option, divided by (ii) four. The exercise price of each substitute option shall
be equal to the exercise price of the existing TFS option, multiplied by four
and then multiplied by the following fraction:
Brillian Market Capitalization (after the Record Date)
--------------------------------------------------------------------------------
TFS Market Capitalization + Brillian Market Capitalization
(after the Record Date) (after the Record Date)
(c) REPRICING OF TFS OPTIONS. The number of
shares of TFS common stock subject to an adjusted TFS option will be the same as
the number of shares subject to the existing TFS option, and the current
exercise price will be multiplied by the following fraction:
TFS Market Capitalization (after the Record Date)
--------------------------------------------------------------------------------
TFS Market Capitalization + Brillian Market Capitalization
(after the Record Date) (after the Record Date)
(d) INCENTIVE STOCK OPTIONS. Each option to
purchase TFS Common Stock that is an incentive stock option, within the meaning
of Section 422 of the Code, shall be converted into an incentive stock option to
purchase the stock of the corporation with which the optionee is employed
immediately after the Distribution. Such options converted into substitute
options to purchase Brillian Common Stock shall be adjusted in the manner
described in Section 4.6(b) and such options converted into adjusted options to
purchase TFS Common Stock shall be adjusted in the manner described in Section
4.6(c).
(e) POST-SEPARATION OPTIONS. Each nonqualified
option to purchase TFS Common Stock granted after the Separation Date and each
option to purchase Brillian Common Stock (other than an option granted in
substitution of an outstanding option to purchase TFS Common Stock) shall
continue solely as an option to purchase TFS Common Stock or Brillian Common
Stock, as the case may be.
(f) FURTHER ASSISTANCE. TFS and Brillian agree
to assist each other as appropriate with respect to the ongoing administration
of the outstanding options issued to employees of
12
the other party, or issued by the other party to its employees, under the TFS
stock incentive plans and the Brillian stock incentive plans, as applicable.
4.7. WORKERS' COMPENSATION. Brillian shall assume the
liability for any workers' compensation or similar workers' protection claims
with respect to any employee of the Microdisplay Business, whether incurred
prior to, on, or after the Distribution Date, which are the result of an injury
or illness originating prior to or on the Distribution Date.
4.8. WARN ACT. Brillian and its Subsidiaries agree that
they shall not, at any time during the 90-day period following the Distribution
Date, (i) effectuate a "plant closing" as defined in the Worker Adjustment and
Retraining Notification Act of 1988 (the "WARN Act") affecting any site of
employment or operating units within any site of employment of the Microdisplay
Business, or (ii) take any action to precipitate a "mass layoff" as defined in
the WARN Act affecting any site of employment of the Microdisplay Business,
except, in either case, after complying fully with the notice and other
requirements of the WARN Act. Brillian agrees to indemnify TFS and its
Subsidiaries and to defend and hold harmless TFS and its Subsidiaries from and
against any and all claims, losses, damages, expenses, obligations, and
liabilities (including attorney's fees and other costs of defense) that TFS and
its Subsidiaries may incur in connection with any suit or claim of violation
brought against TFS under the WARN Act, which relates in whole or in part to
actions taken by Brillian or its Subsidiaries with regard to any site of
employment of Brillian or operating units within any site of employment of the
Microdisplay Business.
4.9. INFORMATION TO BE PROVIDED TO TFS. Brillian (or its
applicable Subsidiary) shall provide any Information that TFS (or any TFS
Subsidiary) may reasonably request, including, but not limited to, Information
relating to dates of termination of employment, in order to provide benefits to
any eligible employee of Brillian or any of its Subsidiaries under the terms and
conditions described herein or under the applicable TFS Plans. Any Information
relating to an employee's termination of employment shall be provided by
Brillian (or its applicable Subsidiary) to TFS as soon as available to Brillian
or any of its Subsidiaries, but in any event no later than 30 days after such
Information is made available to Brillian or any such Subsidiaries. Brillian (or
its applicable Subsidiary) shall, as necessary, update the system used to keep
such Information in such timely manner as is required to administer the TFS
Plans.
SECTION 5
INSURANCE MATTERS
5.1. INSURANCE PRIOR TO THE DISTRIBUTION DATE. Brillian
does hereby agree that TFS shall not have any liability whatsoever as a result
of the insurance policies and practices of TFS in effect at any time prior to
the Distribution Date, including as a result of the level or scope of any such
insurance, the creditworthiness of any insurance carrier, the terms and
conditions of any policy, and the adequacy or timeliness of any notice to any
insurance carrier with respect to any claim or potential claim or otherwise.
5.2. OWNERSHIP OF EXISTING POLICIES AND PROGRAMS. TFS or
one or more of its Subsidiaries shall continue to own all property, casualty,
and liability insurance policies and programs, including, without limitation,
primary and excess general liability, errors and omissions, automobile, workers'
compensation, property, fire, crime, and surety insurance policies, in effect on
or before the Distribution Date (collectively, the "TFS Policies" and
individually, a "TFS Policy"). TFS shall use reasonable commercial efforts to
maintain the TFS Policies in full force and effect up to and including the
Distribution Date, and, subject to the provisions of this Agreement, TFS and its
Subsidiaries shall retain all of their respective rights, benefits, and
privileges, if any, under the TFS Policies. Nothing contained herein shall be
construed to be an attempted assignment, or to change the ownership, of the TFS
Policies.
13
5.3. NAMING OF BRILLIAN AS ADDITIONAL INSURED. To the
extent not already provided for by the terms of a TFS Policy, TFS shall use
reasonable efforts to cause Brillian to be named as an additional insured under
TFS Policies whose effective policy periods include the Distribution Date, in
respect of claims arising out of or relating to periods prior to the
Distribution Date; provided, however, that nothing contained herein shall be
construed to require TFS or any of its Subsidiaries to pay any additional
premium or other charges in respect to, or waive or otherwise limit any of its
rights, benefits, or privileges under, any TFS Policy in order to effect the
naming of Brillian as such an additional insured.
5.4. BRILLIAN INSURANCE POLICIES. Commencing on and as of
the Distribution Date, Brillian shall be responsible for establishing and
maintaining separate property, casualty, and liability insurance policies and
programs (including, without limitation, primary and excess general liability,
errors and omissions, automobile, workers' compensation, property, fire, crime,
surety, and other similar insurance policies) for activities and claims
involving Brillian or any of its Subsidiaries. Brillian will exercise
commercially reasonable efforts to secure liability insurance to avoid potential
gaps in coverage for claims arising from events prior to the Distribution Date,
which gap would not exist had the Microdisplay Business continued to be covered
with the same retroactive dates existing in the TFS Policies in effect on the
Distribution Date. Brillian and each of its Subsidiaries, as appropriate, shall
be responsible for all administrative and financial matters relating to
insurance policies established and maintained by Brillian and its Subsidiaries
for claims relating to any period on or after the Distribution Date involving
Brillian or any of its Subsidiaries. Notwithstanding any other agreement or
understanding to the contrary, except as set forth in Section 5.6 with respect
to claims administration and financial administration of the TFS Policies,
neither TFS nor any of its Subsidiaries shall have any responsibility for or
obligation to Brillian or any of its Subsidiaries relating to property and
casualty insurance matters for any period, whether prior to, on, or after the
Distribution Date.
