41. While Moyer was preparing the SSSC proposal on May 19 he called Conser to ask him general questions related to integrated circuitry.
42. Vector Division, which had originally received a copy of the NASA RFQ, had decided to "no quote" it about one week earlier, partially on the advice of Conser.
43. At the time that Conser advised his superior, Sikina, that the design prepared by another Vector employe for the NASA RFQ could not be integrated, he did not know that Moyer and Boreen were planning to quote the same RFQ. Nor did he know that Moyer was working on the same RFQ when he was called on May 19.
44. The SSSC proposal, unlike that the design of which Conser said could not be integrated, took exceptions, i.e., it varied from the original specifications. Conser was not consulted by Moyer or Boreen in connection with the taking of these exceptions in the SSSC proposal.
45. SSSC's proposal was successful and it received a dual award from NASA along with another company.
46. On June 21 Kindregan, Pomante, Atteson, Markoe, and Conser submitted their resignations to Vector officials.
47. The defendants, all employed in the Solid-State Laboratory, constituted a very significant portion of its managing body. Following is a list of the management of the Solid-State Laboratory, with the names of those who left Vector to join SSSC in italics: Moyer, Manager; Sikina, Intermediary Supervisor with respect to Research & Development; Conser, Mask Making and Linear Integrated Circuits; Pomante, Processing and Diffusion; Atteson, Discrete Components; Markoe, Thin-Film; Pollino, Production; Smith, Evaluation and Test; Dale, Hybrid Circuits; Kons, Digital Integrated Circuits; Robinson, Packaging-Tempistors; and Kindregan, Sales. The defendants now serve in similar capacities for SSSC.
48. Kindregan retained a list of names, with telephone numbers of companies in the solid-state industry, which he had collected during his employment with Philco Corporation, Lansdale Division, from 1960 to 1963, with Texas Instruments from 1963 to 1964, and with Vector from 1964 to 1967. Kindregan used these names in his capacity as head of solid-state sales at Vector.
49. There is great mobility among engineers in the electronics industry. The movement takes place singly and in groups. It occurs because of the great demand by competing companies for people with talent in addition to the desire of the engineers for personal advancement.
50. The defendants were all employed by UAC at will.
51. Except for Boreen, defendants' reasons for leaving Vector were either that they were dissatisfied with their situations at Vector, or to advance themselves economically by forming SSSC, or both.
52. Boreen left Vector because he was dissatisfied with his arrangement with and progress in UAC and Vector.
53. Defendants, in leaving Vector, had no purpose or intent to injure Vector.
54. Defendants' inducement or persuasion of each other and of other employes to leave Vector was not to injure Vector, but to secure competent personnel for SSSC.
55. Defendants in good faith and on the advice of counsel believed that the formation and activities of SSSC would not be a violation by Boreen of his covenant with UAC.
56. Defendant Markoe retained a copy of Vector's diode sputtering system which he never used and no longer has in his possession.
57. In planning the formation of SSSC, the defendants, except for Boreen, made some use of Vector working time. The amount of the time so used was minimal.
58. The defendants carried on their plans for the formation of SSSC largely in secrecy.
59. SSSC is presently engaging in the manufacture and sale of solid-state devices competitive with those which UAC's Vector Division was manufacturing and developing on March 1, 1967, the date on which Boreen terminated his employment with UAC, and with products manufactured or under development by VMC on February 14, 1964, the date of UAC's acquisition of VMC.
I. THE COVENANT
Solid State Scientific Corporation is manufacturing and selling products which are competitive with devices now being marketed by UAC, devices which VMC was manufacturing or developing at the time of its acquisition by UAC. The question is whether these devices are
"* * * products being manufactured or under development by Vector on [February 14, 1964] * * *"
within the terms of the covenant.
The products which UAC seeks to insulate from competition through the covenant had never been offered for sale in their own right until after the date of acquisition. On February 14, 1964, these devices were being used by VMC as components of the telemetry devices which comprised its major business. From these facts the defendant Boreen argues that the products of UAC with which he is now competing were not "products" of VMC on the date of sale and that they are therefore not protected by this part of the covenant. What the parties meant by "products", according to Boreen, were those things that VMC was marketing on the crucial date, to wit, telemetry devices, telemedics products, and industrial products. It is true that with some modification those components were readily marketable products for outside sale. However, Boreen argues that until they were actually offered to the industry, which had never been done by VMC before the acquisition, they were not among VMC's products.
The basic position of UAC is that solid-state devices manufactured by VMC for in-house use in telemetry systems are "products" within the meaning of the covenant even though they were never offered for outside sale. Ultimate application, argues UAC, whether for in-house use or outside sale, is irrelevant under the terms of the covenant. Secondly, there were in fact outside sales before February 14, 1964.
Finally, UAC contends that these devices were considered products at the time of the acquisition by virtue of the fact that VMC was then preparing to enter the solid-state market. This is witnessed by its negotiations with Kindregan to take charge of marketing these devices and the fact that so shortly after the acquisition Vector
did in fact enter the solid-state market.
To begin with, we reject the view that "products" protected under the covenant encompasses components of telemetry systems never marketed or considered for marketing separately. Such a definition disregards the word "competitive." We do not think that the parties intended to prevent Boreen from engaging in the sale of transistors for general use if neither VMC nor UAC had ever used transistors apart from application as telemetry components.
