Master Separation Agreement - General Motors Corp., Hughes Network Systems Inc., Delco Electronics Corp. and HE Holdings Inc.


                          MASTER SEPARATION AGREEMENT

                                  dated as of

                           _______________ __, 1997

                                     among

                          General Motors Corporation,

                         Hughes Network Systems, Inc.

                         Delco Electronics Corporation
 
                                      and

                               HE Holdings, Inc.

                               TABLE OF CONTENTS

                             ----------------------
Page ---- ARTICLE 1 Definitions Section 1.01. Defined Terms................................................. 2 ARTICLE 2 Transfer and Assumption Section 2.01. Transfer and Contribution of Assets........................... 13 Section 2.02. Assumption of Liabilities..................................... 14 Section 2.03. Employee Matters.............................................. 15 Section 2.04. Methods of Transfer and Assumption............................ 15 Section 2.05. Nonassignable Contracts....................................... 16 Section 2.06. Other Agreements.............................................. 16 ARTICLE 3 Indemnification Section 3.01. Indemnification by Hughes..................................... 19 Section 3.02. Indemnification by Telecom.................................... 19 Section 3.03. Indemnification by Delco...................................... 20 Section 3.04. Indemnification Procedures.................................... 20 Section 3.05. Certain Limitations........................................... 22 Section 3.06. Exclusivity of Tax Indemnification............................ 23 ARTICLE 4 Access to Information Section 4.01. Restrictions on Disclosure of Information..................... 23 Section 4.02. Legally Required Disclosure of Confidential Information....... 24 Section 4.03. [Access to Information........................................ 24 Section 4.04. Production of Witnesses....................................... 25 Section 4.05. Reimbursement................................................. 25
i
Page ---- ARTICLE 5 Insurance Matters Section 5.01. Cooperation in Insurance Matters.............................. 26 Section 5.02 Claims........................................................ 26 ARTICLE 6 Employees Section 6.01. Employee Matters.............................................. 28 ARTICLE 7 Post-Closing Adjustment Section 7.01. Closing Date Balance Sheet.................................... 28 Section 7.02. Post-Closing Adjustment....................................... 32 ARTICLE 8 Conditions Section 8.01. Conditions to the Obligations of the Parties.................. 33 ARTICLE 9 Miscellaneous Section 9.01. Entire Agreement.............................................. 34 Section 9.02. Governing Law................................................. 34 Section 9.03. Descriptive Headings.......................................... 34 Section 9.04. Notices....................................................... 34 Section 9.05. Parties in Interest........................................... 37 Section 9.06. Counterparts.................................................. 37 Section 9.07. Binding Effect; Assignment.................................... 37 Section 9.08. Dispute Resolution............................................ 37 Section 9.09. Severability.................................................. 38 Section 9.10. Failure or Indulgence Not Waiver; Remedies Cumulative......... 39 Section 9.11. Amendment..................................................... 39
ii SCHEDULES AND EXHIBITS ---------------------- Schedule 1 Additional Delco Assets Schedule 2 Additional Hughes Assets Schedule 3 Additional Telecom Assets Schedule 4 Other Hughes Businesses Schedule 5 Hughes Contracts Schedule 6 Certain Hughes Intellectual Property Schedule 7 Certain Hughes Liabilities Schedule 8 Certain Telecom Liabilities Schedule 9 Certain Delco Liabilities Schedule 10 Dual Use Intellectual Property Schedule 11 Additional Intellectual Property Schedule 7.01 Post-Closing Adjustment Exhibit A Real Estate Exhibit B Auditors' Report iii MASTER SEPARATION AGREEMENT This Master Separation Agreement (this "Agreement"), dated as of ___________, 1997 is made by and among General Motors Corporation, a Delaware corporation ("GM"), HE Holdings, Inc., a Delaware corporation and a wholly owned subsidiary of GM ("Hughes"), Delco Electronics Corporation, a Delaware corporation and a wholly owned subsidiary of GM, and Hughes Network Systems, Inc., a Delaware corporation and a wholly owned subsidiary of GM. RECITALS WHEREAS, Hughes and Raytheon Company, a Delaware corporation ("Raytheon"), are parties to that certain Agreement and Plan of Merger dated as of January 16, 1997, as amended from time to time (the "Merger Agreement"), pursuant to which Raytheon's business will be combined with the Defense Business through the merger of Raytheon with and into Hughes (the "Merger"); and WHEREAS, as a condition to entering into the Merger Agreement, Raytheon has required that Hughes be, at the time of consummation of the Merger, an independent, publicly owned company, comprising the Defense Business; and WHEREAS, in order to satisfy such condition, the parties hereto, subject to the terms and conditions hereof, intend to effect certain transfers of assets, subject to assuming certain liabilities, as described herein; and WHEREAS, it is the intention of the parties to this Agreement that the transfers described herein will qualify as tax-free under the Internal Revenue Code of 1986, as amended (the "Code"); and WHEREAS, the parties hereto also intend to enter into certain agreements governing their relationships following the effectiveness of the Merger; NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements set forth below, the parties hereto agree as follows: ARTICLE 1 Definitions Section 1.01. Defined Terms. (a) Capitalized terms used herein which are not otherwise defined herein shall have the meanings ascribed to them in the Merger Agreement. (b) The following terms, as used herein, shall have the following meanings: "Additional Delco Assets" means those certain Assets that are not presently owned by Delco or its Subsidiaries but are used primarily, or are held for use primarily, in the Automotive Electronics Business, as identified on Schedule 1. "Additional Delco Liabilities" means all Liabilities relating to or arising out of the Additional Delco Assets. "Additional Hughes Assets" means those certain Assets that are not presently owned by Hughes or its Subsidiaries but are used primarily, or are held for use primarily, in the Defense Business, as identified on Schedule 2. "Additional Hughes Liabilities" means all Liabilities relating to or arising out of the Additional Hughes Assets. "Additional Telecom Assets" means those certain Assets that are not presently owned by Telecom or its Subsidiaries but are used primarily, or are held for use primarily in, the Telecommunications and Space Business, as identified on Schedule 3. "Additional Telecom Liabilities" means all Liabilities relating to or arising out of the Additional Telecom Assets. "Affiliate" of any specified Person means any other Person directly or indirectly Controlling, Controlled by, or under common Control with, such specified Person. "Ancillary Separation Agreements" means the Definitive Agreements and any other agreements entered into among the parties hereto on or prior to the Spin- Off Merger Time with respect to the relationships of the parties after the Spin- Off Merger Time, subject to Section 4.2(b) of the GM Implementation Agreement. "Arbiter" has the meaning set forth in Section 7.01. 