<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10
(AMENDMENT NO. 1)
---------------------
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or 12(g) of
the Securities Exchange Act of 1934
------------------------
UNOVA, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 95-4647021
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
360 NORTH CRESCENT DRIVE
BEVERLY HILLS, CALIFORNIA 90210
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (310) 888-2500
------------------------
Securities to be registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
- --------------------------------------------- ---------------------------------------------
Common Stock, New York Stock Exchange
par value $.01 per share
Preferred Share Purchase Rights New York Stock Exchange
</TABLE>
Securities to be registered pursuant to Section 12(g) of the Act:
None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
UNOVA, INC.
I. INFORMATION INCLUDED IN INFORMATION STATEMENT
AND INCORPORATED IN FORM 10 BY REFERENCE
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
<TABLE>
<CAPTION>
ITEM
NO. ITEM CAPTION LOCATION IN INFORMATION STATEMENT
----- ---------------------------------------------------- ----------------------------------------------------
<C> <S> <C>
1. Business............................................ "Summary of Certain Information"; "Introduction";
"The Distribution -- Background and Reasons for the
Distribution"; "Business and Properties"; and
"Management's Discussion and Analysis of Financial
Condition and Results of Operations."
2. Financial Information............................... "Summary of Certain Information"; "Risk Factors";
"UNOVA, Inc. Unaudited Pro Forma Combined Selected
Statements of Operations"; "UNOVA, Inc. Selected
Combined Historical Financial Data"; "Management's
Discussion and Analysis of Financial Condition and
Results of Operations" and "Financial Statements."
3. Properties.......................................... "Business and Properties."
4. Security Ownership of Certain Beneficial Owners and
Management.......................................... "The Distribution -- Listing and Trading of Company
Common Stock"; "Management" and "Security Ownership
of Certain Beneficial Owners of Company Common
Stock."
5. Directors and Executive Officers.................... "Risk Factors"; "Arrangements Between Western Atlas
and the Company Relating to the Distribution";
"Management" and "Liability and Indemnification of
Officers and Directors."
6. Executive Compensation.............................. "Arrangements Between Western Atlas and the Company
Relating to the Distribution" and "Management."
7. Certain Relationships and Related Transactions...... "Summary of Certain Information"; "Introduction";
"Risk Factors"; "The Distribution -- Background and
Reasons for the Distribution"; "Arrangements Between
Western Atlas and the Company Relating to the
Distribution"; "Management"; "Certain Transactions"
and "Index to Financial Statements."
8. Legal Proceedings................................... "Business and Properties -- Legal Proceedings."
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM
NO. ITEM CAPTION LOCATION IN INFORMATION STATEMENT
----- ---------------------------------------------------- ----------------------------------------------------
<C> <S> <C>
9. Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters....... "Summary of Certain Information"; "Introduction";
"Risk Factors" and "The Distribution -- Listing and
Trading of Company Common Stock."
11. Description of Registrant's Securities to be
Registered.......................................... "Description of Capital Stock"; "Certain
Antitakeover Effects of Certain Provisions of the
Certificate of Incorporation, the By-laws, State Law
and the Rights Plan."
12. Indemnification of Directors and Officers........... "Liability and Indemnification of Directors and
Officers" and "Annex C -- Certificate of
Incorporation of UNOVA, Inc."
13. Financial Statements and Supplementary Data......... "Summary of Certain Information"; "UNOVA, Inc.
Unaudited Pro Forma Combined Statements of
Operations"; "UNOVA, Inc. Selected Combined
Historical Financial Data"; "Management's Discussion
and Analysis of Financial Condition and Results of
Operations" and "Index to Financial Statements."
15. Financial Statements and Exhibits
(a) Financial Statements and Schedules*............. "Index to Financial Statements."
</TABLE>
II. INFORMATION NOT INCLUDED IN INFORMATION STATEMENT
<TABLE>
<S> <C>
Item 10. Recent Sales of Unregistered Securities.
None.
Item 14. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
None.
</TABLE>
- ------------------------
* All schedules not included in the Information Statement have been omitted
because the amounts in question are insufficient to require inclusion or
because the information required is presented in the combined financial
statements contained in the Information Statement.
2
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
UNOVA, INC.
By /s/ ALTON J. BRANN
-----------------------------------------
Alton J. Brann
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
October 1, 1997
<PAGE>
A REGISTRATION STATEMENT ON FORM 10 RELATING TO THE COMMON STOCK OF UNOVA, INC.
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BEEN
DECLARED EFFECTIVE. INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR
AMENDMENT.
[LETTERHEAD OF UNOVA]
INFORMATION STATEMENT
UNOVA, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
PREFERRED SHARE PURCHASE RIGHTS
This Information Statement is being furnished to shareholders of Western Atlas
Inc. ("Western Atlas") in connection with the distribution by Western Atlas to
its shareholders of all of the outstanding shares of common stock of its wholly
owned subsidiary, UNOVA, Inc.
The distribution will be made on , 1997, on the basis of one share of
common stock of UNOVA, Inc. for each share of Western Atlas common stock held at
the close of business on , 1997. No consideration will be paid by
shareholders of Western Atlas for the shares of common stock of UNOVA, Inc. to
be received by them in the distribution, nor will they be required to surrender
or exchange shares of Western Atlas in order to receive common stock of UNOVA,
Inc. Each share of UNOVA, Inc. common stock distributed will be accompanied by
one Preferred Share Purchase Right.
There is currently no public market for the common stock of UNOVA, Inc. UNOVA,
Inc. has applied to have its common stock listed on the New York Stock Exchange.
------------------------
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO
SEND US A PROXY.
------------------------
THIS INFORMATION STATEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. ANY SUCH OFFERING MAY
ONLY BE MADE BY MEANS OF A SEPARATE PROSPECTUS PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND OTHERWISE IN COMPLIANCE
WITH APPLICABLE LAW.
THE DATE OF THIS INFORMATION STATEMENT IS , 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AVAILABLE INFORMATION...................................................................................... iii
SUMMARY OF CERTAIN INFORMATION............................................................................. iv
The Distribution....................................................................................... iv
UNOVA, Inc............................................................................................. v
Summary Financial Information.......................................................................... vii
INTRODUCTION............................................................................................... 1
RISK FACTORS............................................................................................... 1
THE DISTRIBUTION........................................................................................... 3
Background and Reasons for the Distribution............................................................ 3
Manner of Effecting the Distribution................................................................... 4
Material Federal Income Tax Consequences of the Distribution........................................... 4
Listing and Trading of Company Common Stock............................................................ 5
Future Management of the Company....................................................................... 6
Conditions; Termination................................................................................ 7
ARRANGEMENTS BETWEEN WESTERN ATLAS AND THE COMPANY RELATING TO THE DISTRIBUTION............................ 7
Distribution and Indemnity Agreement................................................................... 7
Tax Sharing Agreement.................................................................................. 8
Benefits Agreement..................................................................................... 8
Intellectual Property Agreement........................................................................ 9
FINANCING.................................................................................................. 10
BUSINESS AND PROPERTIES.................................................................................... 10
General................................................................................................ 10
Products and Services.................................................................................. 11
Business Strategy...................................................................................... 14
Markets and Customers.................................................................................. 15
Competition............................................................................................ 16
Research and Development............................................................................... 17
Patents and Trademarks................................................................................. 17
Seasonality; Backlog................................................................................... 18
Employees.............................................................................................. 18
Legal and Environmental Matters........................................................................ 18
Raw Materials.......................................................................................... 18
Properties............................................................................................. 19
UNOVA, INC. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS.......................................... 20
UNOVA, INC. SELECTED COMBINED HISTORICAL FINANCIAL DATA.................................................... 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 26
General................................................................................................ 26
Recent Developments.................................................................................... 27
Results of Operations.................................................................................. 28
Six Months Ended June 30, 1997 Compared to 1996........................................................ 28
Year Ended December 31, 1996 Compared to 1995.......................................................... 29
Year Ended December 31, 1995 Compared to 1994.......................................................... 29
Foreign Currency Transactions.......................................................................... 30
Liquidity and Capital Resources........................................................................ 30
Inflation.............................................................................................. 30
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
MANAGEMENT................................................................................................. 31
Directors of the Company............................................................................... 31
Executive Officers of the Company...................................................................... 32
The Board and Certain Board Committees................................................................. 33
Directors' Compensation and Retirement Policies........................................................ 33
Director Stock Option and Deferred Fee Plan............................................................ 33
Annual Meeting......................................................................................... 35
Historical Compensation................................................................................ 35
Summary Compensation Table............................................................................. 35
Option Grants in Last Fiscal Year...................................................................... 36
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values...................... 38
Employment and Change in Control Arrangements.......................................................... 39
Retirement Benefits.................................................................................... 40
Indebtedness of Management to the Company.............................................................. 43
Incentive Compensation Plans Following the Distribution................................................ 43
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF COMPANY COMMON STOCK.................................... 49
By Management.......................................................................................... 49
By Others.............................................................................................. 49
DESCRIPTION OF CAPITAL STOCK............................................................................... 51
Authorized Capital Stock............................................................................... 51
Company Common Stock................................................................................... 51
Company Preferred Stock................................................................................ 51
CERTAIN ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION, THE BY-LAWS, STATE
LAW AND THE RIGHTS PLAN.................................................................................. 52
Classified Board of Directors.......................................................................... 52
Number of Directors; Removal; Filling Vacancies........................................................ 52
No Shareholder Action by Written Consent; Special Meetings............................................. 53
Fair Price Provision................................................................................... 53
Advance Notice Provisions for Shareholder Nominations and Shareholder Proposals........................ 59
Preferred Stock........................................................................................ 60
Amendment of Certain Provisions of the Certificate and By-laws......................................... 61
Antitakeover Legislation............................................................................... 61
Relationship of Article IX to Section 203.............................................................. 61
Rights Plan............................................................................................ 62
Comparison with Rights of Holders of Western Atlas Common Stock........................................ 64
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS.................................................... 64
Elimination of Liability of Directors.................................................................. 64
Indemnification of Directors and Officers.............................................................. 65
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
</TABLE>
ANNEXES
A. UNOVA, Inc. Director Stock Option and Fee Plan
B. UNOVA, Inc. 1997 Stock Incentive Plan
C. Certificate of Incorporation of UNOVA, Inc.
D. By-laws of UNOVA, Inc.
ii
<PAGE>
AVAILABLE INFORMATION
UNOVA, Inc. (the "Company") has filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form 10 (the
"Registration Statement") under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), with respect to its Common Stock described herein. The
Registration Statement became effective on , 1997. This Information
Statement does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further information,
reference is made hereby to the Registration Statement and such exhibits and
schedules. Copies of these documents may be inspected without charge at the
principal office of the Commission at 450 5th Street, N.W., Washington, D.C.