5.5. BRILLIAN DIRECTORS' AND OFFICERS' INSURANCE. TFS
shall use commercially reasonable efforts to cause the persons currently serving
as officers or directors of TFS or any of its Subsidiaries to be covered for a
period of three (3) years from the Distribution Date by the directors' and
officers' liability insurance policy maintained by TFS (including corporate
reimbursement) (provided that TFS may substitute therefor policies of at least
the same coverage and amounts containing terms and conditions that are not less
advantageous than such policy) with respect to matters covered under the
existing policy occurring prior to the Distribution Date that were committed by
such officers or directors in their capacity as such; provided, however, that in
no event shall TFS be required to expend with respect to any year more than 200%
of the current annual premium expended by TFS (the "Insurance Amount") to
maintain or procure insurance coverage pursuant hereto; and provided, further,
that if TFS is unable to maintain or obtain the insurance called for by this
Section 5.5, TFS shall use commercially reasonable efforts to obtain as much
comparable insurance as available for the Insurance Amount. In the event TFS or
any of its successors or assigns (i) consolidates with or merges into any other
Person and shall not be the continuing or surviving corporation or entity of
such consolidation or merger, or (ii) transfers or conveys all or substantially
all of its properties and assets to any Person, then, and in each such case, to
the extent necessary, proper provision shall be made so that the successors and
assigns of TFS assume the obligations set forth in this Section 5.5. The
provisions of this Section 5.5 are intended to be for the benefit of, and shall
be enforceable by, each such officer and director and his or her heirs and
representatives. As provided in Section 7.5, any amount Brillian is required to
pay to TFS as an indemnity under this Agreement is reduced to the extent TFS
receives insurance proceeds from the above coverage, but only to the extent such
proceeds are actually received by TFS.
5.6. POST-DISTRIBUTION INSURANCE CLAIMS ADMINISTRATION.
TFS and its Subsidiaries shall have the primary right, responsibility, and
authority for claims administration and financial administration of claims that
relate to or affect the TFS Policies. Upon notification by Brillian or one of
its Subsidiaries of a claim relating to Brillian or one of its Subsidiaries
under one or more of the TFS
14
Policies, TFS shall cooperate with Brillian in asserting and pursuing coverage
and payment for such claim by the appropriate insurance carrier(s). In asserting
and pursuing such coverage and payment, TFS shall have sole power and authority
to make binding decisions, determinations, commitments, and stipulations on its
own behalf and on behalf of Brillian and its Subsidiaries, which decisions,
determinations, commitments, and stipulations shall be final and conclusive if
reasonably made to maximize the overall economic benefit of the TFS Policies.
Brillian and its Subsidiaries shall assume responsibility for, and shall pay to
the appropriate insurance carriers or otherwise, any premiums,
retrospectively-rated premiums, defense costs, indemnity payments, deductibles,
retentions, or other charges (collectively, "Insurance Charges") whenever
arising, which shall become due and payable under the terms and conditions of
any applicable TFS Policy in respect of any liabilities, losses, claims,
actions, or occurrences, whenever arising or becoming known, involving or
relating to any of the assets, businesses, operations, or liabilities of
Brillian or any of its Subsidiaries, whether the same relate to the period prior
to, on, or after the Distribution Date. To the extent that the terms of any
applicable TFS Policy provide that TFS or any of its Subsidiaries shall have an
obligation to pay or guarantee the payment of any Insurance Charges relating to
Brillian or any of its Subsidiaries, TFS shall be entitled to demand that
Brillian make such payment directly to the Person or entity entitled thereto. In
connection with any such demand, TFS shall submit to Brillian a copy of any
invoice received by TFS pertaining to such Insurance Charges together with
appropriate supporting documentation, to the extent available. In the event that
Brillian fails to pay any such Insurance Charges when due and payable, whether
at the request of the Person entitled to payment or upon demand by TFS, TFS and
its Subsidiaries may (but shall not be required to) pay such insurance charges
for and on behalf of Brillian and, thereafter, Brillian shall forthwith
reimburse TFS for such payment. Subject to the other provisions of this Section
5, the retention by TFS of the TFS Policies and the responsibility for claims
administration and financial administration of such policies are in no way
intended to limit, inhibit, or preclude any right of Brillian, TFS, or any other
insured to insurance coverage for any insured claims under the TFS Policies.
5.7. NON-WAIVER OF RIGHTS TO COVERAGE. An insurance
carrier that would otherwise be obligated to pay any claim shall not be relieved
of the responsibility with respect thereto, or, solely by virtue of the
provisions of this Section 5, have any subrogation rights with respect thereto,
it being expressly understood and agreed that no insurance carrier nor any third
party shall be entitled to a windfall (i.e., a benefit they would not be
entitled to receive had no Distribution occurred or in the absence of the
provisions of this Section 5) by virtue of the provisions hereof.
5.8. SCOPE OF AFFECTED POLICIES OF INSURANCE. The
provisions of this Section 5 relate solely to matters involving liability,
casualty, and workers' compensation insurance and shall not be construed to
affect any obligation of or impose any obligation on the parties with respect to
any life, health and accident, dental, or medical insurance policies applicable
to any of the officers, directors, employees, or other representatives of the
parties or their Subsidiaries.
SECTION 6
CERTAIN COVENANTS
6.1. FURTHER INSTRUMENTS. In addition to the specific
agreements, documents, and instruments attached to this Agreement, TFS and
Brillian agree to execute or cause to be executed by the appropriate parties and
deliver, as appropriate, such other agreements, instruments, and other documents
as may be necessary or desirable in order to effect the purposes of this
Agreement and the Ancillary Agreements. At the request of Brillian and without
further consideration, TFS will execute and deliver, and will cause its
applicable Subsidiaries to execute and deliver, to Brillian such other
instruments of transfer, conveyance, assignment, substitution, and confirmation
and take such action as Brillian may reasonably deem necessary or desirable in
order to more effectively transfer, convey, and assign to Brillian or any of
their Subsidiaries and confirm Brillian's title to all of the assets, rights,
and other things
15
of value contemplated to be transferred to Brillian pursuant to this Agreement,
the Ancillary Agreements, and any documents referred to therein, to put Brillian
in actual possession and operating control thereof, and to permit Brillian to
exercise all rights with respect thereto (including, without limitation, rights
under contracts and other arrangements as to which the consent of any third
party to the transfer thereof shall not have previously been obtained). At the
request of TFS and without further consideration, Brillian will execute and
deliver, and will cause its applicable Subsidiaries to execute and deliver, to
TFS and its Subsidiaries all instruments, assumptions, novations, undertakings,
substitutions, or other documents and take such other action as TFS may
reasonably deem necessary or desirable in order to have Brillian fully and
unconditionally assume and discharge the liabilities contemplated to be assumed
by Brillian under this Agreement or any document in connection herewith and to
relieve TFS and any of its Subsidiaries of any liability or obligation with
respect thereto and evidence the same to third parties. TFS shall not be
obligated, in connection with the foregoing, to expend money other than
reasonable out-of-pocket expenses, attorneys' fees, and recording or similar
fees. If any additional fees arise for any reason, such fees shall be the
responsibility of Brillian. Furthermore, each party, at the request of the other
party hereto, shall do and perform such other acts and things as may be
necessary or desirable for effecting completely the consummation of the
transactions contemplated hereby.