2 "Assets" means any and all assets, properties and rights, whether tangible or intangible, whether real, personal or mixed, whether fixed, contingent or otherwise, and wherever located, including, without limitation, the following: (i) real property interests (including leases), land, plants, buildings and improvements; (ii) machinery, equipment, vehicles, furniture and fixtures, leasehold improvements, supplies, repair parts, tools, plant, laboratory and office equipment and other tangible personal property, together with any rights or claims arising out of the breach of any express or implied warranty by the manufacturers or sellers of any of such assets or any component part thereof; (iii) inventories, including raw materials, work-in-process, finished goods, parts, accessories; (iv) notes, loans and accounts receivable (whether current or not current), interests as beneficiary under letters of credit, advances and performance and surety bonds; (v) banker's acceptances, shares of stock, bonds, debentures, evidences of indebtedness, certificates of interest or participation in profit-sharing agreements, collateral-trust certificates, investment contracts, voting trust certificates, puts, calls, straddles, options, swaps, collars, caps and other securities or hedging arrangements of any kind; (vi) financial, accounting and operating data and records including, without limitation, books, records, electronic data, notes, sales and sales promotional data, advertising materials, credit information, cost and pricing information, customer and supplier lists, reference catalogs, payroll and personnel records, minute books, stock ledgers, stock transfer records and other similar property, rights and information; (vii) domestic and foreign patents and patent applications, together with any continuations, continuations-in-part or divisional applications thereof, and all patents issuing thereon (including reissues, renewals and re-examinations of the foregoing); invention disclosures; mask works; net lists; copyrights, and copyright applications and registrations; trademarks, servicemarks, service names, trade names, and trade dress, in each case together with any applications and registrations therefor and all appurtenant goodwill relating thereto; trade secrets, commercial and technical 3 information, know-how, proprietary or confidential information, including engineering, production and other designs, notebooks, processes, drawings, specifications, formulae, and technology; computer and electronic data processing programs and software (object and source code), data bases and documentation thereof; inventions (whether patented or not); and all other Intellectual Property under the laws of any country throughout the world; (viii) Contracts and all rights therein; (ix) prepaid expenses, deposits and retentions held by third parties; (x) claims, causes of action, choses in action, rights under insurance policies, rights under express or implied warranties, rights of recovery, rights of set-off, and rights of subrogation; (xi) licenses, franchises, permits, authorizations and approvals; and (xii) goodwill and going concern value. "Auditors' Report" has the meaning set forth in Section 7.01. "Automotive Electronics Business" means (i) the businesses heretofore or currently engaged in by HEC and its Subsidiaries as reported in the automotive electronics segment (or its predecessor segment) in HEC's financial statements, (ii) any former or discontinued operations primarily related to such businesses as previously conducted (but excluding any former or discontinued operations that, during the time that such operations were active, previously were reported in the automotive electronics segment (or its predecessor segment) in HEC's or its predecessor's financial statements but were subsequently moved to, and are currently, or if divested, last were, reported in, the aerospace and defense systems segment, telecommunications and space segment or the corporate/other segment (or their predecessors' segments) in HEC's (or its predecessor's) financial statements), and (iii) the businesses related to the Additional Delco Assets; provided, however, that at the Spin-Off Merger Time, Delco and Hughes will each own 50% of the capital stock or other equity interest of HE Microwave LLC. "Automotive Electronics Employees" has the meaning ascribed to such term in the Employee Matters Agreement. 4 "Business Day" means a day other than a Saturday, a Sunday or a day on which banking institutions located in the State of New York are authorized or obligated by law or executive order to close. "Closing Date Balance Sheet" has the meaning set forth in Section 7.01. "Closing Date Final Amount" has the meaning set forth in Section 7.01. "Closing Date Financial Information" has the meaning set forth in Section 7.01. "Closing Date Statement of Purchase Price Adjustment Amounts" has the meaning set forth in Section 7 .01. "Confidential Information" means with respect to any party hereto, (a) any Information concerning such party, its business or any of its Affiliates that was obtained by another party hereto prior to the Spin-Off Merger Time, (b) any Information concerning such party that is obtained by another party under Section 4.03, or (c) any other Information obtained by, or furnished to, another party hereto that (i) is marked "Proprietary" or "Company Private" or words of similar import by the party owning such Information, or any Affiliate of such party, or (ii) the party owning such Information has notified such other party in writing is confidential or secret; provided, however, that any Information provided by GM to any of Hughes, Telecom or Delco regarding the Defense Business, Telecommunications and Space Business or the Automotive Electronics Business, respectively, shall not be deemed Confidential Information with respect to the use of such Information in their respective businesses by Hughes, Telecom or Delco, as the case may be. "Contracts" means any contract, agreement, lease, license, sales order, purchase order, instrument or other commitment that is binding on any Person or any part of its property under applicable law. "Control" means the possession, direct or indirect, of the power to direct or cause the direction of the management of the policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Controlling" and "Controlled" have the corollary meanings ascribed thereto. "Defense Business" means (i) the businesses heretofore or currently engaged in by HEC and its Subsidiaries as reported in the aerospace and defense systems segment (or its predecessor segment) in HEC's financial statements, (ii) any former or discontinued operations primarily related to such businesses as previously conducted (but excluding any 5 former or discontinued operations that, during the time that such operations were active, previously were reported in the aerospace and defense system segment (or its predecessor segment) in HEC's or its predecessor's financial statements but were subsequently moved to, and are currently, or if divested, last were, reported in, the telecommunications and space segment or automotive electronics segment (or their predecessors' segments) in HEC's (or its predecessor's) financial