20549, and copies of all or any part thereof may be obtained from the Commission
upon payment of the charges prescribed by the Commission. Copies of such
materials can also be obtained from the Commission's Web Site (http://
www.sec.gov).
Following the Distribution (as defined herein), the Company will be required to
comply with the reporting requirements of the Exchange Act and will file annual,
quarterly and other reports with the Commission. The Company will also be
subject to the proxy solicitation requirements of the Exchange Act and,
accordingly, will furnish audited financial statements to its shareholders in
connection with its annual meetings of shareholders.
No person is authorized by Western Atlas Inc. or the Company to give any
information or to make any representations other than those contained in this
Information Statement, and if given or made, such information or representations
must not be relied upon as having been authorized.
iii
<PAGE>
SUMMARY OF CERTAIN INFORMATION
THIS SUMMARY IS QUALIFIED BY THE MORE DETAILED INFORMATION SET FORTH ELSEWHERE
IN THIS INFORMATION STATEMENT, WHICH SHOULD BE READ IN ITS ENTIRETY.
THE DISTRIBUTION
<TABLE>
<S> <C>
Distributing Company......................... Western Atlas Inc., a Delaware corporation
("Western Atlas").
Shares to be Distributed..................... Approximately 53.9 million shares of common
stock, par value $.01 per share ("Company
Common Stock"), of UNOVA, Inc., a Delaware
corporation (the "Company"), based on
approximately 53.9 million shares of common
stock of Western Atlas ("Western Atlas Common
Stock") currently outstanding.
Distribution Ratio........................... One share of Company Common Stock for each
share of Western Atlas Common Stock. See "The
Distribution -- Manner of Effecting the
Distribution."
Federal Income Tax Consequences.............. The Distribution is expected to qualify as a
tax-free distribution under Sections 355
and/or 368(a)(1)(D) of the Internal Revenue
Code. See "The Distribution -- Material
Federal Income Tax Consequences of the
Distribution."
Risk Factors................................. Shareholders should consider certain factors
discussed under "Risk Factors."
Trading Market............................... There is currently no public market for
Company Common Stock. The Company has applied
to have the Company Common Stock listed on
the New York Stock Exchange. See "The
Distribution -- Listing and Trading of
Company Common Stock."
Record Date.................................. , 1997.
Distribution Date............................ , 1997 (the "Distribution Date"). On or
shortly after the Distribution Date, the
Distribution Agent will commence mailing
account statements reflecting ownership of
shares of Company Common Stock to holders of
Western Atlas Common Stock on the Record
Date. Western Atlas shareholders will not be
required to make any payment or to take any
other action to receive their Company Common
Stock. See "The Distribution -- Manner of
Effecting the Distribution."
Distribution Agent........................... ChaseMellon Shareholder Services, L.L.C.
</TABLE>
iv
<PAGE>
UNOVA, INC.
<TABLE>
<S> <C>
The Company.................................. UNOVA, Inc., following the Distribution, will
own and operate substantially all of the
industrial automation systems businesses
currently being conducted by Western Atlas.
In the fiscal year ended December 31, 1996,
the businesses to be owned by the Company had
aggregate pro forma revenues and net earnings
of approximately $1.4 billion and $27.9
million, respectively. The industrial
automation systems businesses are
international suppliers of industrial
automation technologies, with emphasis on
automated data collection, mobile computing
and manufacturing systems. See "UNOVA, Inc.
Unaudited Pro Forma Combined Statements of
Operations" and "Business and Properties."
The principal corporate offices of the
Company are located at 360 North Crescent
Drive, Beverly Hills, California 90210 and
its telephone number is (310) 888-2500.
Pre-Distribution Intercompany Dividend....... Immediately prior to the Distribution, the
Company will distribute approximately $230
million to Western Atlas to enable Western
Atlas to repay short-term debt in a like
amount.
Management of the Company.................... Immediately after the Distribution Date, all
of the executive officers of the Company are
expected to be persons who currently serve as
officers or other key employees of Western
Atlas, several of whom manage the businesses
to be owned by the Company. All such persons
will resign from their positions as
executives of Western Atlas, so that the
Company and Western Atlas will have no
executive officers in common. Two persons who
are directors or executive officers of the
Company will continue as directors of Western
Atlas. See "Management."
Trading Market............................... There is not currently a public market for
Company Common Stock, although a "when-
issued" trading market (as described on page
6 below) is expected to develop prior to the
Distribution Date. The Company has applied to
have the Company Common Stock listed on the
New York Stock Exchange. See "Risk Factors"
and "The Distribution -- Listing and Trading
of Company Common Stock."
</TABLE>
v
<PAGE>
<TABLE>
<S> <C>
Preferred Share Purchase Rights.............. As of the Distribution Date, the Company will
have adopted a Preferred Share Purchase
Rights Plan (the "Rights Plan"). Certificates
or book-entry credits issued in the
Distribution representing shares of Company
Common Stock will also initially represent an
equivalent number of associated Preferred
Share Purchase Rights of the Company (the
"Rights"). See "Certain Antitakeover Effects
of Certain Provisions of the Certificate of
Incorporation, the By-laws, State Law and the
Rights Plan -- Rights Plan."
Certain Provisions of Certificate of
Incorporation and By-laws.................. Certain provisions of the Company's
Certificate of Incorporation and By-laws, as
each will be in effect following the
Distribution, may have the effect of making
more difficult an acquisition of control of
the Company in a transaction not approved by
the Company's Board of Directors. See
"Certain Antitakeover Effects of Certain
Provisions of the Certificate of
Incorporation, the By-laws, State Law and the
Rights Plan." The Company's Certificate of
Incorporation would, in some circumstances,
eliminate liabilities of the Company
directors in connection with the per-formance
of their duties. See "Liability and
Indemnification of Directors and Officers.
Post-Distribution Dividend Policy............ Neither Western Atlas nor the Company is
expected to pay cash dividends in the near
future. The payment of future dividends, if
any, by Western Atlas or the Company will be
at the discretion of the Western Atlas Board
of Directors and the Company's Board of
Directors, respectively. See "Risk Factors --
Dividend Policies."
Transfer Agent and Registrar................. ChaseMellon Shareholder Services, L.L.C.
</TABLE>
vi
<PAGE>
SUMMARY FINANCIAL INFORMATION
UNOVA, INC.
SELECTED COMBINED HISTORICAL FINANCIAL DATA
The following selected combined historical financial data of the Company should
be read in conjunction with the historical combined financial statements and
notes thereto included elsewhere in this Information Statement. The following
selected combined historical financial data which relate to the three years in
the period ended December 31, 1996 have been derived from combined financial
statements audited by Deloitte & Touche LLP, independent auditors. The selected
combined historical financial data for the five-month period ended December 31,
1993, the one-year periods ended July 31, 1993 and 1992 and the six-month
periods ended June 30, 1997 and 1996 have been derived from unaudited combined
financial statements. In the opinion of management, the unaudited combined
financial statements reflect all adjustments, consisting only of normal
adjustments, necessary to present fairly the financial position of the Company
at December 31, 1993, July 31, 1993 and 1992 and June 30, 1997 and 1996 and the
results of operations for the five-month period ended December 31, 1993, for the
years ended July 31, 1993 and 1992 and for the six-month periods ended June 30,
1997 and 1996. The historical combined financial statements of the Company may
not necessarily reflect the results of operations or financial position that
would have been obtained had the Company been a separate, independent company.
The historical combined results for the six months ended June 30, 1997 and 1996
are not necessarily indicative of results for the entire year.
See "UNOVA, Inc. Unaudited Pro Forma Combined Statements of Operations" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
See page (ix) for selected pro forma financial data.
vii
<PAGE>
UNOVA, INC.
SELECTED COMBINED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR
SIX MONTHS FIVE MONTHS ENDED
ENDED JUNE 30, YEAR ENDED DECEMBER 31, ENDED JULY 31,
-------------------- ------------------------------- DECEMBER 31, ---------
1997 1996 1996 1995 1994 1993 1993
--------- --------- --------- --------- --------- -------------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Sales and Service Revenues............... $ 732.3 $ 504.5 $ 1,164.7 $ 942.9 $ 971.1 $ 360.9 $ 844.3
--------- --------- --------- --------- --------- -------------- ---------
Operating Costs and Expenses
Cost of sales.......................... 512.5 356.5 841.8 669.3 689.9 270.2 589.9
Selling, general and
administrative(1).................... 356.0 103.8 218.7 194.1 199.9 79.4 170.6
Depreciation and amortization.......... 17.0 12.9 27.0 26.1 28.7 12.0 26.8
--------- --------- --------- --------- --------- -------------- ---------
Total................................ 885.5 473.2 1,087.5 889.5 918.5 361.6 787.3
--------- --------- --------- --------- --------- -------------- ---------
(Loss) Earnings before Interest and
Taxes (2).............................. (153.2) 31.3 77.2 53.4 52.6 (0.7) 57.0
Interest Expense--net (3)................ (7.1) (3.1) (7.1) (9.3) (15.7) (4.3) (5.1)
Taxes on Income.......................... (17.2) (11.3) (28.1) (17.9) (15.3) (0.3) (20.5)
--------- --------- --------- --------- --------- -------------- ---------
Net (Loss) Earnings (2).................. $ (177.5) $ 16.9 $ 42.0 $ 26.2 $ 21.6 $ (5.3) $ 31.4
--------- --------- --------- --------- --------- -------------- ---------
--------- --------- --------- --------- --------- -------------- ---------
Pro Forma Net (Loss) Earnings
per Share (2).......................... $ (3.29) $ 0.78
Equivalent Shares (4).................... 53,892 53,892
FINANCIAL POSITION (at end of period):
Total Assets............................. $ 1,351.3 $ 906.6 $ 1,073.8 $ 919.0 $ 860.8 $ 799.0 $ 748.0
Equity -- Investment by Western Atlas.... $ 590.2 $ 501.5 $ 574.5 $ 502.7 $ 439.4 $ 380.9 $ 471.5
Notes Payable and Current Portion of
Long-term Obligations.................. $ 57.4 $ 23.3 $ 27.5 $ 22.2 $ 41.7 $ 7.1 $ 4.3
Long-term Obligations.................... $ 17.3 $ 14.0 $ 14.5 $ 14.1 $ 9.0 $ 8.9 $ 19.1
Allocated Portion of Western Atlas
Debt................................... $ 228.2 $ 112.7 $ 109.6 $ 112.4 $ 112.8 $ 211.0 $ 27.3
Working Capital.......................... $ 83.5 $ 192.2 $ 266.0 $ 194.7 $ 115.2 $ 53.0 $ 199.5
Current Ratio............................ 1.1 1.6 1.6 1.6 1.3 1.1 2.0
Total Debt as a Percentage of Total
Capitalization......................... 34% 23% 21% 23% 27% 37% 10%
<CAPTION>
1992
---------
<S> <C>
OPERATING RESULTS:
Sales and Service Revenues............... $ 761.8
---------
Operating Costs and Expenses
Cost of sales.......................... 526.3
Selling, general and
administrative(1).................... 159.8
Depreciation and amortization.......... 26.7
---------
Total................................ 712.8
---------
(Loss) Earnings before Interest and
Taxes (2).............................. 49.0
Interest Expense--net (3)................ (7.0)
Taxes on Income.......................... (16.6)
---------
Net (Loss) Earnings (2).................. $ 25.4
---------
---------
Pro Forma Net (Loss) Earnings
per Share (2)..........................