6.2. EXCHANGE OF INFORMATION.
(a) GENERAL. Each of TFS and Brillian, for
itself and on behalf of its Subsidiaries, agrees to provide, or cause to be
provided, to the other, at any time before or after the Distribution Date, as
soon as reasonably practicable after written request therefor, any Information
in the possession or under the control of such party that the requesting party
reasonably needs (i) to comply with reporting, disclosure, filing, or other
requirements imposed on the requesting party (including under applicable
securities laws) by any Governmental Authority having jurisdiction over the
requesting party, (ii) for use in any other judicial, regulatory,
administrative, or other proceeding or in order to satisfy audit, accounting,
claims, regulatory, litigation, or other similar requirements, (iii) to comply
with its obligations under this Agreement or any Ancillary Agreement, or (iv) in
connection with the ongoing businesses of TFS or Brillian, as the case may be;
provided, however, that in the event that any party determines that any such
provision of Information could be commercially detrimental, violate any law or
agreement, or waive any attorney-client privilege, the parties shall take all
reasonable measures to permit the compliance with such obligations in a manner
that avoids any such harm or consequence.
(b) INTERNAL ACCOUNTING CONTROLS; FINANCIAL
INFORMATION. After the Separation Date, (i) each party shall maintain in effect
at its own cost and expense adequate systems and controls for its business to
the extent necessary to enable the other party to satisfy its reporting,
accounting, audit, and other obligations, and (ii) each party shall provide, or
cause to be provided, to the other party and its Subsidiaries in such form as
such requesting party shall request, at no charge to the requesting party, all
financial and other data and Information as the requesting party determines
necessary or advisable in order to prepare its financial statements and reports
or filings with any Governmental Authority.
(c) OWNERSHIP OF INFORMATION. Any Information
owned by a party that is provided to a requesting party pursuant to this Section
6.2 shall be deemed to remain the property of the providing party. Unless
specifically set forth herein, nothing contained in this Agreement shall be
construed as granting or conferring rights of license or otherwise in any such
Information.
(d) RECORD RETENTION.
(i) RETENTION OF INFORMATION. To
facilitate the possible exchange of Information pursuant to this Section 6.2 and
other provisions of this Agreement after the Distribution
16
Date, each party agrees to use its reasonable commercial efforts to retain all
Information in its possession or control on the Distribution Date. However,
except as set forth in the Tax Sharing Agreement, at any time after the
Distribution Date, each party may amend its record retention policies at such
party's discretion; provided, however, that if a party desires to effect the
amendment within 18 months after the Distribution Date, the amending party must
give thirty (30) days prior written notice of such change in the policy to the
other party to this Agreement.
(ii) DESTRUCTION OF INFORMATION. No
party will destroy, or permit any of its Subsidiaries to destroy, any
Information that exists on the Separation Date (other than Information that is
permitted to be destroyed under the current record retention policy of such
party) without first using its reasonable commercial efforts to notify the other
party of the proposed destruction and giving the other party the opportunity to
take possession of such Information prior to such destruction.
(e) LIMITATION OF LIABILITY. No party shall have
any liability to any other party in the event that any Information exchanged or
provided pursuant to this Section 6.2 is found to be inaccurate, in the absence
of willful misconduct by the party providing such Information. No party shall
have any liability to any other party if any Information is destroyed or lost
after reasonable commercial efforts by such party to comply with the provisions
of Section 6.2(d) hereof.
(f) OTHER AGREEMENTS PROVIDING FOR EXCHANGE OF
INFORMATION. The rights and obligations granted under this Section 6.2 are
subject to any specific limitations, qualifications, or additional provisions on
the sharing, exchange, or confidential treatment of Information set forth in
this Agreement and any Ancillary Agreement.
(g) PRODUCTION OF WITNESSES; RECORDS;
COOPERATION. After the Distribution Date, except in the case of a legal or other
proceeding by one party against another party (which shall be governed by such
discovery rules as may be applicable under Section 8 hereof or otherwise), each
party hereto shall use its reasonable commercial efforts to make available to
the other party, upon written request, the former, current, and future
directors, officers, employees, other personnel, and agents of such party as
witnesses and any books, records, or other documents within its control or which
it otherwise has the ability to make available, to the extent that any such
person (giving consideration to business demands of such directors, officers,
employees, other personnel, and agents) or books, records, or other documents
may reasonably be required in connection with any legal, administrative, or
other proceeding in which the requesting party may from time to time be
involved, regardless of whether such legal, administrative, or other proceeding
is a matter with respect to which indemnification may be sought. The requesting
party shall bear all costs and expenses in connection therewith.
6.3. CONFIDENTIALITY. TFS and Brillian shall each hold,
and shall cause its directors, officers, employees, agents, consultants, and
advisors to hold, in strict confidence, unless compelled to disclose by judicial
or administrative process or, in the opinion of its independent legal counsel,
by other requirements of law, all Information concerning the other party
furnished by such other party or its representatives pursuant to this Agreement
(except to the extent that such Information can be shown to have been (a)
available to such party on a non-confidential basis prior to its disclosure by
the other party, (b) in the public domain through no fault of such party, or (c)
later lawfully acquired from other sources by the party to which it was
furnished), and neither party shall release or disclose such Information to any
other person, except its auditors, attorneys, financial advisors, bankers, and
other consultants and advisors who shall be bound by the provisions of this
Section 6.3. Each party shall be deemed to have satisfied its obligation to hold
confidential Information concerning or supplied by the other party if it
exercises the same care as it takes to preserve confidentiality for its own
similar Information.
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6.4. PRIVILEGED MATTERS.
(a) PRESERVATION OF PRIVILEGES. The parties each
agree that they will maintain, preserve, and assert all privileges, including,
without limitation, privileges arising under or relating to the attorney-client
relationship (which shall include, without limitation, the attorney-client and
work product privileges), that relate directly or indirectly to such party for
any period prior to the Distribution Date ("Privilege" or "Privileges"). Neither
party shall waive any Privilege that could be asserted under applicable law
without the prior written consent of the other party. The rights and obligations
created by this Section 6.4 shall apply to all Information as to which, but for
the Distribution, a party would have been entitled to assert or did assert the
protection of a Privilege ("Privileged Information"), including, but not limited
to, (i) any and all Information generated prior to the Distribution Date but
which, after the Distribution, is in the possession of the other party; (ii) all
communications subject to a Privilege occurring prior to the Distribution Date
between counsel for such party and any person who, at the time of the
communication, was an employee of such party, regardless of whether such
employee is or becomes an employee of the other party; and (iii) all Information
generated, received, or arising after the Distribution Date that refers or
relates to Privileged Information generated, received, or arising prior to the
Distribution Date.