The capacity for being separately marketable, moreover, does not suffice: competition in the air is not enough.
On the other hand, the fact that these solid-state devices were being manufactured and developed primarily for in-house use as telemetry components does not negate the fact that VMC was aware of their potential for sale in their own right and that on February 14, 1964, VMC intended to market them in the near future. We do not think it is necessary for UAC to show that these devices were being marketed on the date of acquisition nor that concrete steps had then been taken to offer these devices for sale. Shortly thereafter Vector was in fact marketing solid-state devices which it had been manufacturing and developing on the crucial date.
It is significant that the language of the covenant looks beyond February 14, 1964. Devices marketed after the sale, competitive with products now manufactured by Boreen, but considered for marketing before the sale are clearly products within the meaning of the covenant.
Our conclusion that marketing before the sale is not essential for the inclusion within the covenant of a product marketed after the sale is supported by the use of the language "under development." A device under development at the time of the sale and later marketed so that it was competitive within the meaning of the covenant would be protected without having been marketed before the sale.
In view of the evidence that VMC harbored a pre-acquisition intention to market independently devices which it had successfully developed in another application, we are convinced that the protection of these devices was within the contemplation of the parties to the covenant. UAC had a legitimate interest in protecting products which at the time of the sale were being developed by the VMC assets with only a future intention to begin marketing them. Indeed, the solid-state capability of the Microlab has proven to be a valuable asset acquired from VMC. Had the parties intended to limit the scope of the covenant to telemetry, telemedics, and industrial products they were fully capable of doing so. They did not.
Boreen has agreed not to manufacture or sell
"* * * any product competitive with the products * * * which at the time of the termination of [Boreen's] employment with [UAC] are being manufactured or developed by that portion of [UAC's] business being carried on with substantially the assets acquired by [UAC] pursuant to the said Plan and Agreement of Reorganization."
The question here is whether the products which UAC seeks to protect under the terms of the covenant are being manufactured and developed by a portion of its business which fits within the meaning of the covenant. It is not disputed that SSSC, a business in which the defendant Boreen plays a crucial part, is engaged in selling solid-state products that are in competition with those that were being manufactured and developed by the Vector Division of UAC on the date on which Boreen terminated his employment.
UAC's position is that the purpose of the language "that portion of your business being carried on with substantially the assets acquired [from VMC]" was to identify the Vector Division, that portion of UAC which was to carry on the business of VMC, as distinguished from the other divisions or departments of United Aircraft.
It notes that a substantial part, if not all, of the assets acquired from VMC remain in the Vector Division and are being used to carry on that portion of UAC's business.
Boreen argues that it is the Microlab of the Vector Division that is manufacturing and developing the products which UAC seeks to protect: that since only 10% of the equipment used in the Microlab came from VMC, the Microlab is being carried on with substantially assets other than those acquired from VMC; and that consequently the Microlab is not "that portion of [UAC's] business being carried on with substantially the assets acquired [from VMC]."
We note at the outset that the terms of the covenant do not require that the products protected were, on the date of the termination of employment, being manufactured or developed with what were formerly VMC assets, but only that they were being manufactured or developed by a portion of UAC's business that by virtue of its relationship to the VMC assets is identified in the covenant.
The meaning of the language "that portion of your business being carried on with substantially the assets acquired by you [from VMC]" is perplexing. Neither party can rest on a plain meaning approach. The argument of Boreen attempts to tie in the word "substantially" with the phrase "being carried on with": unless the Microlab is being carried on substantially with the VMC assets - in effect, unless it is those assets that are to a large extent responsible for the running of the portion of UAC's business called the Microlab - the products of the Microlab are not protected. On the other hand, UAC would associate the word "substantially" with the phrase "the assets acquired by you [from VMC]," in an effort to show that the portion of its business that encompasses these assets or a substantial portion thereof, which carries on the VMC business with whatever additional assets it may acquire, is that portion of its business the products of which are protected under the terms of the covenant.
Analyzed grammatically, the position of the word "substantially" makes little sense. Although it is an adverb it appears to modify no verb or adjective. In this form it cannot grammatically modify the noun "assets."
UAC argues that, from the surrounding circumstances and the very purpose of the acquisition itself, the need for additional capital for the expansion of VMC's business, it is inconceivable that the covenant should be written in such a manner so that it last only so long as the increment in the assets remains insubstantial. And yet, though this point is well taken, we are not free to disregard the troublesome language of the covenant.
Because of the difficulty with this language, we look to extrinsic evidence to determine what the parties meant. See, e.g., White Heat Products Co. v. Thomas, 266 Pa. 551, 109 A. 685 (1920).
In that portion of the evidence dealing with the first part of the covenant, see supra, Boreen introduced a draft of the covenant proposed by counsel for UAC and sent to his counsel, dated January 13, 1964. It was in this proposal that there first appeared the mysterious word "substantially."
UAC's proposal read in part as follows:
"[that Boreen would not engage in or perform any services] in connection with the manufacture or sale of any product similar to the products * * * which at the time of the termination of the undersigned's employment with you are being manufactured or developed by that portion of your business being carried on substantially with the assets acquired by you pursuant to the said Plan and Agreement of Reorganization."