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Transition Services Agreement

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AGI, INC.


TRANSITION SERVICES AGREEMENT


- - This Transition Services Agreement (the "Agreement"), dated as of March 25,
1996 is entered into by and between AG Associates, Inc. ("AGA"), AG
Associates (Israel) Ltd. ("AG Israel") and AGI, Inc. ("AGI").


- - The parties hereto have agreed to enter this Agreement in connection with
the closing of the transactions contemplated by the Agreement (the
"Investment Agreement"), dated February 27, 1995, among the parties hereto
and Clal Electronics Industries Ltd. (the "Closing").


- - The parties agreed that AGA will provide to AGI, for the time period and
consideration described below, certain of the services that have been
provided for the "CVD Activities" (as defined in the Investment Agreement)
prior to the Closing, in order to ensure the continued and uninterrupted
operation of the CVD Activities under AGI, following the Closing.


- - Therefore, the parties hereto agree as follows.


1. SERVICES TO BE PROVIDED BY AGA. AGA will provide the following services to AGI.


1.1 Human Resources Services. Those services generally described in
Schedule 1(a) hereto and incorporated herein by reference, and
related support, training, maintenance, information and reports.
With respect to the following matters, it is provided as follows.


New Hires; Terminations. AGI will make all decisions regarding
hiring, promotions and termination of its own employees. However,
AGA will provide employment services to AGI including administrative
aid in recruiting, interview scheduling and preparation of
employment offers. Any disputes between AGI and any of its
employees, former employee or other service providers with respect
to their employment by AGI will be administered by, and the
responsibility of, AGI.


Separation of Employment Records. AGI's employees shall be carried
on AGI payroll records and not those of AGA. However, upon receipt
by AGA from AGI of amounts needed to cover AGI's payroll from time
to time, AGA will, through its own bank account, make payroll
payments to AGI employees and on AGI's behalf. AGI will be listed on
AGA's payroll files as a separate organization. Each AGI employee or
other service provider will have a personnel file separate from
those of AGA employees.


Benefits. Although they may be administered by AGA, employment
benefits will be provided under separate plans for AGA and AGI
employees, wherever possible.


Notice to Employees. Each employee of AGI is to be informed in
writing by AGI at the time of hiring that, although employment
services are being provided by AGA as a service to AGI, such
employee is an employee of AGI, which will be solely responsible for
any compensation or other payments that may be due to such employee.


-1- 2
1.2 Operational Services. Those services generally described in Schedule
1(b) hereto and incorporated herein by reference, and related
training, support, maintenance, information and reports, including,
without limitation, the following.


Telephone and Facsimile. Although AGA may, at the written request of
AGI, administer and manage payment for same, AGI will obtain and
maintain its own telephone and facsimile numbers.


Segregation of Assets; Grant of Security Interest and Guarantee. AGI
and AG Israel generally will purchase their own inventory, raw
materials and other assets under their own purchase orders. However,
if acceptable to AGA on a case by case basis, AGA may at the request
of AGI or AG Israel purchase inventory, raw materials or other
assets on the requesting party's behalf and sell such assets to the
requesting party at AGA's cost, including shipping, taxes and other
ordinary procurement expenses. Any inventory or other assets
purchased by AGA under this Agreement will be purchased at the
request of AGI or AG Israel and in the name of AGA, will upon
receipt and physical designation by AGA as the requesting party's
property and will become the property of requesting party, which
will then have an obligation to pay therefor. To secure payment of
the purchase price of any inventory or assets purchased by AGA for
the benefit of AGI under this paragraph, AGI hereby grants AGA a
security interest in any and all inventory and other assets so
purchased and to be so purchased. AGI will sign any UCC financing
statement reasonably requested by AGA to perfect its security
interest in such inventory and assets. Inventory may be sold to
customers of AGI free and clear of AGA's security interest if sold
in the ordinary course of business as permitted by California law.


AGI hereby unconditionally guaranties, and does hereby become surety
for, the punctual payment to AGA of any amounts owed to AGA by AG
Israel, and AG Israel hereby unconditionally guaranties, and does
hereby become surety for, the punctual payment to AGA of any amounts
owed to AGA by AGI, all under the immediately preceding paragraph in
this Section 1.2, when such payments are due, whether by reason of
acceleration or otherwise and whether the obligation for payment is
now existing or hereafter arising (the "Obligations"). The
Obligations of each guarantor are absolute, unconditional and
continuing whether or not this Agreement expires or is terminated.
Each guarantor hereby consents that, from time to time, without
notice to, or further consent of such guarantor, the performance or
observance of any provision of any Obligation may be waived by AGA,
or the time of performance thereof extended or accelerated or may be
renewed in whole or in part or otherwise amended, changed, released
or compromised, all without affecting the liability of such
guarantor hereunder. Each guarantor hereby waives notice of
acceptance of this guaranty, presentment, demand, protest, notice of
protest and notice of dishonor of any Obligation guaranteed hereby.


Whenever possible, AGA, AG Israel and AGI will segregate from AGA's
other assets any inventory or assets purchased for, or owned by, AGI
or AG Isreal and shall clearly mark such assets as dedicated to, or
owned by, AGI or AG Isreal, as the case may be.


-2- 3
Facilities. The sublease of office facilities by AGI that are leased
or owned by AGA will be the subject of a separate real property
sublease between AGA and AGI (the "Sublease"). Whenever possible,
the workplace of AGI employees will be separated from the workplace
of AGA employees and signage will be employed to identify those
areas used by AGI sufficient to put to those visiting with each
party on notice that AGA and AGI are separate businesses.


Patents. Title to, and payment for, patents and patent applications
shall be governed by the terms of the Agreement, when applicable.
Although AGA may aid AGI in the preparation and filing of certain
patents or patent applications not covered by the Agreement, such
assets will be applied for in the name of AGI and paid for by AGI as
incurred or as specified in Section 2 below.


1.3 Financial and Control Systems. Those services generally described in
Schedule 1(c) hereto and incorporated herein by reference and
related support, maintenance, training, information and reports,
except as set forth below.


Separate Records. The books and records of AGI will be separate from
those of AGA.


Collection Services and Accounts Payable. AGI will pay all AGI
accounts payable and other expenses incurred in connection with the
activities described in Schedule 1(c) from its own bank accounts and
shall collect its own accounts receivable. However, AGA shall
provide accounts payable services for AGI, consisting of such
services as preparing purchase orders and administering the payment
by AGI of invoices. AGA may also, at the request of AGI and in AGA's
discretion, collect any AGI accounts receivable and may pay any AGI
accounts payable and ot
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