Equivalent Shares (4)....................
FINANCIAL POSITION (at end of period):
Total Assets............................. $ 717.8
Equity -- Investment by Western Atlas.... $ 410.9
Notes Payable and Current Portion of
Long-term Obligations.................. $ 1.8
Long-term Obligations.................... $ 19.8
Allocated Portion of Western Atlas
Debt................................... $ 76.7
Working Capital.......................... $ 117.7
Current Ratio............................ 1.5
Total Debt as a Percentage of Total
Capitalization......................... 19%
</TABLE>
- ------------------------
(1) General and Administrative Costs include allocated charges from Western
Atlas of $22.2 million, $19.9 million, $27.6 million, $8.1 million, $14.1
million and $10.4 million for the fiscal years ended December 31, 1996, 1995
and 1994, the five months ended December 31, 1993, and the fiscal years
ended July 31, 1993 and 1992, respectively, and $9.1 million and $10.8
million for the six-month periods ended June 30, 1997 and 1996,
respectively. The June 30, 1997 period includes a $203.3 million
non-tax-deductible charge, or $3.77 per share, for the value of in-process
research and development activities resulting from the Norand and UBI
acquisitions.
(2) Amounts presented for the year ended July 31, 1993 are before a cumulative
effect of a change in accounting principle for the adoption of the
provisions of SFAS No. 106, Employer's Accounting for Postretirement
Benefits Other Than Pensions. The Company elected immediate recognition of
the transition liability, and recorded a net of tax charge of $9.3 million.
Net earnings for the period were $22.1 million and earnings per share were
$0.41 after the cumulative effect of a change in accounting principle.
(3) Interest expense includes allocated charges from Western Atlas of $8.3
million, $8.4 million, $12.1 million, $3.7 million, $3.9 million and $5.8
million for the fiscal years ended December 31, 1996, 1995 and 1994, the
five months ended December 31, 1993, and the fiscal years ended July 31,
1993 and 1992, respectively, and $6.3 million and $4.1 million for the
six-month periods ended June 30, 1997 and 1996, respectively.
(4) In thousands. The number of common shares used to calculate earnings per
share for all periods presented is based on the number of shares of Western
Atlas Common Stock outstanding as of June 30, 1997.
viii
<PAGE>
UNOVA, INC.
SELECTED PRO FORMA FINANCIAL DATA
(THOUSANDS OF DOLLARS,
EXCEPT PER SHARE DATA)
(UNAUDITED)
The following unaudited selected pro forma financial data of the Company give
effect to the Distribution, the Company's purchase of Norand Corporation
("Norand") and the related borrowings. For purposes of the unaudited pro forma
operating data, such transactions are assumed to have taken place on the first
day of each period presented. The selected unaudited pro forma financial data
should be read in conjunction with the more detailed unaudited pro forma
financial data and notes thereto included elsewhere in this Information
Statement.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
-------------- -------------------
<S> <C> <C>
OPERATING RESULTS:
Sales and Service Revenues................................................... $ 769,141 $ 1,405,812
-------------- -------------------
Costs and Expenses
Cost of sales.............................................................. 534,191 981,785
Selling, general and administrative........................................ 169,839 305,837
Depreciation and amortization.............................................. 20,103 46,224
Interest--net.............................................................. 9,611 15,924
Litigation settlement...................................................... 5,100
Cost of restructuring operations........................................... 4,392
-------------- -------------------
Total costs and expenses................................................... 733,744 1,359,262
-------------- -------------------
Earnings before Taxes on Income............................................ 35,397 46,550
Taxes on Income............................................................ (14,159) (18,620)
-------------- -------------------
Net Earnings................................................................. $ 21,238 $ 27,930
-------------- -------------------
-------------- -------------------
Pro Forma Net Earnings per Share............................................. $ 0.39 $ 0.52
-------------- -------------------
-------------- -------------------
(Equivalent Shares of 53.9 million)
</TABLE>
ix
<PAGE>
INTRODUCTION
On May 5, 1997, Western Atlas Inc., a Delaware corporation ("Western Atlas"),
announced that its Board of Directors had approved in principle a plan to
distribute as a dividend to Western Atlas' shareholders (the "Distribution")
substantially all of the industrial automation systems businesses being
conducted by Western Atlas. Western Atlas' industrial automation businesses will
be transferred to wholly owned subsidiaries of UNOVA, Inc., a Delaware
corporation (the "Company") and a wholly owned subsidiary of Western Atlas. On
September 24, 1997, the Board of Directors of Western Atlas reaffirmed its
approval in principle of the Distribution, and delegated to a committee of the
board the authority to take the actions necessary to complete the Distribution,
subject to the satisfaction of the conditions described under "The Distribution
- -- Conditions; Termination."
The Distribution will be effected by distributing to holders of Western Atlas
common stock, par value $1.00 per share ("Western Atlas Common Stock"), all of
the outstanding common stock, par value $.01 per share, of the Company ("Company
Common Stock"). On , 1997 (the "Distribution Date"), Western Atlas will
effect the Distribution by delivering all of the outstanding shares of the
Company Common Stock to ChaseMellon Shareholder Services, L.L.C. as the
distribution agent (the "Distribution Agent") for transfer and distribution to
the holders of Western Atlas Common Stock on , 1997, the record date
for the Distribution.
The Company's principal executive offices are located at 360 North Crescent
Drive, Beverly Hills, California 90210 and its telephone number is (310)
888-2500.
Shareholders of Western Atlas with inquiries relating to the Distribution should
contact the Distribution Agent at (800) 821-5130, or Western Atlas Inc.,
Shareholder Services Office, 360 North Crescent Drive, Beverly Hills, California
90210, telephone number (310) 888-2660. After the Distribution Date,
shareholders of the Company with inquiries relating to their investment in the
Company should contact UNOVA, Inc., Shareholder Services Office, 360 North
Crescent Drive, Beverly Hills, California 90210, telephone number (310)
888-2660.
NO ACTION IS REQUIRED BY WESTERN ATLAS SHAREHOLDERS IN ORDER TO RECEIVE THE
COMPANY COMMON STOCK TO WHICH THEY ARE ENTITLED IN THE DISTRIBUTION.
RISK FACTORS
Certain risk factors are involved in an investment in the Company, as described
below. The Company also cautions readers that, in addition to the historical
information included herein, this Information Statement includes certain
forward-looking statements and information that are based on management's
beliefs as well as on assumptions made by and information currently available to
management. When used in this Information Statement, the words "expect,"
"anticipate," "intend," "plan," "believe," "seek," "estimate," and similar
expressions are intended to identify such forward-looking statements. However,
this Information Statement also contains other forward-looking statements. Such
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions, including but not limited to the following
factors, which could cause the Company's future results and shareholder values
to differ materially from those expressed or implied in any forward-looking
statements made by or on behalf of the Company. Many of such factors are beyond
the Company's ability to control or predict. Readers are cautioned not to put
undue reliance on forward-looking statements. The Company disclaims any intent
or obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise.
CERTAIN FINANCIAL CONSIDERATIONS
Following the Distribution, Western Atlas will become more leveraged than it
currently is. Assuming the Distribution had been consummated as of June 30,
1997, Western Atlas would have had total debt, excluding deferred items and
post-retirement benefit obligations other than pensions, of $740 million and
total shareholders' equity of $783 million, compared with Western Atlas' actual
total debt at June 30,
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1997 of $1,043 million and total shareholders' equity of $1,373 million. If the
Distribution had occurred on June 30, 1997, Western Atlas would have had
approximately $19 million in cash or cash equivalents.
The Company will be less leveraged immediately following the Distribution than
Western Atlas currently is. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
DIVIDEND POLICIES
Neither Western Atlas nor the Company is expected to pay cash dividends in the
near future. The dividend policy of each company will be reviewed from time to
time by its Board of Directors. The payment of future dividends, if any, would
depend on the companies' respective operating results, financial requirements
and other factors, and should be within the sole discretion of such Board of
Directors.
CERTAIN ANTITAKEOVER EFFECTS
The Certificate of Incorporation and By-laws of the Company, certain sections of
the Delaware General Corporations Law (the "DGCL") and the Rights Plan contain
several provisions that may make the acquisition of control of the Company more
difficult or expensive. See "Certain Antitakeover Effects of Certain Provisions
of the Certificate of Incorporation, the By-laws, State Law and the Rights
Plan."
TRADING OF WESTERN ATLAS COMMON STOCK AND COMPANY COMMON STOCK
The Western Atlas Common Stock will continue to be listed and traded on the New
York Stock Exchange ("NYSE") after the Distribution. There is currently no
public market for the Company Common Stock. The Company has applied to have the
Company Common Stock listed on the NYSE. The combined trading price of Western
Atlas Common Stock and Company Common Stock held by shareholders after the
Distribution may be less than, equal to or greater than the trading price of
Western Atlas Common Stock prior to the Distribution.
Substantially all of the shares of Company Common Stock will be eligible for
immediate resale in the public market after the Distribution. Any sales of
substantial amounts of Company Common Stock in the public market, or the
perception that such sales might occur, whether as a result of the Distribution
or otherwise, could materially adversely affect the market price of Company
Common Stock. See "The Distribution -- Listing and Trading of Company Common
Stock."
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
Western Atlas has been advised by its special counsel, Wachtell, Lipton, Rosen &
Katz, that the Distribution will qualify as a tax-free distribution under
Sections 355 and/or 368(a)(1)(D) of the Internal Revenue Code of 1986, as
amended (the "Code"), and the Distribution is conditioned on receipt of an
opinion of counsel satisfactory to the Western Atlas Board to the same effect.