(b) NOTICES. Upon receipt by a party or any of
its Subsidiaries of any subpoena, discovery, or other request that arguably
calls for the production or disclosure of Privileged Information or if such
party or any of its Subsidiaries obtains knowledge that any current or former
employee of such party or any of its Subsidiaries has received any subpoena,
discovery, or other request that arguably calls for the production or disclosure
of Privileged Information, such party shall promptly notify the other party of
the existence of the request and shall provide the other party a reasonable
opportunity to review the Information and to assert any rights it may have under
this Section 6.4 or otherwise to prevent the production or disclosure of
Privileged Information. Neither party will produce or disclose any Information
arguably covered by a Privilege under this Section 6.4 unless (i) the other
party has provided its express written consent to such production or disclosure,
or (ii) a court of competent jurisdiction has entered a final, non-appealable
order finding that the Information is not entitled to protection under any
applicable privilege.
(c) ACCESS NOT A WAIVER. TFS's transfer of books
and records and other Information to Brillian, and each party's agreement to
permit the other party to possess Privileged Information occurring or generated
prior to the date of this Agreement, are made in reliance on such other party's
agreement, as set forth in this Section 6.4, to maintain the confidentiality of
Privileged Information and to assert and maintain all applicable Privileges. The
access to Information being granted pursuant to Section 6.2 hereof, the
agreement to provide witnesses and individuals pursuant to Section 6.2 hereof,
and the transfer of Privileged Information pursuant to this Agreement shall not
be deemed a waiver of any Privilege that has been or may be asserted under this
Section 6.4 or otherwise. Nothing in this Agreement shall operate to reduce,
minimize, or condition the rights granted to, or the obligations imposed upon,
either party by this Section 6.4.
(d) NOTIFICATION OF WAIVERS. If there is a
reasonable likelihood that the waiver by either party of any Privilege could
expose the other party or any of its Subsidiaries to liability or could
otherwise adversely affect the other party or any of its Subsidiaries, such
party will notify the other party prior to such waiver, and, at the other
party's request, such party will assert or preserve the Privilege, as
applicable, if such party's interests will not be adversely affected by its
assertion or preservation of the Privilege.
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6.5. NON-COMPETITION.
(a) NON-COMPETITION BY TFS. TFS shall not, for a
period ending five years after the Distribution Date, engage in the Microdisplay
Business. The term "engage in" shall include, but shall not be limited to,
directly acting as proprietor, partner, shareholder, principal, agent, employer,
consultant, or lender; provided, however, that the ownership of not more than 5%
in the aggregate by TFS of the stock of a publicly held corporation shall not be
included in such term.
(b) RESTRICTIONS WITH RESPECT TO BRILLIAN
CUSTOMERS AND EMPLOYEES. In furtherance of, and without in any way limiting the
restriction in Section 6.5(a), for the period specified in Section 6.5(a), TFS
shall not, directly or indirectly, do any of the following:
(i) request any past, present, or
future customers of Brillian or any Subsidiary of Brillian to curtail or cancel
their business with Brillian or any of its affiliates;
(ii) disclose the identity of any past,
present, or future customers of Brillian or any Subsidiary or affiliate of
Brillian to any other person, firm, or entity unless such disclosure is (A)
required by law, (B) subject to the terms of a Non-Disclosure Agreement with
terms and conditions generally used in the technology industry, or (C) already
publicly available through no fault of TFS;
(iii) solicit, canvas, or accept, or
authorize any other person to solicit, canvas, or accept, from any past,
present, or future customers of Brillian or any Subsidiary or affiliate of
Brillian, any business for any other person, firm, or entity engaged in the
Microdisplay Business; or
(iv) induce or attempt to influence any
employee of Brillian or any affiliate or Subsidiary of Brillian to terminate his
or her employment.
As used in this Section 6.5(b), "future customer" shall mean a customer with
whom business will have been transacted between the date hereof and the end of
the term specified in Section 6.5(b).
(c) NON-COMPETITION BY BRILLIAN. Brillian shall
not, for a period ending five years after the Distribution Date, engage in a
business that develops or sells LCD components or modules, OLEDs, CRTs, or that
performs electronic manufacturing services. The term "engage in" shall include,
but shall not be limited to, activities, whether direct or indirect, as
proprietor, partner, shareholder, principal, agent, employer, consultant, or
lender; provided, however, that the ownership of not more than 5% in the
aggregate by Brillian of the stock of a publicly held corporation shall not be
included in such term.
(d) RESTRICTIONS WITH RESPECT TO TFS CUSTOMERS
AND EMPLOYEES. In furtherance of, and without in any way limiting the
restriction in Section 6.5(c), for the period specified in Section 6.5(c),
Brillian shall not, directly or indirectly, do any of the following:
(i) request any past, present, or
future customers of TFS or any Subsidiary of TFS to curtail or cancel their
business with TFS or any of its affiliates;
(ii) unless required by law, disclose
the identity of any past, present, or future customers of TFS or any Subsidiary
or affiliate of TFS to any other person, firm, or entity;
(iii) solicit, canvas, or accept, or
authorize any other person to solicit, canvas, or accept, from any past,
present, or future customers of TFS or any Subsidiary or affiliate of
19
TFS, any business for any other person, firm, or entity engaged in a business
the same as, similar to, or in general competition with the business of TFS or
its Subsidiaries; or
(iv) induce or attempt to influence any
employee of TFS or any affiliate or Subsidiary of TFS to terminate his or her
employment.
As used in this Section 6.5(d), "future customer" shall mean a customer with
whom business will have been transacted between the date hereof and the end of
the term specified in Section 6.5(d).
(e) REMEDIES FOR BREACH. TFS and Brillian
acknowledge that the restrictions contained in this Section 6.5, in view of the
nature of the businesses in which they are engaged, are reasonable and necessary
to protect the legitimate interests of TFS and Brillian and their respective
Subsidiaries and other affiliated entities and that any violation of these
restrictions would result in irreparable injury to TFS or Brillian or their
respective Subsidiaries and other affiliated entities. TFS and Brillian agree
that, in the event of a violation of any of such restrictions, TFS or Brillian,
as the case may be, shall be entitled to preliminary and permanent injunctive
relief as well as an equitable accounting of all earnings, profits, and other
benefits arising from such violation, which rights shall be cumulative and in
addition to any other rights or remedies to which they may be entitled. In the
event of a violation, the period of non-competition referred to in Sections
6.5(a) or (c), as the case may be, shall be extended by a period of time equal
to that period beginning when such violation commenced and ending when the
activities constituting such violation shall have been finally terminated in
good faith.
6.6. GOVERNMENTAL APPROVALS. To the extent that the
Separation requires any Governmental Approvals, the parties will use their
reasonable commercial efforts to obtain any such Governmental Approvals.
6.7. COOPERATION IN OBTAINING NEW AGREEMENTS. Each of TFS
and Brillian understand that, prior to the Separation Date, all parties have
derived benefits under certain agreements among TFS and third parties, which
agreements are not being assigned to Brillian in connection with the Separation.
Upon the request of Brillian, TFS agrees to make introductions to appropriate
personnel at such third parties, and agrees to provide reasonable assistance to
Brillian at its own expense, so that Brillian may obtain agreements from such
third parties under substantially equivalent terms and conditions, including
financial terms and conditions, that apply to TFS. Such assistance may include,
but is not limited to, requesting and encouraging such third parties to enter
into such agreements. Each of TFS and Brillian also understand that there are
certain agreements between TFS and third parties, which agreements are being
assigned to Brillian in connection with the Separation but which may require the
consent of the applicable third party. Upon request, each party agrees to assist
the other party in seeking and obtaining the consent of such third parties to
such assignment. The parties expect that the activities contemplated by this
Section 6.7 will be substantially completed by the Distribution Date, but in no
event will either party have any obligations hereunder after the first
anniversary of the Distribution Date.