statements), (iii) the businesses related to the Additional Hughes Assets, and (iv) the other businesses set forth on Schedule 4. "Defense Employee Arrangements" has the meaning ascribed to such term in the Employee Matters Agreement. "Defense Employee Benefit Plans" has the meaning ascribed to such term in the Employee Matters Agreement. "Defense Employees" has the meaning ascribed to such term in the Employee Matters Agreement. "Definitive Agreements" has the meaning set forth in Section 2.06. "Delco" means Delco Electronics Corporation, a Delaware corporation that, after giving effect to the HEC Reorganization (as defined in the Hughes Distribution Agreement), will be a direct Subsidiary of GM and the parent corporation of all entities owned directly or indirectly by GM that will engage after the Spin-Off Merger Time in the Automotive Electronics Business conducted immediately prior to the consummation of the transactions set forth herein. "Delco Assets" means all of HEC's or HEC's Subsidiaries' right, title and interest (including minority interests) in and to all Assets of HEC or any of its Subsidiaries other than Hughes that are used primarily in or held primarily for use in the operations of the Automotive Electronics Business, including the Additional Delco Assets and the rights of Delco and its Subsidiaries under this Agreement and the agreements contemplated hereby (including the Ancillary Separation Agreements), but excluding the Hughes Assets, the Telecom Assets and any cash and cash equivalents. "Delco Liabilities" means (i) all Liabilities relating primarily to, or arising primarily out of, the Automotive Electronics Business as conducted at any time prior to, on or after the Spin-Off Merger Time, including, without limitation, all Liabilities relating to or arising out of the Delco Assets, (ii) the Liabilities described on Schedule 9, (iii) the obligations of Delco created pursuant to this Agreement and the agreements contemplated hereby (including under 6 the Ancillary Separation Agreements) and (iv) all Liabilities with respect to Automotive Electronics Employees and Retired Automotive Electronics Employees. "Dual Use Technology" shall mean all Intellectual Property developed by Hughes for the Defense Business (i) that is useful in the Telecommunications and Space Business as conducted immediately prior to the Spin-Off Merger Time and (ii) which covers components manufactured or processes that are to be utilized by the Telecommunications and Space Business, and, with respect to patents, patent applications and invention disclosures, shall consist of the patents, patent applications and invention disclosures set forth on Schedule 10 hereof. "Employee Arrangements" means all employment or consulting agreements, collective bargaining agreements and all bonus and other incentive compensation, deferred compensation, disability, severance, stock award, stock option or stock purchase agreements, policies or arrangements with respect to the employment and termination of employment of any employee, officer, director or other Person employed at any time by HEC or any of its Subsidiaries. "Employee Benefit Plan" means each employee benefit plan, as defined in Section 3(3) of ERISA, which HEC or any of its Subsidiaries maintains or to which HEC or any of its Subsidiaries has an obligation to make contributions. "Employee Matters Agreement" means the agreement to be entered into as of the Spin-Off Merger Time among Hughes, Telecom and Delco, with respect to, among other things, certain employee benefit and liability issues. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Final Determination" means (i) with respect to federal income Taxes, a "determination" as defined in Section 1313(a) of the Code or execution of an Internal Revenue Service Form 870AD and, with respect to Taxes other than federal income Taxes, any final determination of liability in respect of a Tax that, under applicable law, is not subject to further appeal, review or modification through proceedings or otherwise (including the expiration of a statute of limitations or a period for the filing of claims for refunds, amended returns or appeals from adverse determinations) or (ii) the payment of Tax by Hughes, HEC or any of their Affiliates, whichever is responsible for payment of such Tax liability under applicable law, with respect to any item disallowed or adjusted by a Taxing authority, provided that such responsible party determines that no action should be taken to 7 recoup such payment and Hughes (if the responsible party is HEC or any of its Affiliates) or HEC (if the responsible party is Hughes or any of its Affiliates) agrees. "HAC" means Hughes Aircraft Company, a Delaware corporation. "HEC" means Hughes Electronics Corporation, a Delaware corporation and as of the date hereof, the owner of all of the capital stock of Hughes. "HEC Reorganization" has the meaning ascribed to such term in the Hughes Distribution Agreement. "HRL" means Hughes Research Laboratories LLC, a Delaware limited liability company. "Hughes Assets" means all of HEC's or HEC's Subsidiaries' right, title and interest (including minority interests) in and to all Assets of HEC or any of its Subsidiaries that are used primarily in or held primarily for use in the operations of the Defense Business, including without limitation the Hughes Facilities, the Hughes Intellectual Property, the Hughes Contracts, the Additional Hughes Assets, the Assets of the Defense Employee Arrangements and the Defense Employee Benefit Plans as provided in the Employee Matters Agreement and the rights of Hughes and its Subsidiaries under this Agreement and the agreements contemplated hereby (including the Ancillary Separation Agreements), but excluding (i) the Telecom Assets, (ii) the Delco Assets and (iii) any cash and cash equivalents on the Closing Date Balance Sheet. "Hughes Contracts" means all Contracts pursuant to which Hughes or any of its Subsidiaries (determined immediately following the Spin-Off Merger Time) are parties (other than Contracts that constitute Additional Telecom Assets or Additional Delco Assets) and the other Contracts identified on Schedule 5. "Hughes Debt" means the Debt contemplated by the Merger Agreement to be Debt of Hughes and its Subsidiaries as of the Effective Time. "Hughes Facilities" means the real property and facilities described on Exhibit A that currently are, or will be on or prior to the Spin-Off Merger Time, owned by, or leased to, Hughes or any of its Subsidiaries. "Hughes Intellectual Property" means all of HEC's or HEC's Subsidiaries' right, title and interest in and to the Intellectual Property relating primarily to the Defense Business 8 and shall include, without limitation, the patents, patent applications, and trademarks set forth on Schedule 6 hereof. In no event shall Hughes Intellectual Property include the ownership of Dual Use Technology or any trademark, servicemark or trade or company name which contains the name "HUGHES"; provided, however, that the Hughes Intellectual Property shall include Hughes's rights under the Intellectual Property Agreements contemplated by this Agreement. "Hughes Interim Balance Sheet" means the unaudited pro forma consolidated balance sheet as of September 30, 1996 for Hughes contained in the Hughes Interim Statements and included in the disclosure schedule to the Merger Agreement. "Hughes Liabilities" means (i) the Hughes Debt, together with accrued and unpaid interest thereon at the Spin-Off Merger Time to the extent reflected on