See "The Distribution -- Material Federal Income Tax Consequences of the
Distribution."
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THE DISTRIBUTION
BACKGROUND AND REASONS FOR THE DISTRIBUTION
The Board of Directors of Western Atlas (the "Western Atlas Board") believes
that the Distribution will be beneficial to Western Atlas' shareholders and to
each of Western Atlas' current businesses. It will separate businesses with
distinctly different financial, investment and operating characteristics so that
each could adopt strategies and pursue objectives more appropriate to its
specific markets and industries than is possible under Western Atlas' present
combined structure. Western Atlas' Industrial Automation Systems segment and
Oilfield Services segment ("Oilfield Services") have also grown to a size that
allows each to continue on its own without significantly reducing the
operational or financial flexibility of either entity.
The Distribution will enable management of each company to concentrate its
attention and financial resources on the core businesses of its respective
company without being limited by the corporate objectives, policies and
investment standards of the other.
Under current capital market conditions, the oilfield services sector is valued
differently than either automated data collection or manufacturing systems.
Moreover, competitive conditions in the oilfield services industry, particularly
the demands of customers for a broader range of services to be provided by a
single major service company, necessitate, in management's view, that the
Oilfield Services business expand the range of services it offers. Management
believes that this expansion will not be achievable solely through internal
growth and thus the Oilfield Services business will need to engage in mergers
and other significant acquisitions to respond to the competitive needs of this
business and secure future expansion. Management believes that the Oilfield
Services business is more likely to successfully realize its strategic and
financing strategies as a separate public company.
Western Atlas regards the UNOVA businesses as well-positioned in a worldwide
market with attractive growth opportunities. Western Atlas has recently
significantly expanded these businesses through the acquisition of Norand
Corporation ("Norand") and United Barcode Industries ("UBI"), and further
acquisitions in this segment are likely. While these recent acquisitions have
added critical mass to UNOVA's businesses and helped establish Western Atlas as
a leading participant in the industrial workplace information technology market,
they have also made Western Atlas' prospects more difficult to analyze by
investors and analysts, who follow and rate Western Atlas primarily because of
its participation in the oilfield services industry.
Management is concerned that as UNOVA continues to grow internally and through
further acquisitions, the market value of Western Atlas' stock, in the absence
of the Distribution, might be affected adversely. By dividing Western Atlas into
two independent oilfield services and industrial automation entities, management
hopes to facilitate the market's analysis of the two businesses so as to promote
more accurate assessments of the value of each business, enhancing the
likelihood that each will achieve appropriate market recognition of its
performance and potential. Accordingly, the Distribution will enable current
shareholders and potential investors to direct their investment to their
specific area of interest by allowing them to choose between the industrial
automation business and the Oilfield Services business or to continue to have an
interest in both.
The Oilfield Services business by its nature requires particularly extensive
involvement between its senior executives and the senior executives of customers
of the business on a global scale, as over two-thirds of its activities are
performed outside North America and often in countries that are not highly
developed from an industrial standpoint. As such this business benefits
substantially from continuity of senior management and stability of
relationships developed over many years. A major and growing part of UNOVA's
activities participates in markets that are driven by constant technology
advances and changes, and by the need to establish multi-layered distribution
and marketing networks. Management
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orientation in this business is distinctly different from that in Oilfield
Services. Accordingly, these differences in the management characteristics of
Western Atlas' businesses, and in the customers of each business, lead to issues
related to management development and succession and to the compensation
structure of each business.
The Western Atlas Board believes that, following the Distribution, the value and
potential of UNOVA and the Oilfield Services business can be better realized as
separate public companies. In addition, the Distribution will permit each
company to offer incentives that are unique to its business and, therefore, more
appropriate for the key employees of its business. By establishing UNOVA and the
Oilfield Services business as separate independent public companies, the
Distribution should assist each company in recruiting key personnel and
tailoring its compensation, particularly stock-based compensation, to correspond
more closely to the performance of its business.
For the reasons stated above, the Western Atlas Board believes that the
Distribution is in the best interests of Western Atlas and its shareholders.
MANNER OF EFFECTING THE DISTRIBUTION
On , 1997, all of the outstanding shares of Company Common Stock will
be delivered to the Distribution Agent for transfer. Commencing on or shortly
after that date, the Distribution Agent will commence mailing account statements
to holders of Western Atlas Common Stock as of the close of business on , 1997,
the date selected by the Western Atlas Board as the record date for the
Distribution (the "Record Date"), on the basis of one share of Company Common
Stock for each share of Western Atlas Common Stock held on the Record Date. All
such shares of Company Common Stock will be fully paid, nonassessable and free
of preemptive rights. See "Description of Capital Stock."
The Company maintains a direct registration system for the Company Common Stock.
See "Description of Capital Stock -- Company Common Stock." Accordingly,
physical certificates representing shares of Company Common Stock will not be
issued, except to shareholders that specifically request a certificate as
described in the materials provided by the Distribution Agent.
NO HOLDER OF WESTERN ATLAS COMMON STOCK WILL BE REQUIRED TO PAY ANY CASH OR
OTHER CONSIDERATION FOR THE SHARES OF COMPANY COMMON STOCK TO BE RECEIVED IN THE
DISTRIBUTION OR TO SURRENDER OR EXCHANGE SHARES OF WESTERN ATLAS COMMON STOCK OR
TO TAKE ANY OTHER ACTION IN ORDER TO RECEIVE COMPANY COMMON STOCK. THE
DISTRIBUTION WILL NOT AFFECT THE NUMBER OF OUTSTANDING SHARES OF WESTERN ATLAS
COMMON STOCK.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
Western Atlas has been advised by its special counsel, Wachtell, Lipton, Rosen &
Katz, that the Distribution will qualify as a tax-free distribution under
Sections 355 and/or 368(a)(1)(D) of the Code. The Distribution is conditioned
upon receipt of an opinion of counsel satisfactory to the Western Atlas Board to
the same effect. So long as the Distribution qualifies under Sections 355 and/or
368(a)(1)(D) of the Code, in the opinion of Wachtell, Lipton, Rosen & Katz the
principal federal income tax consequences of the Distribution will be as
follows:
(a) No gain or loss will be recognized by, or be includible in the income
of, a holder of Western Atlas Common Stock solely as a result of the
receipt of Company Common Stock and the associated Preferred Share
Purchase Rights in the Distribution.
(b) No gain or loss will be recognized by Western Atlas as a result of
the Distribution (other than income or gain, if any, recognized by
Western Atlas or its subsidiaries in connection with the intercompany
items or excess loss accounts).
(c) Assuming that a holder of Western Atlas Common Stock holds such
Western Atlas Common Stock as a capital asset, such holder's holding
period for the Company Common Stock
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received in the Distribution will include the period during which such
Western Atlas Common Stock was held.
(d) The tax basis of Western Atlas Common Stock held by a Western Atlas
shareholder immediately prior to the Distribution will be apportioned
(based upon relative fair market values at the time of the Distribution)
between such Western Atlas Common Stock and the Company Common Stock
received by such shareholder in the Distribution.
THE FOREGOING IS ONLY A SUMMARY OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES
OF THE DISTRIBUTION UNDER CURRENT LAW, AND DOES NOT TAKE INTO ACCOUNT ANY
SPECIAL CIRCUMSTANCES THAT MAY APPLY TO PARTICULAR SHAREHOLDERS. EACH
SHAREHOLDER SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE PARTICULAR
CONSEQUENCES OF THE DISTRIBUTION TO SUCH SHAREHOLDER, INCLUDING THE APPLICATION
OF STATE, LOCAL AND FOREIGN TAX LAWS, AND AS TO POSSIBLE CHANGES IN TAX LAWS
THAT MAY AFFECT THE TAX CONSEQUENCES DESCRIBED ABOVE. THIS SUMMARY MAY NOT BE
APPLICABLE TO SHAREHOLDERS WHO RECEIVED THEIR WESTERN ATLAS COMMON STOCK
PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS, UNDER AN EMPLOYEE STOCK
PURCHASE PLAN OR OTHERWISE AS COMPENSATION OR WHO ARE NOT CITIZENS OR RESIDENTS
OF THE UNITED STATES.
The opinions of counsel referred to above would not be binding upon the Internal
Revenue Service (the "IRS") and would be subject to certain factual
representations and assumptions. Western Atlas is not aware of any present facts
or circumstances which should cause such representations and assumptions to be
untrue. However, certain future events not within the control of Western Atlas
or the Company, including certain extraordinary purchases of Western Atlas
Common Stock or Company Common Stock, could cause the Distribution not to
qualify as tax-free. Depending on the event, the Company may be liable for some
or all of the taxes resulting from the Distribution not qualifying under
Sections 355 and/ or 368(a)(1)(D)of the Code as tax-free. See "Arrangements
Between Western Atlas and the Company Relating to the Distribution -- Tax
Sharing Agreement." If the Distribution were taxable, then (i) each holder of
Western Atlas Common Stock who receives shares of Company Common Stock in the
Distribution would be treated as if such shareholder received a taxable
distribution, taxed as a dividend to the extent of such shareholder's pro rata
share of Western Atlas' current and accumulated earnings and profits and then
treated as a return of capital to the extent of the holder's basis in the
Western Atlas Common Stock and finally as gain from the sale or exchange of
Western Atlas Common Stock and (ii) corporate level taxes would be payable by
the consolidated group of which Western Atlas is the common parent, based upon
the excess of the fair market value of the Company Common Stock on the date of
the Distribution over Western Atlas' tax basis therein. Western Atlas does not
intend to effect the Distribution if, prior to the Distribution Date, Western
Atlas becomes aware of circumstances that would result in the Distribution being
a taxable transaction.
Information with respect to the allocation of tax basis between Company Common
Stock and Western Atlas Common Stock will be provided to shareholders at the
time of distribution of the account statements reflecting ownership of shares of
Company Common Stock.
For a description of the agreement pursuant to which Western Atlas and the
Company have provided for various tax matters, see "Arrangements Between Western
Atlas and the Company Relating to the Distribution -- Tax Sharing Agreement."
LISTING AND TRADING OF COMPANY COMMON STOCK
There is not currently a public market for Company Common Stock. Prices at which
Company Common Stock may trade prior to the Distribution on a "when-issued"
basis (see the second following paragraph) or after the Distribution cannot be
predicted. Until the Company Common Stock is fully distributed and an orderly
market develops, the prices at which trading in such stock occurs may fluctuate
significantly. The prices at which Company Common Stock trades will be
determined by the marketplace and may be influenced by many factors, including,
among others, the depth and liquidity of the market for Company
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Common Stock, investor perception of the Company and of the industries in which
the Company operates, the Company's dividend policy and general economic and
market conditions.