6.8. CONDITION OF TRANSFERRED ASSETS. The Transferred
Assets are being transferred to Brillian as is and where is. TFS makes no
warranty or guarantee, express or implied, with respect to the Transferred
Assets.
6.9. RECONCILIATION OF ACCOUNTS RECEIVABLE. As of December
1, 2003, TFS and Brillian shall determine the aggregate amount of Brillian's
Accounts Payable paid by TFS as of such date, and shall subtract the aggregate
amount of Brillian's Accounts Receivable collected by TFS as of such date. If
the result is a positive number, Brillian shall remit to TFS such amount, and if
the result is a negative number, TFS shall remit to Brillian the absolute value
(i.e., a positive amount) of such number.
20
TFS shall assign to Brillian as of December 1, 2003, any and all rights with
respect to Brillian's Accounts Receivable not collected by TFS as of such date.
SECTION 7
INDEMNIFICATION
7.1. 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
Indemnifiable Losses incurred or suffered by Brillian or its Subsidiaries in
connection with any Action or threatened Action and arising out of or due to,
directly or indirectly, (i) any of the Retained Assets, (ii) any of the Retained
Liabilities, or (iii) any failure to perform, or violation of, any provision of
this Agreement or any Ancillary Agreement that is to be performed or complied
with by TFS or its Subsidiaries.
7.2. 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 Indemnifiable Losses incurred or suffered by TFS or its Subsidiaries in
connection with any Action or threatened Action and arising out of or due to,
directly or indirectly, (i) any of the Transferred Assets, (ii) any of the
Assumed Liabilities, or (iii) any failure to perform, or violation of, any
provision of this Agreement or any Ancillary Agreement that is to be performed
or complied with by Brillian or its Subsidiaries.
7.3. PROCEDURE FOR INDEMNIFICATION.
(a) GENERAL. The following procedures shall
apply to any claim for indemnification made by TFS or Brillian pursuant to the
indemnities provided in Section 7.1 and Section 7.2 and pursuant to any
indemnities provided in any Ancillary Agreement unless such Ancillary Agreement
establishes other procedures with respect to indemnities thereunder.
(b) NOTICES. If TFS or Brillian shall receive
notice of any Action by any third party, or any fact or allegation upon which
such Action could be based (hereinafter a "Third Party Claim"), with respect to
which the other party is or may be obligated to make an Indemnity Payment, it
shall give such other party prompt notice thereof (including any pleadings
relating thereto), specifying in reasonable detail the nature of such Third
Party Claim and the amount or estimated amount thereof to the extent then
feasible (which estimate shall not be conclusive of the final amount of such
Indemnity Payment); provided, however, that the failure of a party to give
notice as provided in this Section 7.3 shall not relieve the other party of its
indemnification obligations under this Section 7, except to the extent that such
other party is actually prejudiced by such failure to give notice.
(c) DEFENSE. For any Third Party Claim upon
which notice is required to be given under Section 7.3(b), the Indemnifying
Party shall defend such Third Party Claim at its sole cost and expense and
through counsel employed by the Indemnifying Party and reasonably acceptable to
the Indemnitee. Within 30 days of receipt of the notice of Third Party Claim
received under Section 7.3(b), the Indemnifying Party shall give notice of its
intent to defend or objection to the claim of indemnification specifying in
reasonable detail the grounds therefore. Failure to provide such notice within
such 30-day period shall be deemed an acknowledgment by the Indemnifying Party
of its indemnity obligation for the Third Party Claim.
(d) SETTLEMENT. The Indemnifying Party's right
to defend any Third Party Claim includes the right to control, manage, and
direct the defense of the Third Party Claim and to compromise, settle, or
consent to the entry of any judgment or determination of liability concerning
such
21
Third Party Claim; provided, however, that the Indemnifying Party shall not
compromise, settle, or consent to the entry of judgment or determination of
liability against the Indemnitee without prior written approval by the
Indemnitee, which approval shall not be unreasonably withheld or delayed;
provided, however, that if the Indemnifying Party shall seek the approval of the
Indemnitee to a settlement for monetary damages for which the Indemnifying Party
accepts responsibility and if the Indemnitee shall withhold or unreasonably
delay approval of such settlement, then the obligation of the Indemnifying Party
shall be limited to the amount of the proposed and unapproved settlement, plus
attorney's fees and costs to the date of the proposed settlement, and the
Indemnitee shall be solely responsible for any additional amount.
(e) PARTICIPATION. The Indemnitee may
participate in the Indemnifying Party's defense of any Third Party Claim in
which the Indemnitee has an interest and be represented by counsel of its own
choosing at the Indemnitee's sole cost and expense.
(f) FAILURE TO DEFEND. If the
Indemnifying Party fails to defend a Third Party Claim, the Indemnitee may
defend and may compromise and settle or consent to an entry of judgment or a
determination of liability concerning such Third Party Claim at the sole cost
and expense of the Indemnifying Party.
(g) ACCESS TO INFORMATION. Regardless
of the party that defends a Third Party Claim, the other shall make available to
the Indemnifying Party all employees, Information, books and records,
communications, and documents, within its possession or control, that are
necessary, appropriate, or reasonably deemed relevant with respect to such
defense, and otherwise shall reasonably cooperate in the defense of the Third
Party Claim.
(h) RELEASE OF LIABILITY. With respect
to any Third Party Claim, neither party to this Agreement shall enter into any
compromise or settlement or consent to the entry of any judgment that does not
include as an unconditional term thereof the giving by the third party of a
release of the other party to this Agreement from all further liability
concerning such Third Party Claim.
(i) PAYMENT. Upon final judgment after
exhaustion of all appeals, settlement, compromise, or other final resolution of
any Third Party Claim, and unless otherwise agreed by the parties, the
Indemnifying Party shall pay promptly on behalf of the Indemnitee, or to the
Indemnitee in reimbursement of any amount theretofore required to be paid by it,
the amount so determined by final judgment after exhaustion of all appeals,
settlement, compromise, or final resolution. Upon the payment in full by the
Indemnifying Party of such amount, the Indemnifying Party shall succeed to the
rights of such Indemnitee, to the extent not waived in settlement, against any
third party.
7.4. DIRECT CLAIMS. Any claim for indemnity pursuant to
Section 7.1 or Section 7.2 on account of an Indemnifiable Loss made directly by
the Indemnitee against the Indemnifying Party that does not result from a Third
Party Claim shall be asserted by written notice from the Indemnitee to the
Indemnifying Party. Such Indemnifying Party shall have a period of 90 days (or
such shorter time period as may be required by law as indicated by the
Indemnitee in the written notice) within which to respond thereto. If such
Indemnifying Party does not respond within such 90-day (or lesser) period, such
Indemnifying Party shall be deemed to have accepted responsibility to make
payment and shall have no further right to contest the validity of such claim.
If such Indemnifying Party does respond within such 90-day (or lesser) period
and rejects such claim in whole or in part, such Indemnitee shall be free to
pursue resolution as provided in Section 8 hereof.