the Closing Date Balance Sheet (other than with respect to the Hughes Debt to be incurred in connection with the Intercompany Payment for which there will be no accrued and unpaid interest at the Spin-Off Merger Time), (ii) all Liabilities relating primarily to, or arising primarily out of, the Defense Business as conducted at any time prior to, on or after the Spin-Off Merger Time, including without limitation all Liabilities relating to or arising out of the Hughes Assets, (iii) the Liabilities described on Schedule 7, (iv) all Liabilities with respect to Defense Employees and Retired Defense Employees, (v) all Liabilities arising under the Defense Employee Arrangements and Defense Employee Benefit Plans, and (vi) the obligations of Hughes created pursuant to this Agreement, the agreements contemplated hereby (including under the Ancillary Separation Agreements) and the other Transaction Agreements (to the extent such other Transaction Agreements contain obligations or liabilities of Hughes and/or its Subsidiaries from and after the Spin-Off Merger Time). "Hughes Spin-Off Separation Agreement" means the agreement to be entered into prior to the Effective Time between GM and Hughes, with respect to certain separation issues. "Income Tax" has the meaning ascribed to such term in the Tax Sharing Agreement. "Indemnifying Party" means a Person that is obligated to provide indemnification pursuant to Article 3 of this Agreement. "Indemnitee" means a Person that is entitled to seek indemnification pursuant to Article 3 of this Agreement. 9 "Information" means all records, books, contracts, instruments, computer data and other data and information. "Intellectual Property" means any and all domestic and foreign patents and patent applications, together with any continuations, continuations-in-part or divisional applications thereof, and all patents issuing thereon (including reissues, renewals and re-examinations of the foregoing); invention disclosures; mask works; net lists; copyrights, and copyright applications and registrations; trademarks, servicemarks, service names, trade names, and trade dress, in each case together with any applications and registrations therefor and all appurtenant goodwill relating thereto; trade secrets, commercial and technical information, know-how, proprietary or confidential information, including engineering, production and other designs, notebooks, processes, drawings, specifications, formulae, and technology; computer and electronic data processing programs and software (object and source code), data bases and documentation thereof; inventions (whether patented or not); and all other intellectual property under the laws of any country throughout the world. "Intellectual Property Agreements" means all agreements to be entered into prior to the Spin-Off Merger Time between Hughes and Telecom (or between their respective Affiliates) with respect to the treatment after the Spin-Off Merger Time of Intellectual Property, all as described herein. "Liabilities" means any and all debts, liabilities, commitments and obligations, whether fixed, contingent or absolute, matured or unmatured, liquidated or unliquidated, accrued or not accrued, known or unknown, whenever or however arising (including, without limitation, whether arising out of any Contract or tort based on negligence or strict liability) and whether or not the same would be required by generally accepted accounting principles to be reflected in financial statements or disclosed in the notes thereto. "Loss" or "Losses" has the meaning ascribed to such terms in the Hughes Spin-Off Separation Agreement. "Person" means an individual, partnership, limited liability company, joint venture, corporation, trust, unincorporated association, any other entity, or a government or any department or agency or other unit thereof. "Prior Relationship" means the ownership relationships among GM, HEC, Hughes, Telecom and Delco at any time prior to giving effect to the HEC Reorganization and the Spin-Off Transactions. 10 "Purchase Price Adjustment Amounts" has the meaning set forth in Section 7.01. "Representatives" means directors, officers, employees, agents, consultants, advisors, accountants, attorneys and representatives. "Retired Automotive Electronics Employees" has the meaning ascribed to such term in the Employee Matters Agreement. "Retired Defense Employees" means all former employees of the Defense Business as described in the Employee Matters Agreement. "Retired Satellite Employees" has the meaning ascribed to such term in the Employee Matters Agreement. "Satellite Employees" has the meaning ascribed to such term in the Employee Matters Agreement. "Spin-Off Merger" means the merger of Merger Sub with and into GM pursuant to the Hughes Distribution Agreement. "Spin-Off Merger Time" means the date and time as of which the Spin-Off Merger becomes effective. "Spin-Off Transactions" means the Hughes Spin-Off and the Telecom Spin-Off transactions contemplated by the Hughes Distribution Agreement. "Subsidiary" means with respect to any specified Person, any corporation or other legal entity of which such Person or any of its Subsidiaries Controls or owns, directly or indirectly, more than 50% of the stock of other equity interest entitled to vote on the election of the members to the board of directors or similar governing body. "Tax" has the meaning ascribed to such term in the Hughes Spin-Off Separation Agreement. "Tax Sharing Agreement" means the agreement to be entered into as of the Spin-Off Merger Time among GM, Hughes and Telecom, with respect to certain Income Tax matters. "Telecom" means Hughes Network Systems, Inc., a Delaware corporation that, after giving effect to the HEC Reorganization, will be a direct Subsidiary of GM and the parent 11 corporation of all entities owned directly or indirectly by GM that will engage in the Telecommunications and Space Business after the Spin-Off Merger Time (and which will be renamed Hughes Electronics Corporation as of the Spin-Off Merger Time). "Telecom Assets" means all of HEC's or HEC's Subsidiaries right, title and interest (including minority interests) in and to all Assets of Hughes or any of its Subsidiaries that are used primarily in or held primarily for use in the operations of the Telecommunications and Space Business, including the Additional Telecom Assets and the rights of Telecom and its Subsidiaries under this Agreement and the agreements contemplated hereby (including the Ancillary Separation Agreements), but excluding the Hughes Assets and the Delco Assets. "Telecom Liabilities" means (i) all Liabilities relating primarily to, or arising primarily out of, the Telecommunications and Space Business as conducted at any time prior to, on or after the Spin-Off Merger Time, including without limitation all Liabilities relating to or arising out of the Telecom Assets, (ii) all Liabilities with respect to Satellite Employees and Retired Satellite Employees, (iii) the Liabilities described on Schedule 8, (iv) the obligations of Telecom created pursuant to this Agreement and the agreements contemplated hereby (including under the Ancillary Separation Agreements), (v) all other Liabilities of Hughes that are neither Delco Liabilities nor Hughes Liabilities and (vi) any Debt of Hughes or its Subsidiaries in excess of the Hughes Debt. "Telecommunications and Space Business" means the businesses heretofore or currently engaged in by HEC and its Subsidiaries (including the businesses related to the Additional Telecom Assets), other than (i) the Automotive Electronics Business and (ii) the Defense Business. "Third-Party Claim" means any claim, suit, arbitration, inquiry, proceeding or investigation by or before any court, governmental or other regulatory or administrative agency or commission or any arbitration tribunal asserted by a Person other than any party hereto or their respective Affiliates which gives rise to a right of indemnification hereunder. "Transaction Agreements" has the meaning set forth in the GM Implementation Agreement. "Transferee" means any Person that will receive a transfer of Assets pursuant to Article 2. "Transferor" means any Person that will make a transfer of Assets pursuant to Article 2. 