The planned Distribution will involve the distribution of an aggregate of
approximately 53.9 million shares of Company Common Stock to the shareholders of
Western Atlas on the Distribution Date, representing all of the outstanding
shares of Company Common Stock. Substantially all of such shares of Company
Common Stock will be eligible for immediate resale in the public market. In
addition, because Western Atlas is included in the Standard & Poor's 500 stock
index, but the Company is not so included, shares of Company Common Stock
received by "index funds" that invest in Western Atlas may be made available for
sale, although the Company is unable to predict the timing or amounts of any
such sales. Neither Western Atlas nor the Company is able to predict whether
substantial amounts of Company Common Stock will be sold in the open market
following the Distribution. Any sales of substantial amounts of Company Common
Stock in the public market, or the perception that such sales might occur,
whether as a result of the Distribution or otherwise, could materially adversely
affect the market price of Company Common Stock.
In "when-issued" trading, contracts for the purchase and sale of shares of stock
are made prior to the issuance of such shares in the same manner as currently
issued shares, except that when-issued contracts are settled by delivery of and
payment for the shares on a date chosen by the particular exchange on which such
shares are to be listed. Ordinarily, in connection with a distribution of stock
such as described in this Information Statement, the date fixed for settlement
of when-issued contracts relating to such stock is the sixth business day after
distribution of such stock. Shareholders who may wish to effect a when-issued
trade in Company Common Stock should consult their brokers for additional
details.
The Company has applied to have the Company Common Stock listed on the NYSE. The
Company initially will have approximately 22,000 shareholders of record and an
additional 14,000 beneficial holders, based on the number of record holders and
the estimated number of beneficial holders of Western Atlas Common Stock, and
53.9 million shares of Company Common Stock will be outstanding. The Transfer
Agent and Registrar for the Company Common Stock will be ChaseMellon Shareholder
Services, L.L.C. For certain information regarding options to purchase Company
Common Stock that are expected to become outstanding after the Distribution, see
"Management -- Benefit Plans Following the Distribution."
Shares of Company Common Stock distributed to Western Atlas shareholders in the
Distribution will be freely transferable, except for securities received by
persons who may be deemed to be "affiliates" of the Company, under the
Securities Act of 1933, as amended (the "Securities Act"). Persons who may be
deemed to be affiliates of the Company after the Distribution generally include
individuals or entities that control, are controlled by, or are under common
control with, the Company and may include certain officers and directors of the
Company as well as principal shareholders of the Company, if any. Persons who
are affiliates of the Company will be permitted to sell their shares of Company
Common Stock only pursuant to an effective registration statement under the
Securities Act or an exemption from the registration requirements of the
Securities Act.
FUTURE MANAGEMENT OF THE COMPANY
Following the Distribution it is intended that the Company will operate Western
Atlas' industrial automation businesses substantially in the manner in which
they have been operated by Western Atlas in the past. All of the executive
officers of the Company are expected to be persons who currently serve as
officers or other key employees of Western Atlas. See "Management -- Executive
Officers of the Company." In order to avoid adversely affecting the intended tax
consequences of the Distribution, and incurring indemnification obligations
under the Tax Sharing Agreement (as hereinafter defined), the Company intends
not to (a) liquidate, merge with any other corporation, or sell or otherwise
dispose of assets other than in certain transactions, (b) engage in certain
repurchases or issuances of stock or
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(c) discontinue the active conduct of the trade or business conducted by it
immediately after the Distribution, unless it obtains a satisfactory opinion of
counsel or tax ruling. The Company does not expect these limitations to
significantly inhibit its financing or acquisition activities or its ability to
respond to unanticipated developments. See "Arrangements Between Western Atlas
and the Company Relating to the Distribution -- Tax Sharing Agreement."
CONDITIONS; TERMINATION
The Distribution is conditioned upon, among other things, (i) the receipt by
Western Atlas of opinions of counsel satisfactory to the Western Atlas Board
that, among other things, the Distribution will be tax-free; (ii) the Company
Common Stock having been approved for listing on the NYSE, subject to official
notice of issuance; (iii) the Board of Directors of the Company (the "Board"),
as described below under "Management -- Directors of the Company," having been
elected by Western Atlas as sole shareholder of the Company, and the Certificate
of Incorporation and the By-laws of the Company, as each will be in effect after
the Distribution, having been adopted and being in effect; (iv) the Registration
Statement having become effective; and (v) the receipt of a statement from the
Staff of the Commission that the Distribution may be effected without
registration of Company Common Stock under the Securities Act. Even if all the
above conditions are satisfied, the Western Atlas Board has reserved the right
to abandon, defer or modify the Distribution and the related transactions
described herein at any time prior to the Distribution Date. See "Arrangements
Between Western Atlas and the Company Relating to the Distribution --
Distribution and Indemnity Agreement."
ARRANGEMENTS BETWEEN WESTERN ATLAS AND
THE COMPANY RELATING TO THE DISTRIBUTION
For the purpose of governing certain of the relationships between Western Atlas
and the Company after the Distribution, Western Atlas and the Company will enter
into the various agreements described below. The agreements summarized below
have been filed as exhibits to the Registration Statement, of which this
Information Statement is a part, and the following summaries are qualified in
their entirety by reference to the agreements as filed.
DISTRIBUTION AND INDEMNITY AGREEMENT
Western Atlas and the Company will enter into a Distribution and Indemnity
Agreement (the "Distribution Agreement") providing for, among other things, the
principal corporate transactions required to effect the Distribution and certain
other agreements governing the relationship between Western Atlas and the
Company with respect to or in consequence of the Distribution.
The Distribution Agreement provides that, immediately prior to the Distribution,
(i) the Company will pay a dividend in the amount of $230 million to Western
Atlas, which will be utilized by Western Atlas to repay short-term debt, and
(ii) all indebtedness owed by the Company or its subsidiaries to Western Atlas
will be canceled as a contribution to the capital of the Company. Funds for the
dividend to Western Atlas will be obtained from borrowings under the Company's
credit agreement. See "Financing."
Subject to certain exceptions, the Distribution Agreement provides for certain
cross-indemnities designed principally to place financial responsibility for the
liabilities of the Company and its subsidiaries with the Company and financial
responsibility for the liabilities of Western Atlas and its other subsidiaries
with Western Atlas. The Distribution Agreement also provides that each of
Western Atlas and the Company will indemnify the other in the event of certain
liabilities arising under the federal securities laws. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy, as expressed in such Act and is therefore unenforceable.
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In the Distribution Agreement, each of Western Atlas and the Company has agreed
to make available to the other for a limited period certain administrative
services to assist in effecting an orderly transition following the
Distribution. The party providing such services will be entitled to
reimbursement for all direct costs of providing such services, including amounts
relating to supplies, disbursements and other out-of-pocket expenses. These
costs are not expected to be material.
The Distribution Agreement provides that, except as otherwise set forth therein
or in the other agreements between Western Atlas and the Company relating to the
Distribution, all costs and expenses arising prior to the Distribution Date in
connection with the Distribution will be paid by Western Atlas, other than the
expenses of printing the Company's new stock certificates.
TAX SHARING AGREEMENT
Through the Distribution Date, the results of the operations of the Company and
its domestic subsidiaries (the "Company Group") have been and will be included
in Western Atlas' consolidated United States federal income tax returns. As part
of the Distribution, Western Atlas and the Company will enter into a Tax Sharing
Agreement (the "Tax Sharing Agreement") which provides, among other things, for
the allocation between the parties thereto of federal, state, local and foreign
tax liabilities for all periods through the Distribution Date. In general, the
Tax Sharing Agreement provides that Western Atlas will be liable for
consolidated federal income tax and joint state income tax liabilities,
including any such liabilities resulting from the audit of or other adjustment
to previously filed tax returns, which are attributable to the Company Group
through the Distribution Date. Western Atlas will be entitled to tax benefits
resulting from any audit or other adjustments to the Company's pre-Distribution
Date consolidated federal income tax and joint state income tax liabilities,
when and if realized by the Company. The Company Group will generally be liable
for all other state, local and foreign tax liabilities which are attributable to
the Company Group through the Distribution Date and the pre-acquisition tax
liabilities of Norand. Though valid as between the parties thereto, the Tax
Sharing Agreement is not binding on the IRS and does not affect the several
liability of the Company, Western Atlas and their respective subsidiaries to the
IRS for all federal taxes of the consolidated group relating to periods prior to
the Distribution Date.
While the Tax Sharing Agreement provides that the Company Group should be liable
generally only for items attributable to the Company Group's operations, it also
provides that in the event that the Distribution fails to qualify as a tax-free
distribution under the provisions of Sections 355 and/or 368(a)(1)(D) of the
Code, the Company will indemnify Western Atlas for 50% of all taxes (100% of all
taxes if an acquisition of 50% or more of the Company's stock or assets results
in the Distribution's failure to so qualify, and 0% if an acquisition of 50% or
more of Western Atlas' stock or assets results in the Distribution's failure to
so qualify), including penalties and interest, incurred by Western Atlas by
reason of the Distribution being a taxable event. In the event that the
Distribution failed to so qualify, the amount by which the fair market value of
the Company Common Stock on the date of the Distribution exceeds Western Atlas'
tax basis therein would be recognized as gain upon the Distribution.
BENEFITS AGREEMENT
Western Atlas and the Company will enter into an Employee Benefits Agreement
(the "Benefits Agreement") providing for the treatment of employee benefit
matters and other compensation arrangements for certain former and current
employees of the Company and its subsidiaries.
The Benefits Agreement generally provides that the Company and its subsidiaries
will be responsible for all liabilities to any employee of Western Atlas or any
of its subsidiaries as of the Distribution Date who is or will become an
employee of the Company or its subsidiaries after the Distribution ("Separated
Employees"), as well as any former employee of Western Atlas who was previously
employed in the Company's businesses. Further, except as specifically provided
therein, the Benefits Agreement will not
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affect any employee benefit plan or compensation arrangement of Western Atlas in
respect of employees of Western Atlas and its subsidiaries who are not Separated
Employees. Effective on or prior to the Distribution, the Company will assume
the pension, 401(K) and welfare benefit plans of Western Atlas in which the
Company's employees currently participate, and will assume all assets and
liabilities under such plans. Such assumption will be effected in a manner
intended to assure that all material qualified pension plans of the Company will
be fully funded as of the Distribution Date. All of the Company's benefit plans
that are subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), will comply with ERISA on the Distribution Date.