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7.5. ADJUSTMENT OF INDEMNIFIABLE LOSSES.
(a) INSURANCE PROCEEDS. The amount that an
Indemnifying Party is required to pay to an Indemnitee pursuant to Section 7.1
or Section 7.2 shall be reduced (including, without limitation, retroactively)
by any insurance proceeds and other amounts actually recovered by such
Indemnitee in reduction of the related Indemnifiable Loss. If an Indemnitee
shall have received an Indemnity Payment in respect of an Indemnifiable Loss and
shall subsequently actually receive insurance proceeds or other amounts in
respect of such Indemnifiable Loss, then such Indemnitee shall pay to such
Indemnifying Party a sum equal to the lesser of the amount of such insurance
proceeds or other amounts actually received or the net amount of Indemnity
Payments actually received previously. The Indemnitee agrees that, (i) it shall
use commercially reasonable efforts to recover all insurance proceeds that may
be available, and (ii) the Indemnifying Party shall be subrogated to such
Indemnitee under any insurance policy.
(b) TAX SAVINGS.
(i) If an Indemnitee receives a tax
saving by reason of having incurred an Indemnifiable Loss for which such
Indemnitee shall have received an Indemnity Payment from an Indemnifying Party,
then such Indemnitee shall pay to such Indemnifying Party an amount equal to
such tax saving. For purposes of this Section 7.5(b), an Indemnitee shall be
deemed to have received a tax saving with respect to an Indemnifiable Loss if,
upon the filing of a Federal, state, or local income tax return for a taxable
year ending on or after the Distribution Date (the "Indemnity Return"), an
amount attributable to an Indemnifiable Loss is deductible by the Indemnitee or
any of its Subsidiaries and the amount of the related Indemnity Payment that is
includible in gross income by the Indemnitee or any of its Subsidiaries is less
than the amount of such tax deduction. The amount, if any, by which such
deduction exceeds the amount of the related gross income is referred to herein
as the "Indemnifiable Loss Deduction." Both TFS and Brillian shall consult with
each other and act in good faith to coordinate tax return filing positions with
respect to Indemnity Payments for the periods that include an Indemnity Payment.
(ii) In the event that an Indemnitee
will receive a tax saving by reason of an Indemnifiable Loss, such Indemnitee
shall pay the Indemnifying Party, within 30 days after the filing of an
Indemnity Return, a sum equal to the Indemnifiable Loss Deduction multiplied by
an amount equal to A + [(1 - A) x .05)], where A equals the highest marginal
corporate Federal income tax rate applicable to corporations taxable under
Subchapter C of the Code for the period for which the Indemnity Return is filed
(the "Tax Saving Amount").
(iii) In the event that an Indemnitee may
receive a tax saving by reason of an Indemnifiable Loss, such Indemnitee shall
adopt, in good faith, a reasonable tax return filing position so as to report
the Indemnifiable Loss Deduction on such returns. The Indemnitee shall have the
sole responsibility for the preparation of its tax returns and reporting thereon
such Indemnifiable Loss Deduction. If a dispute arises between the Indemnitee
and the Indemnifying Party as to the reasonableness of an Indemnity Return
filing position with respect to an Indemnifiable Loss Deduction, such dispute
shall be resolved as provided in Section 8.
(iv) There shall be an adjustment to any
Tax Saving Amount calculated under Section 7.5(b)(ii) hereof in the event of an
audit or other proceeding that results in a Final Determination that increases
or decreases the amount of the Indemnifiable Loss Deduction (the "Restated
Indemnifiable Loss Deduction") reported on the Indemnity Tax Return by the
Indemnitee. The Indemnitee shall promptly inform the Indemnifying Party of any
such audit or proceeding and shall attempt in good faith to sustain the tax
saving at issue. Upon receiving a written notice of a Final
23
Determination in respect of a Restated Indemnifiable Loss Deduction, the
Indemnitee shall redetermine the Tax Saving Amount attributable to the Restated
Indemnifiable Loss Deduction under the tax saving calculation of Section
7.5(b)(ii) hereof substituting the Restated Indemnifiable Loss Deduction for the
Indemnifiable Loss Deduction, taking into account the Final Determination (the
"Restated Tax Saving Amount"). If the Restated Tax Saving Amount is greater than
the Tax Saving Amount, the Indemnitee shall pay the Indemnifying Party a sum
equal to the difference between such amounts, within 30 days after receiving
written notice of the Final Determination. If the Restated Tax Saving Amount is
less than the Tax Saving Amount, then the Indemnifying Party shall pay the
Indemnitee, within 30 days of receiving written notice from the Indemnitee of
the Final Determination, an amount equal to the sum of (1) the difference
between such amounts, plus (2) any interest assessed against the Indemnitee by a
tax authority which is attributable to any tax assessed as a result of a
reduction in the Indemnifiable Loss Deduction effected by the Final
Determination.
7.6. NO THIRD PARTY BENEFICIARIES. Except to the extent
expressly provided otherwise in this Section 7, the indemnification provided for
by this Section 7 shall not inure to the benefit of any third party or parties
and shall not relieve any insurer or other third party that would otherwise be
obligated to pay any claim of the responsibility with respect thereto or, solely
by virtue of the indemnification provisions hereof, provide any subrogation
rights with respect thereto, and each party agrees to waive such rights against
the other to the fullest extent permitted.
7.7. JOINT DEFENSE AGREEMENTS. Except as otherwise
provided in this Agreement, for any Third Party Claim in which both TFS (or its
Subsidiaries) and Brillian (or its Subsidiaries) share an actual or potential
material interest, TFS and Brillian or their respective Subsidiaries shall enter
into a Joint Defense Agreement to the extent that each of TFS and Brillian
determine that such Joint Defense Agreement is in their respective best
interests. Unless an Indemnifying Party is the sole indemnifying party or the
parties otherwise specifically agree in writing in a Joint Defense Agreement,
each party shall pay its proportionate share of all costs and expenses
reasonably incurred in connection with the defense of such Third Party Claim.
7.8. SPECIAL NOTICES.
(a) BRILLIAN NOTICE TO TFS. Brillian shall
notify TFS, in the manner specified in Section 7.3(b), concerning all Third
Party Claims where TFS is or could be named a party thereto or where, based on
information available to Brillian at that time, there is a reasonable likelihood
that, based on the outcome of such Third Party Claim, the reputation of TFS or
any Subsidiary of TFS could be adversely affected, or TFS's or any of its
Subsidiary's ability to conduct its business or to take certain actions with
respect thereto could be impaired as a result of any injunctive relief sought,
or TFS could be liable for the payment of monetary damages. TFS and its
Subsidiaries shall have the right to participate in the development and
execution of strategy for the response to, preparation for, and handling of such
Third Party Claim in addition to its rights under Section 7.3.
(b) TFS NOTICE TO BRILLIAN. TFS shall notify
Brillian, in the manner specified in Section 7.3(b), concerning all Third Party
Claims where Brillian is or could be named a party thereto or where, based on
information available to TFS at that time, there is a reasonable likelihood
that, based on the outcome of such Third Party Claim, the reputation of Brillian
or any Subsidiary of Brillian could be adversely affected, or Brillian's or any
of its Subsidiary's ability to conduct its business or to take certain actions
with respect thereto could be impaired as a result of any injunctive relief
sought, or Brillian could be liable for the payment of monetary damages.