12 ARTICLE 2 Transfer and Assumption Section 2.01. Transfer and Contribution of Assets. (a) Subject to the terms and conditions of this Agreement: (i) prior to the Spin-Off Merger Time, GM shall cause HEC (or shall cause HEC's appropriate Subsidiary) to transfer to Hughes (or at Hughes' election, a Subsidiary of Hughes) all of HEC's (or its Subsidiary's) right, title and interest in and to the Additional Hughes Assets; (ii) prior to the Spin-Off Merger Time, GM shall cause HEC (or shall cause HEC's appropriate Subsidiary) to transfer to Telecom (or at Telecom's election, an Affiliate of Telecom) all of HEC's (or its Subsidiary's) right, title and interest in and to the Additional Telecom Assets; (iii) prior to the Spin-Off Merger Time, GM shall cause HEC (or shall cause HEC's appropriate Subsidiary) to transfer to Delco (or at Delco's election, an Affiliate of Delco) all of HEC's right, title and interest in and to the Additional Delco Assets; (iv) immediately following the actions referred to in the preceding clauses and prior to the Spin-Off Merger Time, (a) HAC will merge with and into Hughes, with Hughes as the surviving corporation, and (b) HEC will merge with and into GM, with GM as the surviving corporation; and (v) immediately following the actions referred to in clause (iv) and prior to the Spin-Off Merger Time, Hughes shall transfer to GM all of its right, title and interest in and to the shares of capital stock of Telecom. (b) All of the transfers of Assets to be effected pursuant to this Article 2 are hereinafter collectively referred to as the "Transfer" and the Assets so transferred are hereinafter collectively referred to as the "Transferred Assets." (c) Notwithstanding anything in this Agreement to the contrary, Hughes shall retain and shall not transfer, convey, assign or contribute to any Person the Hughes Assets. 13 In addition, the parties hereto acknowledge and agree that Telecom retains the Telecom Assets and that Delco retains the Delco Assets. (d) Each of the parties hereto acknowledges and agrees that the Transferred Assets will be transferred "as is where is" and that, except as set forth in (e) below, each Transferor makes and has made no warranty, either express or implied, including without limitation warranties of merchantability or fitness for a particular purpose, with respect to any Transferred Assets. (e) Telecom represents and warrants to Hughes that, except for cash and cash equivalents and without giving effect to the sale or anticipated sale of, or other action with respect to, any Hughes Assets pursuant to Section 5.1(b) of the Merger Agreement, the Hughes Assets as of and immediately following the Spin-Off Merger Time (i) will include (A) all Assets owned or held by HEC and its Subsidiaries and (B) all Assets to which HEC and its Subsidiaries have contractual rights (whether through ownership, lease, license or otherwise), in the case of clause (A) and clause (B) immediately prior to the Spin-Off Merger Time which are primarily used in, or held primarily for use in, the Defense Business as such business is conducted as of the Spin-Off Merger Time and (ii) will be sufficient to conduct the Defense Business as so conducted immediately prior to the Spin-Off Merger Time. Section 2.02. Assumption of Liabilities. (a) Simultaneously with the actions referred to in Section 2.01(a)(i), Hughes, in partial consideration for the transfer of the Additional Hughes Assets, shall assume and on a timely basis pay, satisfy and discharge (or cause its Subsidiaries to pay, satisfy and discharge) in accordance with their terms any and all Additional Hughes Liabilities. (b) Simultaneously with the actions referred to in Section 2.01(a)(ii), Telecom, in partial consideration for the transfer of the Additional Telecom Assets, shall assume and on a timely basis pay, satisfy and discharge (or cause its Subsidiaries to pay, satisfy and discharge) in accordance with their terms any and all Additional Telecom Liabilities. (c) Simultaneously with the actions referred to in Section 2.01(a)(iii), Delco, in partial consideration for the transfer of the Additional Delco Assets, shall assume and on a timely basis pay, satisfy and discharge (or cause its Subsidiaries to pay, satisfy and discharge) in accordance with their terms, any and all Additional Delco Liabilities. (d) Hughes hereby retains or assumes, as the case may be, and no other party hereto shall assume or have any liability with respect to, the Hughes Liabilities. Telecom 14 hereby retains or assumes, as the case may be, and no other party hereto shall have any liability with respect to, the Telecom Liabilities. Delco hereby retains or assumes, as the case may be, and no other party hereto shall have any liability with respect to, the Delco Liabilities. Section 2.03. Employee Matters. Notwithstanding anything to the contrary contained in this Agreement: (a) the rights and obligations of the parties with respect to (i) Employee Benefit Plans for the benefit of employees and former employees (and their beneficiaries) of Hughes and its Subsidiaries and (ii) all Contracts relating to medical, dental and other services entered into by Hughes and existing for the benefit of Hughes and its Subsidiaries and their employees, are subject to the provisions of Article 6; and (b) the rights and obligations of GM and Delco with respect to the Employee Benefit Plans for the benefit of employees and former employees (and their beneficiaries) of Delco shall be governed by separate agreements between Delco and GM. Section 2.04. Methods of Transfer and Assumption. The parties hereto agree that (i) any Transfer shall be effected by delivery by the Transferor to the Transferee of (A) with respect to those Assets which are evidenced by capital stock certificates or similar instruments, certificates duly endorsed in blank or accompanied by stock powers or other instruments of assignment executed in blank, (B) with respect to any real property interest and/or any improvements thereon, a grant deed or the equivalent thereof in accordance with local practice, and (C) with respect to all other Assets, such good and sufficient instruments of contribution, assignment, conveyance, transfer and delivery, in form and substance reasonably satisfactory to the appropriate Transferor and Transferee, as shall be necessary to vest in such Transferee, all of the Transferor's right, title and interest in and to any such Assets, (ii) the assumption of the Liabilities contemplated pursuant to Section 2.02 hereof shall be effected by delivery by the party assuming such Liability to the party which is the obligor under such Liability, of such good and sufficient instruments of assumption, in form and substance reasonably satisfactory to such two parties, as shall be necessary for the assumption of such Liabilities. Each party hereto also agrees to