The Benefits Agreement provides that the Separated Employees' cessation of
employment with Western Atlas will not be deemed a severance of employment for
purposes of any plan or agreement of Western Atlas or any subsidiary that
provides for the payment of severance benefits. The Company expects all
severance compensation agreements between Western Atlas or any subsidiary and
any Separated Employee to be terminated as of the Distribution Date and that the
Company will execute new agreements with such employees in the form described in
"Management -- Historical Compensation" and adopt severance plans or
arrangements similar to those presently in effect at Western Atlas covering
other Separated Employees.
The Benefits Agreement provides for an adjustment to all outstanding options to
purchase Western Atlas Common Stock to account for the Distribution. The
adjustment will have the effect of increasing the number of shares of Western
Atlas Common Stock subject to each option, and decreasing the exercise price per
share of Western Atlas Common Stock. See "Management -- Historical
Compensation."
INTELLECTUAL PROPERTY AGREEMENT
Some of the intellectual property utilized by the Company and its subsidiaries
is nominally owned by Western Atlas or by one of Western Atlas' subsidiaries
which will continue to be a Western Atlas subsidiary after the Distribution. The
Company and its subsidiaries have been using the Western Atlas trade name,
trademark and service mark on stationery, advertising and promotional materials,
products and facilities. Western Atlas and the Company will enter into an
Intellectual Property Agreement providing for the transfer of ownership of
intellectual property without charge from the nominal owner to the Company or
its subsidiaries, and to provide to the Company and its subsidiaries rights to
use the Western Atlas name for a period of six months without charge therefor.
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FINANCING
On September 24, 1997, the Company entered into a Credit Agreement, to become
effective as of the Distribution Date, with Morgan Guaranty Trust Company of New
York, as Agent, and with Bank of America National Trust and Savings Association,
The Bank of New York, The Chase Manhattan Bank, CIBC Inc., The First National
Bank of Chicago, and Nations Bank of Texas, N.A., as Co-Agents, providing for
borrowings by the Company up to $400 million under a five-year revolving credit
facility.
Borrowings under this facility will bear interest according to one of three
interest rate options selected by the Company based on (i) the London interbank
offered rate; (ii) the domestic certificate of deposit rate; or (iii) a floating
rate based on the Agent's prime rate. The margin over the rates varies depending
on the Company's "Leverage Ratio" from time to time, defined as the ratio of
debt to net income plus interest expense, income taxes, and depreciation and
amortization.
The Credit Agreement contains a covenant that the Leverage Ratio will in no
event exceed 3.5 to 1.0 for the period through September 29, 1998; 3.0 to 1.0
for the period from September 30, 1998 through September 29, 1999; and 2.75 to
1.0 for the period from September 30, 1999, and thereafter. The Credit Agreement
limits the amount of debt which may be incurred by the Company's subsidiaries.
Events of default under the Credit Agreement include (i) the failure to make
required payments or to perform other agreements contained in the Credit
Agreement, in each case after any applicable grace period; (ii) events
permitting acceleration of other indebtedness of the Company or its subsidiaries
in a principal amount in excess of $25 million; (iii) certain events of
bankruptcy of the Company or its subsidiaries; and (iv) a change in control of
the Company.
The Company expects to borrow $230 million under this facility on the
Distribution Date to distribute to Western Atlas as a dividend.
BUSINESS AND PROPERTIES
The Company operates in two business segments -- Automated Data Systems ("ADS")
and Industrial Automation Systems ("IAS") (formerly the title for all of the
operations to be spun off by Western Atlas). The Company had pro forma revenues
of approximately $1.4 billion for the fiscal year ended December 31, 1996.
The Company had approximately 6,650 employees as of June 30, 1997 located
principally at offices, plants or other facilities in nine states within the
United States and in Canada, the United Kingdom, Germany, France, Sweden, the
Netherlands and Australia. Approximately 25% of the Company's sales and service
revenues come from activities and customers outside the United States.
The Company has been, and will be until the Distribution Date, a wholly owned
subsidiary of Western Atlas. Prior to March 17, 1994, Western Atlas was a wholly
owned subsidiary of Litton Industries, Inc. ("Litton"). Western Atlas became an
independent public company on March 17, 1994 through the distribution by Litton
to Litton's shareholders of all of the outstanding common stock of Western
Atlas.
The Company's principal executive offices are located at 360 North Crescent
Drive, Beverly Hills, California 90210. Its telephone number at that address is
(310) 888-2500.
GENERAL
The Company is an industrial technologies company providing customers with
solutions for improving their efficiency and productivity. The Automated Data
Systems business segment comprises automated data collection and mobile
computing products and services, principally serving the industrial market.
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Customers include the distribution and transportation companies, food and
beverage operations, manufacturing industries, health care providers and
government agencies. The Industrial Automation Systems business segment includes
integrated machining systems, body welding and assembly systems, and precision
grinding and abrasive systems, primarily serving the worldwide automotive,
off-road and diesel engine manufacturing industries.
Current estimates call for about 45% of the Company's revenues to come from the
ADS business and about 55% of revenues to be derived from IAS activities for the
1997 fiscal year.
PRODUCTS AND SERVICES
AUTOMATED DATA SYSTEMS. The Company's Automated Data Collection ("ADC") and
Mobile Computing Systems business is conducted under the Intermec, Norand and
UBI brand names. Intermec was acquired in 1991; Norand and UBI were acquired
early in 1997. All three companies operate as one organization serving the
global bar code, data collection and mobile computing market, which has grown
approximately 12% to 15% annually over the past five years. The Company's
activities in this market represented slightly more than 30% of the Company's
total revenues in each of the fiscal years ended 1996, 1995 and 1994, and were
based only on Intermec's results prior to the 1997 acquisitions of Norand and
UBI. Together, the three companies would have had pro forma combined revenues of
about $700 million in 1996, which would have represented 50% of the Company's
pro forma 1996 revenues. Intermec accounted for 32%, 34% and 31% of the
Company's combined revenues in fiscal 1996, 1995 and 1994, respectively.
This combination of companies and capabilities establishes the Company as a
leading participant in the emerging logistics automation marketplace. Together,
they offer a broad range of products which are used to gather, organize and
transmit selected data from various off-site or in-premise locations to central
computers or information retrieval systems in order to track parts, products and
people through manufacturing, distribution and other processes.
Through its Intermec subsidiary, the Company has been in the forefront of many
innovations within the bar code and ADC technologies. Its ADC products comprise
batch and radio frequency ("RF") terminals, hand-held and stationary scanners
and related software. Intermec entered the bar code market in 1969 with a
contract to create specialized printers for bar code labels, and later moved
into hand-held scanners. In the late 1970s Intermec developed Code 39, the most
widely used bar code symbology in the world. The Company also was an early
originator in the use of open operating systems for industrial data collection
applications, and continues to develop improved bar code label printing systems,
which provide higher resolution, superior quality and greater label flexibility.
Some of Intermec's other "firsts" included inventing the first stacked bar code
symbology; introducing the first high-speed, wide-area scanning technology and
spread spectrum radio frequency technology to the data collection market; and
developing 400 dpi bar code label printing technology.
The Norand acquisition added increased knowledge and capabilities from one of
the leading originators of wireless data communications using radio frequency
("RF") technology and mobile computing solutions for the logistics market.
Mobile computing refers to rugged PC-based devices for route accounting, meter
reading, field services and sales management, rather than general personal or
desktop computing applications. In combination with wireless communications,
mobile computing enables remote workers to have access to centralized computer
applications and databases and to send and receive information through wireless
networks for improved productivity, efficiency and accuracy of data. Wireless
network data communications represent an area in which the Company expects
growth in the future. In the communications area, Norand provides advanced axis
point and docking station technology, communications software, product
configuration and ergonomics. This acquisition also expands the Company's
offering in the RF spread-spectrum technology.
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Norand is credited with inventing the world's first bar code scanner in 1971,
and developing the first radio data network in 1985. It also originated the
Pocket RF product category four years later, followed by the first pen-based
hand-held computer with desktop PC performance in 1993.
With the addition of UBI, the Company now also has access to an extensive
distribution network for ADC products in the expanding European market. UBI
further provided two major product lines: bar code on-demand printers with
labels and ribbons, and hand-held scanners. These scanners are primarily based
on "charge coupled device" ("CCD") technology which is an alternative to laser
scanners in many applications. UBI also provides software that improves laser
scanning for one- and two-dimensional symbologies. UBI's printer technology
complements the Company's existing printer offerings with low-end, low cost
printers and high-end, high speed printers. In addition, UBI provides enhanced
media-handling systems, such as linerless adhesive labels and software.
Bar code systems, which continue to represent the most widely used technology
for ADC, typically consist of the bar code labels or tags and label printers,
input devices such as scanners and wands, hand-held batch or RF terminals,
vehicle mounted terminals, on-line (or stationary) terminals, systems
integration tools and data transmission techniques. Complete systems
installation, service and support are provided to customers on a global basis.
The Company's operations also integrate technologies such as the newer 2-D
symbologies, radio frequency identification tags ("RFID"), vision and scanning
systems, magnetic stripe and optical character recognition.
Ongoing product development efforts include advanced communication networks,
further integration of RF technology, application software technologies,
advances in portable computers and automatic identification technology
integration. Innovative electronics miniaturization and packaging also have
enabled the Company to develop pen computing hand-held terminals for
applications in which traditional keypad or bar code scanner data input is not
practical. Typical uses for these wireless, durable pen-based, hand-held and
mobile computers include route accounting for the distribution and package
handling industries, public works, health care and utilities.
Major offices and manufacturing facilities are located in the states of Iowa,
Ohio and Washington; and internationally in The Netherlands, Sweden, France and
Australia.
INDUSTRIAL AUTOMATION SYSTEMS. The Company is a major designer, producer
and integrator of manufacturing technologies, primarily for the global
automotive, off-road and diesel engine industries, but also for other markets
such as electronics and durable goods. Products include integrated machining
systems for the manufacture of powertrain components such as engines,
transmissions and connecting rods, and chassis components such as steering
knuckles, rear axle housings and brake calipers; body welding and assembly
systems; test and automation equipment for integration into production lines;
precision grinding and abrasives; the redesign, remanufacturing and retooling of
installed equipment; and design/engineering services.
During 1995 the Company acquired 49% of Honsberg, a German machine tool
engineering and manufacturing company. The Company acquired the remaining 51% in
1997.
The Company's integrated manufacturing systems are marketed under the Lamb, Lamb
Technicon and Honsberg Lamb names; the Body Welding and Assembly Systems also
are available under the Lamb and Lamb Technicon brands; and the Precision
Grinding and Abrasives market is served under the Landis, Landis Lund, Gardner
and Cranfield Precision brands.