Brillian and its Subsidiaries shall have the right to participate in the
development and execution of strategy for the response to, preparation for, and
handling of such Third Party Claim in addition to its rights under Section 7.3.
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SECTION 8
DISPUTE RESOLUTION
8.1. GENERAL. Except as otherwise set forth in the
Ancillary Agreements, 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 8.
8.2. 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
employees of such party and shall meet within thirty (30) days after the end of
the first thirty (30) day negotiating period to attempt to resolve the matter.
During the course of negotiations under this Section 8.2, 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.
8.3. 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 8.2, 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 8.4, 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 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.
8.4. 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 8.4, the parties agree to continue to attempt to resolve any Dispute
according to the terms of Section 8.2 and Section 8.3 during the course of such
litigation proceedings under this Section 8.4.
8.5. 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 8. If the party that
paid the invoice is found pursuant to this Section 8 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 9
MISCELLANEOUS
9.1. NO REPRESENTATIONS OR WARRANTIES. Brillian
understands and agrees that all of the Transferred Assets are being transferred
"as is, where is" and that TFS is not, in this Agreement or in any other
agreement or document contemplated by this Agreement, representing or warranting
in any way
25
(i) the value or freedom from encumbrance of, or any other matter concerning,
any Transferred Assets or (ii) the legal sufficiency to convey title to any
Transferred Assets of the execution, delivery, and filing of any conveyancing
instruments, and that Brillian shall bear the economic and legal risk that
Brillian's title to any such assets shall be other than good and marketable and
free from encumbrances. Similarly, Brillian understands and agrees that TFS is
not in this Agreement, nor in any other agreement or document contemplated by
this Agreement, representing or warranting in any way that the obtaining of the
consents or approvals, the execution and delivery of any amendatory agreements,
or the making of the filings and applications contemplated by this Agreement
shall satisfy the provisions of all applicable agreements or the requirements of
all applicable laws or judgments, it being understood and agreed that Brillian
shall bear the economic and legal risk that any necessary consents or approvals
are not obtained or that any requirements of law or judgments are not complied
with.
9.2. 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, EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, THE ANCILLARY
AGREEMENTS, AND THE EXHIBITS AND SCHEDULES REFERENCED OR ATTACHED HERETO OR
THERETO; PROVIDED, HOWEVER, THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT EACH
PARTY'S INDEMNIFICATION OBLIGATIONS FOR LIABILITIES TO THIRD PARTIES AS SET
FORTH HEREIN.
9.3. SURVIVAL.
(a) TERM. The obligations of Brillian with
respect to the Assumed Liabilities and the obligations of TFS with respect to
the Retained Liabilities, and the related indemnification rights under this
Agreement, shall survive indefinitely. Except as specifically provided for
herein or in any Ancillary Agreement, all other obligations of TFS and Brillian
shall terminate and be of no further force and effect on the tenth anniversary
of the Distribution Date.
(b) SALE OR TRANSFER. The obligations of TFS and
Brillian under this Agreement shall survive the sale or other transfer by either
of them of any assets or businesses or the assignment by either of them of any
liabilities. To the extent that TFS transfers any of the Retained Liabilities
(except for such amounts of Retained Liabilities that are not material
individually or in the aggregate), TFS shall cause the transferee of such
Retained Liabilities to assume specifically its obligations with respect thereto
under this Agreement and to fulfill its obligations related to such Retained
Liabilities. To the extent that Brillian transfers any of the Assumed
Liabilities (except for such amounts of Assumed Liabilities that are not
material individually or in the aggregate), Brillian shall cause the transferee
of such Assumed Liabilities to assume specifically its obligations with respect
thereto under this Agreement and to fulfill its obligations related to such
Assumed Liabilities. No such transfer shall relieve either TFS or Brillian from
its respective obligations under this Agreement or the Ancillary Agreements.
9.4. EXPENSES. Except as otherwise provided in this
Agreement, the Ancillary Agreements, or any other agreement between the parties
relating to the Separation or the Distribution, all costs and expenses of the
parties hereto in connection with the Separation and the Distribution shall be
paid by Brillian.
9.5. ENTIRE AGREEMENT. This Agreement, the Ancillary
Agreements, and the Exhibits and Schedules referenced or attached hereto and
thereto, constitute the entire agreement between
26
the parties with respect to the subject matter hereof and shall supersede all
prior written and oral and all contemporaneous oral agreements and
understandings with respect to the subject matter hereof.
9.6. 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.
9.7. NO THIRD-PARTY BENEFICIARIES. Except as specifically
provided in Section 5.5 hereof, 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.
9.8. 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, provided, however, that each
of TFS and Brillian hereby consent to venue in the Arizona courts and the
federal district court for the district of Arizona.
9.9. TERMINATION. This Agreement may be terminated at any
time before the Distribution Date by mutual consent of TFS and Brillian and in
any event shall terminate three years after the date first referenced above. In
the event of termination pursuant to this Section 9.8, no party shall have any
liability of any kind to the other party.
9.10. 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.
9.11. COUNTERPARTS. This Agreement, including the Schedules
and Exhibits 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.
9.12. 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.
9.13. SEVERABILITY. If any term or other provision of this
Agreement or the Schedules or Exhibits 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, 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.
27
9.14. 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 or Exhibits attached hereto are cumulative to, and
not exclusive of, any rights or remedies otherwise available.
9.15. 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.
9.16. INTERPRETATION. The headings contained in this
Agreement, in any Exhibit or 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 or Exhibit 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, Exhibit, or Schedule, such reference shall be to a
Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated.
9.17. CONFLICTING AGREEMENTS. In the event of conflict
between this Agreement and any Ancillary Agreement or other agreement executed
in connection herewith, the provisions of such other agreement shall prevail.
9.18. DEFINITIONS.
(a) "ACCOUNTS RECEIVABLE" has the meaning set
forth in Section 1.3(g) of this Agreement.
(b) "ACCOUNTS PAYABLE" has the meaning set forth
in Section 1.4(c) of this Agreement.
(c) "ACTION" means any action, claim, suit,
arbitration, inquiry, subpoena, discover request, proceeding, or investigation
by or before any court or grand jury, any governmental or other regulatory or
administrative agency or commission, or any arbitration tribunal.
(d) "AGREEMENT" has the meaning set forth in the
prelude of this Agreement.
(e) "ANCILLARY AGREEMENTS" has the meaning set
forth in Section 2.4 of this Agreement.
(f) "ASSIGNMENT AGREEMENT" has the meaning set
forth in Section 2.4(a) of this Agreement.
(g) "ASSUMED LIABILITIES" has the meaning set
forth in Section 1.2 of this Agreement.
(h) "BRILLIAN" has the meaning set forth in the
prelude to this Agreement
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(i) "BRILLIAN BALANCE SHEET" has the meaning set
forth in Section 1.1(a) of this Agreement.
(j) "BRILLIAN COMMON STOCK" has the meaning set
forth in the Recitals to this Agreement.
(k) "BRILLIAN 401(k) PLAN" has the meaning set
forth in Section 4.3(b) of this Agreement.