deliver to each other party hereto such other documents, instruments, certificates and agreements as may be reasonably requested by any such other party hereto in connection with the transactions contemplated hereby and to take such further action as may be reasonably necessary to carry out the provisions hereof, including without limitation, appropriate transfer instruments if a Hughes Asset, Telecom Asset or Delco Asset is inadvertently transferred to the incorrect Transferee. Notwithstanding any provision to the contrary contained in this Agreement, in the event and 15 to the extent that there is any conflict between the provisions of this Agreement and the provisions of any of the instruments of transfer or assumption referred to in this Section 2.04, the provisions of this Agreement shall prevail and govern. To the extent that any transfers contemplated hereby are not consummated prior to the Effective Time, the parties hereto covenant and agree to take all actions reasonably necessary or appropriate to complete such transfers promptly following the Effective Time. In addition to the foregoing, each Transferor also agrees to deliver to each applicable Transferee (at such Transferee's sole expense) all tangible property included in the Transferred Assets that is reasonably requested by any such Transferee in connection with the transactions contemplated hereby. Section 2.05. Nonassignable Contracts. Anything contained herein to the contrary notwithstanding, this Agreement shall not constitute an agreement to assign any Contract or Asset if an assignment or attempted assignment of the same without the consent of another Person would constitute a breach thereof or in any way impair the rights of a party thereunder. If any such consent is not obtained or if an attempted assignment would be ineffective or would impair such party's rights under any such Contract or Asset so that the party entitled to the benefits of such purported transfer (the "Intended Transferee") would not receive all such rights, then (x) the party purporting to make such transfer (the "Intended Transferor") shall use commercially reasonable efforts to provide or cause to be provided to the Intended Transferee, to the extent permitted by law, the benefits of any such Contract or Asset and the Intended Transferor shall promptly pay or cause to be paid to the Intended Transferee when received all moneys received by the Intended Transferor with respect to any such Contract or Asset and (y) in consideration thereof the Intended Transferee shall pay, perform and discharge on behalf of the Intended Transferor all of the Intended Transferor's Liabilities thereunder in a timely manner and in accordance with the terms thereof. In addition, the Intended Transferor shall take such other actions as may reasonably be requested by the Intended Transferee in order to place the Intended Transferee, insofar as reasonably possible, in the same position as if such Contract or Asset had been transferred as contemplated hereby and so all the benefits and burdens relating thereto, including possession, use, risk of loss, potential for gain and dominion, control and command, shall inure to the Intended Transferee. If and when such consents and approvals are obtained, the transfer of the applicable Contract or Asset shall be effected in accordance with the terms of this Agreement. Section 2.06. Other Agreements. (a) The parties hereto are simultaneously entering into agreements embodying certain relationships between the Defense Business, the Telecommunications and Space Business and the Automotive Electronics Business after the 16 Effective Time. These agreements concern the operation of HRL, Income Taxes, Intellectual Property, real estate, information technology, supply arrangements, transition services, certain Government Contract matters, corporate purchasing, certain separation issues between Hughes and GM, HE Microwave LLC and employee matters (the "Definitive Agreements"). (b) The parties hereto agree to take all action as may be necessary in order to eliminate (whether through repayment, forgiveness or otherwise) as of the Spin-Off Merger Time all intercompany balances between Hughes or its Subsidiaries, on the one hand, and HEC or any of its other Subsidiaries, on the other hand (in both cases determined after giving effect to the HEC Reorganization, but without giving effect to the merger of HEC into GM). ARTICLE 3 Indemnification Section 3.01. Indemnification by Hughes. Hughes shall indemnify, defend and hold harmless GM, HEC, Telecom, Delco and each of their respective Subsidiaries (determined after giving effect to the HEC Reorganization) and their respective successors-in-interest and each of their respective past and present Representatives against any losses, claims, damages, liabilities or actions, arising, whether prior to or following the Transfer, out of or in connection with the Hughes Liabilities (including in connection with any breach after the Spin-Off Merger Time by Hughes or any of its Subsidiaries of any terms of the Transaction Agreements), the Hughes Assets or the Defense Business, and Hughes shall reimburse such entity, each such Subsidiary, each such successor- in-interest and each such Representative for any legal or any other expenses reasonably incurred by any of them in connection with investigating or defending any such loss, claim, damage, liability or action. Section 3.02. Indemnification by Telecom. Telecom shall indemnify, defend and hold harmless GM, HEC, Hughes, Delco and each of their respective Subsidiaries (determined after giving effect to the HEC Reorganization) and their respective successors-in-interest, including with respect to Hughes, the Surviving Corporation, and each of their respective past and present Representatives against any losses, claims, damages, liabilities or actions, arising, whether prior to or following the Transfer, out of or in connection with the Telecom Liabilities, the Telecom Assets, the Telecommunications and Space Business or a violation of the representations and warranties set forth in Section 2.01(e) hereof and, with respect to GM and its related parties, the merger of HEC with and into GM (other than any 17 such losses, claims, damages, liabilities or actions resulting from such merger that primarily relate to the Automotive Electronics Business), and Telecom shall reimburse such entity, each such Subsidiary, each such successor-in-interest and each such Representative for any legal or any other expenses reasonably incurred by any of them in connection with investigating or defending any such loss, claim, damage, liability or action. Such indemnification with respect to Hughes shall include any amounts paid by Hughes pursuant to Section 5.1(h) of the Merger Agreement in respect of Telecom Liabilities. Section 3.03. Indemnification by Delco. Delco shall indemnify, defend and hold harmless GM, HEC, Hughes, Telecom and each of their respective Subsidiaries (determined after giving effect to the HEC Reorganization) and their respective successors-in-interest, including with respect to Hughes, the Surviving Corporation, and each of their respective past and present Representatives against any losses, claims, damages, liabilities or actions, arising, whether prior to or following the Transfer, out of or in connection with the Delco Liabilities, the Delco Assets or the Automotive Electronics Business and with respect to GM and its related parties, the merger of HEC with and into GM, to the extent such losses, claims, damages, liabilities