INTEGRATED MANUFACTURING SYSTEMS. Through its Lamb, Lamb Technicon and
Honsberg Lamb operations, the Company designs, integrates and installs
integrated machining systems for the world's automotive and off-road vehicle
industries. The integrated manufacturing systems divisions design manufacturing
solutions for all production volumes of powertrain components -- primarily
engines and transmissions. Integrated manufacturing systems accounted for 39%,
38% and 44% of the Company's combined revenues in fiscal 1996, 1995 and 1994,
respectively.
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The product lines include computer-numeric-control ("CNC") machines for
low-volume applications (up to 25,000 units of production annually), and modular
flexible production systems for medium-(25,000 to 75,000 units of production
annually) and high-volume (75,000 to 250,000 units of production annually)
requirements. The integrated manufacturing systems operations specialize in
utilizing simultaneous engineering techniques, in conjunction with its
customers, to develop optimum solutions to complex manufacturing requirements.
Historically, the Company has specialized in designing solution sets for
manufacturing cylinder heads, engine blocks and transmission cases. However, the
retooling of existing systems and the design of manufacturing processes for
smaller parts also have expanded into growing businesses for the Company in
recent years.
The Company's emphasis on engineering has resulted in the advancement of
machining processes. These upgrades offer lower life-cycle costs and improved
production performance by reducing unproductive time during operation.
Innovations also include a high-speed "dry" machining process for precision work
on aluminum parts without the use of coolants, and better flexibility of
transfer line systems using less production floor space, providing faster
throughput at much lower costs. The Company has developed modular flexible
transfer systems in which parts are mounted on pallet fixtures which transport
work pieces between work stations faster than guided vehicles could between
flexible machining systems.
Recent additions to the Company's product range include modular machining
centers that perform continuous high-speed, high-precision machining of cast
iron, aluminum or magnesium parts. The Duraflex-TM- CNC machine line is designed
to produce a variety of cylinder heads or engine blocks, in a random-run
environment, while maintaining close tolerances. The MACH I-TM- dual-spindle
machine has been designed to improve the efficiency of CNC machines in
higher-volume production scenarios. The MACH I can complete a machining
operation, change tools and resume machining, all in less than one second.
These new designs allow the machines to operate in stand-alone, cellular or
system configurations. Larger systems also can be adapted to process changes by
exchanging single machining modules on a transfer line. The utilization of
advanced process technology, as represented in these newest CNC machines, has
enabled the Company to provide highly accurate, durable and truly flexible
machining systems.
The Company's emphasis on process engineering is demonstrated by its efforts in
"simultaneous engineering," a process in which manufacturing solutions are
developed with the customer while the customer's product design and engineering
phases are still underway. In these processes, another important technology,
"virtual manufacturing," creates sophisticated 3-D computer simulations which
are used by the Company to design and pre-program systems, work flow and single
machining operations.
BODY WELDING AND ASSEMBLY SYSTEMS. The Lamb Body Welding and Assembly
Systems division designs automated systems to assemble and weld high-quality
automobile and truck bodies as well as other industrial products. The division
integrates robotic systems, high-precision holding and alignment fixtures and
high-volume welding equipment to produce components and sub-assemblies for the
automotive industry, and supplies specialized assembly systems for car bodies.
It also provides engineering services and advanced electronic design technology
in the areas of computer simulations and three-dimensional tool design. Through
its Assembly and Test Systems operations, the division also designs and builds
specialized assembly and/or testing equipment and systems for a variety of
manufacturing applications. Body Welding and Assembly Systems accounted for 12%,
8% and 9% of the Company's combined revenues in fiscal 1996, 1995 and 1994,
respectively.
A number of proprietary technologies have been developed for use in automotive
assembly. Examples are specialized material handling solutions to move
subassemblies or complete car bodies through the manufacturing process, such as
overhead non-synchronous gantries. The Company also is recognized
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for its expertise in "hemming," the process of attaching exterior sheet metal to
the interior frames of doors, hoods, deck lids and similar "hang-ons" or
"closures." Another solution is called "flexible body framing," a patented
system which enables consistent, high-precision positioning for final body
assembly.
PRECISION GRINDING AND ABRASIVES. The Company develops and produces
precision grinding systems and equipment for the global manufacturing market. A
key area of the Company's expertise is the application of precision cylindrical
and disc grinding technologies to medium- and high-volume production of car
engines and transmission components such as camshafts, crankshafts or connecting
rods. Precision Grinding and Abrasives accounted for 17%, 20% and 16% of the
Company's combined revenues in fiscal 1996, 1995 and 1994, respectively.
In response to the automotive industry's need to reduce costs, improve fuel
consumption and decrease car emissions, the Company provides a full range of CNC
precision grinding systems that enable car manufacturers to produce car engine
parts at tight tolerances, increase production throughput and improve quality.
Among the Company's new developments in precision grinding are a CNC machine for
grinding the lobes of automotive camshafts. This advanced camlobe grinder uses
superabrasive cubic boron nitride ("CBN") grinding wheels, which are capable of
higher grinding speeds, more consistent accuracy, and longer effective
performance life.
Other technological innovations include a camshaft lobe grinder for large-scale
production of soft camshaft applications, centerless grinders for
high-production parts processing, a new generation of double-disc grinding
machines used for precision machining of parts with flat and parallel sides and
a horizontal double-disc grinder for automotive connecting rods. The Company
also has developed sophisticated software tools for monitoring and controlling
grinding processes and dressing grinding wheels.
The Industrial Automation Systems segment's major offices and production
facilities are located in Illinois, Michigan, Ohio and Pennsylvania and
internationally in Canada, the United Kingdom and Germany.
BUSINESS STRATEGY
The Company's strategy is to develop products, processes and services that help
improve productivity and efficiency in a variety of manufacturing and
distribution applications. Both business segments -- Automated Data Systems and
Industrial Automation Systems -- offer single products as well as integrated
solutions to their customers.
Future growth in these businesses is expected to result from expansion of the
Company's existing operations and its customer base, and through acquisitions.
In seeking acquisitions, the Company will concentrate on technologies, products
and services which enhance customer productivity and efficiency, and those that
can be characterized as growth drivers.
The ongoing development of the Company's ADC/Mobile Computing activities will
depend primarily on the application of new technologies and products to maintain
its position in this technology-driven market. The Company believes it has the
necessary technical expertise to achieve this goal. Future geographic
opportunities have been identified outside North America, particularly in
Europe, Latin America and Asia, where the use of data collection technology is
less developed. To capitalize on these emerging markets, the Company is
expanding its international marketing, distribution and support network, and is
engaged in an ongoing program to locate Company-owned resources in key markets
worldwide. In its Industrial Automation Systems business segment, the Company
plans to continue to develop its existing customer base by seeking a greater
role in customer projects, by continuing its emphasis on product development and
by expanding its international activities.
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The Company also intends to increase its presence in market segments where it
presently holds a smaller market share, such as the body welding and assembly
systems area, and the application of lower-volume flexible manufacturing systems
and CNC machines. In some areas the Company also has developed high-precision
manufacturing technologies that should allow it to establish a presence in
growth markets such as micro-electronics with its new generation of
ultra-high-precision wafer grinders.
In recent years, cost-cutting needs and quality requirements in the automotive
industry have affected the Company's relationships with its customers. The car
makers' trend toward fewer suppliers has benefited the Company and allowed it to
expand its market participation. These market-driven changes also have forced
many smaller competitors to either withdraw from the market or reduce their role
to that of a second or third tier supplier. The Company's strategy has been to
establish an extensive outsourcing network of qualified suppliers in North
America and overseas, thereby avoiding unnecessary vertical integration and
gaining flexibility in its market approach.
Both major business segments should be able to grow from established positions
in their respective markets, often serving customers in a multitude of projects
which result in repeat business opportunities.
MARKETS AND CUSTOMERS
AUTOMATED DATA SYSTEMS. Because Automated Data Systems represents
technologies that can be utilized by a company of any size, and small systems
can be installed at very low cost, the market is extensive. Worldwide sales of
automated data systems equipment exceeded $8 billion in 1996, according to
estimates from independent research sources. These sources also predict that the
overall market will continue to grow at an annual rate of approximately 12% to
15% over the next several years.
Market growth is driven by the global need for technologies and solutions which
improve quality, productivity and cost-efficiency in business and government,
particularly through logistics automation and supply chain management. Worldwide
coverage with a dedicated sales organization is therefore a major advantage.
Through its application of technologies in the manufacturing,
warehouse-distribution, transportation, health care, government and other
non-retail markets, the Company maintains a strong position in the global
non-retail ADC/mobile computing market.
The Company sells and services its products through multiple sales and
distribution channels: a direct field sales force which concentrates on large,
complex systems sales; value added resellers ("VARs") that offer
applications-specific solutions; and alliances with major systems integrators.
The Company's direct sales organization serves customers from offices throughout
North America, Europe and in some selected countries outside these regions. An
indirect sales channel includes long-time exclusive relationships with
international value-added distributors and master resellers.
Although the Company obtains approximately 34% of its sales through indirect
sales channels, no individual value-added distributor or reseller is material to
overall Company results. The Company also maintains contact with customers and
prospective users by having established user forums for Automated Data Systems
applications and technologies.
The mobile computing systems market consists of several applications, such as
route accounting for the distribution and package/parcel delivery industries,
sales merchandising, remote delivery and field service. These applications are
generally used in the consumer products, food, beverage, wholesale, parcel
delivery, freight, field service and home service industries. The RF systems
market comprises manufacturing, warehousing and distribution center and retail
applications.
Manufacturing applications include the collection and communication of
information related to receipt of materials, work-in-progress, finished goods
inventory and other functions throughout the manufacturing process. Warehousing
and distribution center applications involve the collection and communication of
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information related to receiving materials to be stored, storage locations,
materials retrieval and shipping. Retail applications include the automation of
shelf label maintenance and product shipping and receiving functions.
International sales opportunities exist in countries where mobile computing
systems market practices and other applications are similar to those in the U.S.
The extent of RF systems opportunities in any particular country is based on the
level of industrialization, the status of bar coding implementation and the RF
regulatory environment. The major markets for printers are manufacturing,
distribution, warehousing, transportation, health care, government and other
services.
INDUSTRIAL AUTOMATION SYSTEMS. The Company participates in the automotive
manufacturing market, the largest capital equipment investor in the world, and
in the general manufacturing markets. Investments by automotive customers are
driven by model changes; competitive pressures; government regulations such as
emission standards and gasoline consumption rates; and by the customers' own
internal spending cycles. Investments in diesel engine manufacturing are driven
by the infrastructure needs of emerging industrial nations and by the efficiency
benefits diesel engines offer for heavy and light trucks and utility vehicles.