(l) "CODE" means the Internal Revenue Code of
1986, as amended from time to time.
(m) "CONTRACTS" has the meaning set forth in
Section 1.1(g) of this Agreement.
(n) "DISPUTES" has the meaning set forth in
Section 8.1 of this Agreement.
(o) "DISTRIBUTION" has the meaning set forth in
the Recitals to this Agreement.
(p) "DISTRIBUTION AGENT" means The Bank of New
York.
(q) "DISTRIBUTION DATE" has the meaning set
forth in Section 1.1 of this Agreement.
(r) "DISTRIBUTION RATIO" shall mean 0.25.
(s) "FINAL DETERMINATION" has the meaning set
forth in the Tax Sharing Agreement.
(t) "GOVERNMENTAL APPROVALS" means any notices,
reports, or other filings to be made, or any consents, registrations, approvals,
permits, or authorizations to be obtained from, any Governmental Authority.
(u) "GOVERNMENTAL AUTHORITY" shall mean any
federal, state, local, foreign, or international court, government, department,
commission, board, bureau, agency, official, or other regulatory,
administrative, or governmental authority.
(v) "INDEMNIFIABLE LOSS DEDUCTION" has the
meaning set forth in Section 7.5(b) of this Agreement.
(w) "INDEMNIFIABLE LOSSES" means, with respect
to any claim by an Indemnitee for indemnification authorized pursuant to Section
7 hereof, any and all losses, liabilities, claims, damages, obligations,
payments, costs, and expenses (including, without limitation, the costs and
expenses of any and all Actions, demands, assessments, judgments, settlements,
and compromises relating thereto and reasonable attorneys' fees and expenses in
connection therewith) suffered by such Indemnitee with respect to such claim.
(x) "INDEMNIFYING PARTY" means any party who is
required to pay any other Person pursuant to Section 7 hereof.
29
(y) "INDEMNITEE" means any party who is entitled
to receive payment from an Indemnifying Party pursuant to Section 7 hereof.
(z) "INDEMNITY PAYMENT" means the amount an
Indemnifying Party is required to pay an Indemnitee pursuant to Section 7
hereof.
(aa) "INDEMNITY RETURN" has the meaning set forth
in Section 7.5(b) of this Agreement.
(bb) "INFORMATION" means information, whether or
not patentable or copyrightable, in written, oral, electronic, or other tangible
or intangible form, stored in any medium, including studies, reports, records,
books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how,
techniques, designs, specifications, drawings, blueprints, diagrams, models,
prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes,
computer programs or other software, marketing plans, customer names,
communications by or to attorneys (including attorney-client privileged
communications), memos and other materials prepared by attorneys or under their
direction (including attorney work product), and other technical, financial,
employee, or business information or data.
(cc) "INSURANCE AMOUNT" has the meaning set forth
in Section 5.5 of this Agreement.
(dd) "INSURANCE CHARGES" has the meaning set
forth in Section 5.6 of this Agreement.
(ee) "INTELLECTUAL PROPERTY AGREEMENT" has the
meaning set forth in Section 2.4(e) of this Agreement.
(ff) "MICRODISPLAY BUSINESS" has the meaning set
forth in the Recitals to this Agreement.
(gg) "PERSON" means an individual, a partnership,
a corporation, a limited liability company, an association, a joint stock
company, a trust, a joint venture, an unincorporated organization, or a
governmental entity or any department, agency, or political subdivision thereof.
(hh) "PERSONAL PROPERTY LEASES" has the meaning
set forth in Section 1.1(d) of this Agreement.
(ii) "PRIME RATE" means the prime rate as
published in the Wall Street Journal on the date of determination.
(jj) "PRIVILEGE" has the meaning set forth in
Section 6.4(a) of this Agreement.
(kk) "PRIVILEGED INFORMATION" has the meaning set
forth in Section 6.4(a) of this Agreement.
(ll) "REAL PROPERTY SUBLEASE" has the meaning set
forth in Section 2.4(g) of this Agreement.
(mm) "RECEIVABLES" has the meaning set forth in
Section 1.1(b) of this Agreement.
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(nn) "RECORD DATE" means the close of business on
the date determined by the Board of Directors of TFS as the record date for
determining the stockholders of TFS entitled to receive shares of Brillian
Common Stock in the Distribution.
(oo) "RESTATED INDEMNIFIABLE LOSS DEDUCTION" has
the meaning set forth in Section 7.5(b) of this Agreement.
(pp) "RESTATED TAX SAVING AMOUNT" has the meaning
set forth in Section 7.5(b) of this Agreement
(qq) "RETAINED ASSETS" has the meaning set forth
in Section 1.3 of this Agreement.
(rr) "RETAINED LIABILITIES" has the meaning set
forth in Section 1.4 of this Agreement.
(ss) "SEC" has the meaning set forth in Section
3.2(a) of this Agreement.
(tt) "SEPARATION" has the meaning set forth in
the Recitals to this Agreement.
(uu) "SEPARATION DATE" has the meaning set forth
in Section 2.1 of this Agreement.
(vv) "SUBSIDIARY" means with respect to any
specified Person, any corporation, any limited liability company, any
partnership, or any other legal entity of which such Person or its Subsidiaries
owns, directly or indirectly, more than 50% of the stock or other equity
interest entitled to vote on the election of the members of the board of
directors or similar governing body. Unless the context otherwise requires,
reference to TFS and its Subsidiaries shall not include the subsidiaries of TFS
that will be transferred to Brillian after giving effect to the Separation, and
those subsidiaries will be treated as Subsidiaries of Brillian.
(ww) "TAX SAVING AMOUNT" has the meaning set
forth in Section 7.5(b) of this Agreement.
(xx) "TAX SHARING AGREEMENT" has the meaning set
forth in Section 2.4(d) of this Agreement.
(yy) "THIRD PARTY CLAIM" has the meaning set
forth in Section 7.3(b) of this Agreement.
(zz) "TFS" has the meaning set forth in the
prelude to this Agreement.
(aaa) "TFS COMMON STOCK" has the meaning set forth
in the Recitals to this Agreement.
(bbb) "TFS PLANS" has the meaning set forth in
Section 4.3(a) of this Agreement.
(ccc) "TFS POLICY" has the meaning set forth in
Section 5.2 of this Agreement.
(ddd) "TFS 401(k) PLAN" has the meaning set forth
in Section 4.4 of this Agreement.
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(eee) "TRANSFERRED ASSETS" has the meaning set
forth in Section 1.1 of this Agreement.
(fff) "TRANSFERRED EMPLOYEES" has the meaning set
forth in Section 4.1 of this Agreement.
(ggg) "TRANSFERRED INTELLECTUAL PROPERTY" has the
meaning set forth in Section 1.1(e) of this Agreement.
(hhh) "TRANSITION SERVICES AGREEMENT" has the
meaning set forth in Section 2.4(c) of this Agreement.
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IN WITNESS WHEREOF, the parties have executed and delivered
this Master Separation and Distribution Agreement effective as of the date first
written above.
THREE-FIVE SYSTEMS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Executive Vice President and
Chief Financial Officer
BRILLIAN CORPORATION
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Vice President and Chief
Financial Officer
33