or actions primarily relate to the Automotive Electronics Business, and Delco shall reimburse such entity, each such Subsidiary, each such successor-in-interest and each such Representative for any legal or any other expenses reasonably incurred by any of them in connection with investigating or defending any such loss, claim, damage, liability or action. Such indemnification with respect to Hughes shall include any amounts paid by Hughes pursuant to Section 5.1(h) of the Merger Agreement in respect of Delco Liabilities. Section 3.04. Indemnification Procedures. (a) If any Indemnitee receives notice of the assertion of any Third-Party Claim with respect to which an Indemnifying Party is obligated under this Agreement to provide indemnification, such Indemnitee shall give such Indemnifying Party notice thereof (together with a copy of such Third-Party Claim, process or other legal pleading) promptly after becoming aware of such Third-Party Claim; provided, however, that the failure of any Indemnitee to give notice as provided in this Section 3.04 shall not relieve any Indemnifying Party of its obligations under this Section 3.04, except to the extent that such Indemnifying Party is actually prejudiced by such failure to give notice. Such notice shall describe such Third-Party Claim in reasonable detail. (b) An Indemnifying Party, at such Indemnifying Party's own expense and through counsel chosen by such Indemnifying Party (which counsel shall be reasonably acceptable to the Indemnitee), may elect to defend any Third-Party Claim. If an Indemnifying Party elects to defend a Third-Party Claim, then, within ten Business Days after receiving notice of such Third-Party Claim (or sooner, if the nature of such Third Party 18 claim so requires), such Indemnifying Party shall notify the Indemnitee of its intent to do so, and such Indemnitee shall cooperate in the defense of such Third-Party Claim. Such Indemnifying Party shall pay such Indemnitee's reasonable out-of-pocket expenses incurred in connection with such cooperation. Such Indemnifying Party shall keep the Indemnitee reasonably informed as to the status of the defense of such Third Party Claim. After notice from an Indemnifying Party to an Indemnitee of its election to assume the defense of a Third-Party Claim, such Indemnifying Party shall not be liable to such Indemnitee under this Section 3.04 for any legal or other expenses subsequently incurred by such Indemnitee in connection with the defense thereof other than those expenses referred to in the preceding sentence; provided, however, that such Indemnitee shall have the right to employ one law firm as counsel, together with a separate local law firm in each applicable jurisdiction ("Separate Counsel"), to represent such Indemnitee in any action or group of related actions (which firm or firms shall be reasonably acceptable to the Indemnifying Party) if, in such Indemnitee's reasonable judgment at any time, either a conflict of interest between such Indemnitee and such Indemnifying Party exists in respect of such claim, or there may be defenses available to such Indemnitee which are different from or in addition to those available to such Indemnifying Party and the representation of both parties by the same counsel would be inappropriate, and in that event (i) the reasonable fees and expenses of such Separate Counsel shall be paid by such Indemnifying Party (it being understood, however, that the Indemnifying Party shall not be liable for the expenses of more than one Separate Counsel (excluding local counsel) with respect to any Third-Party Claim (even if against multiple Indemnitees)) and (ii) each of such Indemnifying Party and such Indemnitee shall have the right to conduct its own defense in respect of such claim. If an Indemnifying Party elects not to defend against a Third Party Claim, or fails to notify an Indemnitee of its election as provided in this Section 3.04 within the period of ten Business Days described above, the Indemnitee may defend, compromise, and settle such Third Party Claim and shall be entitled to indemnification hereunder (to the extent permitted hereunder); provided, however, that no such Indemnitee may compromise or settle any such Third-Party claim without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, the Indemnifying Party shall not, without the prior written consent of the Indemnitee, (i) settle or compromise any Third- Party Claim or consent to the entry of any judgment which does not include as an unconditional term thereof the delivery by the claimant or plaintiff to the Indemnitee of a written release from all liability in respect of such Third- Party Claim or (ii) settle or compromise any Third-Party Claim in any manner that would be reasonably likely to have a material adverse effect on the Indemnitee. (c) Notwithstanding the provisions of Section 3.04(b), Hughes, on the one hand, and GM, Telecom and/or Delco, on the other hand, shall jointly control the defense 19 of, and cooperate with each other with respect to defending, any Third-Party Claim with respect to which Hughes, on the one hand, and GM, Telecom and/or Delco, on the other hand, are claiming rights to indemnification under Sections 3.01, 3.02 or 3.03. If either Hughes, on the one hand, or GM, Telecom and/or Delco, on the other hand, fails to defend jointly any such Third-Party Claim, the other party or parties shall solely defend such Third-Party Claim and the party or parties failing to defend jointly shall use all commercially reasonable efforts to cooperate with the other party or parties in its or their defense of such Third Party Claim; provided, however, that no party may compromise or settle any such Third-Party Claim without the prior written consent of the other appropriate party or parties, which consent shall not be unreasonably withheld or delayed. All costs and expenses of any party in connection with, and during the course of, the joint control of the defense of any such Third-Party Claim shall be initially paid by the party that incurs such costs and expenses. Such costs and expenses shall be reallocated and reimbursed in accordance with the respective indemnification obligations of the parties at the conclusion of the defense of such Third-Party Claim. Section 3.05. Certain Limitations. (a) The amount of any indemnifiable losses or other liability for which indemnification is provided under this Agreement shall be net of any amounts actually recovered by the Indemnitee from third parties (including, without limitation, amounts actually recovered under insurance policies) with respect to such indemnifiable losses or other liability. Any Indemnifying Party hereunder shall be subrogated to the rights of the Indemnitee upon payment in full of the amount of the relevant indemnifiable loss. An insurer who would otherwise be obligated to pay any claim shall not be relieved of the responsibility with respect thereto or, solely by virtue of the indemnifi cation provision hereof, have any subrogation rights with respect thereto. If any Indemnitee recovers an amount from a third party in respect of an indemnifiable loss for which indemnification is provided in this Agreement after the full amount of such indemnifiable loss has been paid by an Indemnifying Party or after an Indemnifying Party has made a partial payment of such indemnifiable loss and the amount received from the third party exceeds the remaining unpaid balance of such indemnifiable loss, then the Indemnitee shall promptly remit to the Indemnifying Party the excess (if any) of (A) the sum of the amount theretofore paid by such Indemnifying Party in respect of such indemnifiable loss plus the amount received from the third party in respect thereof, less (B) the full amount of such indemnifiable loss or other liability. (b) The amount of any loss or other liability for which indemnification is provided under this Agreement shall be (i) increased to take account of any net Tax cost incurred by the Indemnitee arising from the receipt or accrual of an indemnification payment hereunder (grossed up for such increase) and (ii) reduced to take account of any net Tax benefit 20 realized by the Indemnitee arising from incurring or paying such loss or other liability. In computing the amount of any such Tax cost or Tax benefit, the Indemnitee shall be deemed to recognize all other items of income, gain, loss, deduction or credit before recognizing any item arising from the receipt or accrual of any indemnification payment hereunder or incurring or paying any indemnified loss. Any indemnification payment hereunder shall initially be made without regard to this Section 3.05(b) and shall be increased or reduced to reflect any such net Tax cost (including gross-up) or net Tax benefit only after the Indemnitee has actually realized such cost or benefit. For purposes of this Agreement, an Indemnitee shall be deemed to have "actually realized" a net Tax cost or a net Tax benefit to the extent that, and at such time as, the amount of Taxes payable by such Indemnitee is increased above or reduced below, as the case may be, the amount of Taxes that such Indemnitee would be required to pay but for the receipt or accrual of the indemnification payment or the incurrence or payment of such Loss, as the case may be. The amount of any increase or reduction hereunder shall be adjusted to reflect any Final Determination with respect to the Indemnitee's liability for Taxes, and payments between such indemnified parties to reflect such adjustment shall be made if necessary. (c) Any indemnification payment made under this Agreement shall be characterized for Tax purposes as if such payment were made immediately prior to the Spin-Off Merger Time. Section 3.06. Exclusivity of Tax Indemnification. Notwithstanding anything in this Agreement to the contrary, (i) the terms of the Tax Sharing Agreement shall govern the rights and obligations among the parties with respect to indemnification relating to Income Tax and (ii) the terms of the Hughes Spin- Off Separation Agreement shall govern the rights and obligations of the parties thereto with respect to indemnification relating to the matters covered thereby. ARTICLE 4 Access to Information Section 4.01. Restrictions on Disclosure of Information. (a) Without limiting its obligations under any other agreement between or among the parties hereto and/or any of their respective Affiliates relating to confidentiality, each of the parties hereto agrees that it shall not, and shall not permit any of its Affiliates or Representatives to, disclose any Confidential Information to any Person, other than to such Affiliates or Representatives on a 21 need-to-know basis in connection with the purpose for which the Confidential Information was originally disclosed. Notwithstanding the foregoing, each of the parties hereto and its respective Affiliates and Representatives may disclose such Confidential Information, and such Information shall no longer be deemed Confidential Information, to the extent that such party can demonstrate that such Confidential Information is or was (i) available to such party outside the context of the Prior Relationship on a nonconfidential basis prior to its disclosure by the other party, (ii) in the public domain other than by the breach of this Agreement or by breach of any other agreement between or among the parties hereto and/or any of their respective Affiliates relating to confidentiality, or (iii) lawfully acquired outside the context of the Prior Relationship on a nonconfidential basis or independently developed by, or on behalf of, such party by Persons who do not have access to, or descriptions of, any such Confidential Information. (b) Policies and Procedures. Each of the parties hereto shall maintain, and shall cause their respective Affiliates to maintain, policies and procedures, and develop such further policies and procedures as shall from time to time become necessary or appropriate, to ensure compliance with this Section 4.01. Section 4.02. Legally Required Disclosure of Confidential Information. If any of the parties to this Agreement or any of their respective Affiliates or Representatives becomes legally required to disclose any Confidential Information, such disclosing party shall promptly notify the party owning the Confidential Information (the "Owning Party") and shall use all commercially reasonable efforts to cooperate with the Owning Party so that the Owning Party may seek a protective order or other appropriate remedy and/or waive compliance with this Section 4.02. All expenses incurred by the disclosing party in seeking a protective order or other remedy shall reasonably be borne by the Owning Party. If such protective order or other remedy is not obtained, or if the Owning Party waives compliance with this Section 4.02, the disclosing party or its Affiliate or Representative, as applicable, shall (a) disclose only that portion of the Confidential Information which its legal counsel advises it is compelled to disclose or else stand liable for contempt or suffer other similar significant corporate censure or penalty, (b) use all commercially reasonable efforts to obtain reliable assurance requested by the Owning Party that confidential treatment will be accorded such Confidential Information, and (c) promptly provide the Owning Party with a copy of the Confidential Information so disclosed, in the same form and format so disclosed, together with a description of all Persons to whom such Confidential Information was disclosed. Section 4.03. Access to Information. Until the ten-year anniversary of the Spin-Off Merger Time, each of the parties hereto shall cooperate with and afford, and shall cause their respective Affiliates and Representatives to cooperate with and afford, to the 22 other party reasonable access upon reasonable advance written request to all information (other than information protected from disclosure by the attorney client privilege or work product doctrine) created prior to the Spin-Off Merger Time within such party's (or its Affiliates or Representatives') possession. Access to the requested information shall be provided so long as it relates to the requesting party's (the "Requestor") business, assets or liabilities, and access is reasonably required by the Requestor as a result of the parties' Prior Relationship for purposes of auditing, accounting, claims or litigation (except for claims or litigation between the parties hereto), employee benefits, regulatory or tax purposes or fulfilling disclosure or reporting obligations including, without limitation, Information reasonably necessary for the preparation of reports required by or filed under the Securities Exchange Act of 1934, as amended, with respect to any period entirely or partially prior to the Spin-Off Merger Time. Access as used in this paragraph shall mean the obligation of a party in possession of Information (the "Possessor") requested by the Requestor to exert its reasonable best efforts to locate all requested Information that is owned and possessed by Possessor, its Aff