Customers for the Company's integrated manufacturing systems products are the
major auto manufacturers and tier 1 suppliers. Although the passenger car and
light truck industries continue to represent this division's largest market,
business from diesel engine manufacturers has grown in recent years.
The Company believes the areas with growth potential for this business are the
developing countries in Asia, Eastern Europe and Latin America. Potential
customers include the major manufacturers from the U.S. and Western Europe who
are building plants in these developing countries as well as indigenous
manufacturers seeking to improve their competitiveness.
Based upon internal surveys of equipment installed at customer engine and
transmission plants, management believes that the Company is a leading global
supplier of high-volume production systems for engine, transmission and chassis
components in this $5.7 billion market. While the Company is not yet a leader in
the body welding and assembly industry, its growth rate exceeds that of the
market which is about the same size as integrated machining systems.
A substantial majority of the Industrial Automation Systems segment's total
revenues is generated by worldwide automotive and diesel engine industry
purchases of automated manufacturing systems, including integrated machining,
body welding and assembly and precision grinding systems. Among customers for
such equipment, U.S. and Canadian auto producers currently account for more than
70% of integrated manufacturing systems sales, and manufacturers in Europe
account for about 20%. The remainder of sales represents products exported from
the Company's production facilities, mostly for installation in Latin America
and Asia.
Recent major customers include U.S.-based Chrysler, Cummins, Ford, General
Motors, Navistar and Detroit Diesel; in foreign markets, the major Western
European auto manufacturers, BMW/Rover, Fiat, Mercedes Benz, Jaguar, Peugeot,
Renault, Volkswagen, and the European subsidiaries of the large U.S.
manufacturers, as well as Yuchai Diesel in China and Tata (Telco) in India and
Kamaz in Russia. The Company has also won major systems contracts in the U.S.
for the manufacturing facilities of foreign auto makers, including both European
and Japanese, and also serves the automotive components manufacturing market.
COMPETITION
Strong competition exists both in the domestic and international markets for the
Company's products and services. Products are sold and projects are won in the
marketplace based on price, technology and service.
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AUTOMATED DATA SYSTEMS. The market for ADC/Mobile Computing systems is
highly fragmented. Based on independent market surveys, management believes that
Intermec/Norand/UBI is one of the largest participants measured by revenues,
with a more than 10% market share in the bar code segment of the Automated Data
Systems industry. The other two major participants are Symbol and Telxon. The
Company also faces strong competition for single product lines from specialized
suppliers.
The Company competes on the basis of its open modular systems approach, network
and communications expertise, applications software, level of sales and support
services, and product functionality, performance, ruggedness and overall
quality.
The market for mobile computing and RF products is highly competitive and
rapidly changing. Some firms manufacture and market hand-held systems for route
accounting applications, including Telxon and Fujitsu. In addition, a number of
firms manufacture and market radio-linked data communication products, including
LXE, Teklogix, Symbol, and Telxon. On the printer side, the Company faces
competition from Zebra, Eltron, Datamax and many others, depending on the
geographic area.
INDUSTRIAL AUTOMATION SYSTEMS. While product quality is a key determinate
in the competition to win market share, pricing remains the most important
criteria in the global market. Lamb Machining Systems' strength is the ability
to design reliable and efficient manufacturing processes for its customers and
combine them with cost-effective machining solutions in order to win orders
against strong competition.
There are numerous competitors in the markets served by integrated
manufacturing. The division's major competitors include four German companies
and one in Italy.
The market for high-volume production systems for engines and transmissions in
North America and Europe is divided among approximately ten major competitors
and numerous smaller participants. Major competitors are Thyssen/Giddings &
Lewis, Ingersoll Milling and Grob (Germany). Management estimates that the
Company has approximately a 12% share of this market.
In the Body Welding and Assembly Systems market, the Company is faced with
competitors that are involved in a broad range of assembly equipment and other
competitors that provide "niche" machines to address specific markets. Some of
the stronger competitors have been or are aligned with machine tool companies
for "total capability." In North America, there are eight main competitors and
another seven in Europe. The primary competitors include DCT, Progressive
Industries (PICO) and Valiant in the U.S.; FFT and Kuka in Germany; Comau
(Italy); and Thyssen (Germany).
In the worldwide market for high-precision grinding of engine parts, the Company
has achieved a strong market position through innovative products that improve
customer efficiency while reducing their capital costs. Major competitors are
the foreign companies Koyo and Toyoda in Japan; the Koerber Group, Naxos Union
and Junkers in Germany; and Guistina in Italy.
RESEARCH AND DEVELOPMENT
Companywide expenditures on research and development activities amounted to
$29.7 million, $27.5 million and $31.7 million, substantially all of which was
sponsored by the Company, in the fiscal years ended December 31, 1996, 1995 and
1994, respectively.
PATENTS AND TRADEMARKS
The Company owns a large number of patents, trademarks and copyrights relating
to its manufactured products, which have been secured over a period of years.
These patents, trademarks and copyrights have been of value in the growth of the
Company's business and may continue to be of value in the future. However, the
Company's business generally is not dependent upon the protection of any patent,
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patent application or patent license agreement, or group thereof, and would not
be materially affected by expiration thereof.
The Company has approximately 21 patent licenses under which it paid out or
received income in the fiscal year ended December 31, 1996. During such fiscal
year, the aggregate amount of license fees paid by the Company was approximately
$6.9 million, and the aggregate amount of license fees received was
approximately $700,000.
SEASONALITY; BACKLOG
Sales backlog was $459 million at June 30, 1997, and $595 million, $579 million
and $413 million at December 31, 1996, 1995 and 1994, respectively. The
operations of the Company are not seasonal to any appreciable degree. The
majority of the Company's backlog is concentrated in the Industrial Automation
Systems segment. The Automated Data Systems market typically operates without a
significant backlog of firm orders and does not consider backlog to be a
relevant measure of future sales.
EMPLOYEES
At June 30, 1997, the Company had approximately 6,650 full-time employees, of
which approximately 3,220 are engaged in the Automated Data Systems business,
approximately 3,310 in the Industrial Automation Systems segment and
approximately 120 in corporate and shared services.
LEGAL AND ENVIRONMENTAL MATTERS
The Company is currently, and is from time to time, subject to claims and suits
arising in the ordinary course of its business. Although the results of
litigation proceedings cannot be predicted with certainty, the Company believes
that the ultimate resolution of these proceedings will not have a material
adverse effect on the Company's financial statements.
During the fiscal year ended December 31, 1996, the amounts incurred to comply
with federal, state and local legislation pertaining to environmental standards
did not have a material effect upon the capital expenditures or earnings of the
Company.
Radio emissions are the subject of governmental regulation in all countries in
which the Company currently conducts business. In North America, both the
Canadian and the U.S. governments publish relevant regulations, and changes to
these regulations are made only after public discussion. In some countries
regulatory changes can be introduced with little or no grace period for
implementing the specified changes. Furthermore, there is little consistency
among the regulations of various countries outside North America, and future
regulatory changes in North America are possible. These conditions introduce
uncertainty into the product planning process and could have an adverse effect
on the ADC/ Mobile Computing business.
The European Community ("EC") has passed a directive requiring its members to
adopt laws relating to electro-magnetic compatibility and emissions standards.
These standards will apply to ADC/Mobile Computing products sold in EC member
countries as those countries adopt the EC standards into law. Currently, the
Company believes that its products are in material compliance with the
regulations in force in each of the EC member countries.
RAW MATERIALS
The Company uses a wide variety of raw materials in the manufacture of its
products and obtains such raw materials from a variety of suppliers. No single
supplier provides 10% or more of the Company's raw materials, nor do raw
materials from any one supplier generate 10% or more of the Company's
consolidated revenues. The Company does not have any long-term supply agreements
relating to raw materials.
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PROPERTIES
The Company's executive offices, in owned premises, are at 360 North Crescent
Drive, Beverly Hills, California. Its principal plants and offices have an
aggregate floor area of approximately 3,324,098 square feet, of which 2,454,428
square feet (74%) are located in the United States, and 869,670 square feet
(26%) are located outside of the United States, primarily in the United Kingdom
and Canada. These properties are used by the business segments as follows:
<TABLE>
<CAPTION>
SQUARE FEET
------------
<S> <C>
Industrial Automation Systems................................................... 2,331,788
Automated Data Systems.......................................................... 659,310
------------
2,991,098
------------
------------
</TABLE>
Approximately 2,873,428 square feet (86%) of the principal plant, office and
commercial floor area is owned by the Company, and the balance is held under
lease.
The Company's plants and offices in the United States are situated in 17
locations in the following states:
<TABLE>
<CAPTION>
STATE SQUARE FEET
- -------------------------------------------------------------------------------- ------------
<S> <C>
Michigan........................................................................ 575,099
Pennsylvania.................................................................... 459,425
California...................................................................... 333,000
Washington...................................................................... 312,000
Illinois........................................................................ 189,438
Iowa............................................................................ 180,927
Other states.................................................................... 404,539
------------
2,454,428
------------
------------
</TABLE>
The above-mentioned facilities are in satisfactory condition and suitable for
the particular purposes for which they were acquired or constructed and are
adequate for present operations.
The foregoing information excludes Company-held properties leased to others and
also excludes plants or offices which, when added to all other of the Company's
plants and offices in the same city, have a total floor area of less than 50,000
square feet.
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UNOVA, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
The following unaudited pro forma combined statements of operations have been
prepared from the historical financial statements of the Company and Norand
Corporation. Effective March 3, 1997, the Company acquired Norand for
approximately $280 million. The acquisition has been accounted for under the
purchase method of accounting. Accordingly, the acquisition cost has been
allocated among the net assets of Norand based upon their estimated fair values.
Such allocation process resulted in approximately $138 million in value assigned
to in-process research and development activities; $23 million was assigned to
identified intangibles (which will be amortized over periods ranging from five
to eighteen years); and approximately $123 million was assigned to goodwill
(which will be amortized over 25 years). In accordance with Financial Accounting
Standards Board Interpretation No. 4 ("FIN 4"), the values assigned to
in-process research and development activities acquired in the Norand and UBI
transactions ($203 million in total) were charged to expense by the Company
during the period ended June 30, 1997.
The operations of Norand for the year ended November 30, 1996 have been combined
with the Company's operations for the year ended December 31, 1996. Norand's
historical operations for the two months ended March 1, 1997 have been combined
with the Company's operations for the six months ended June 30, 1997 (which
include Norand subsequent to the acquisition date).
The unaudited pro forma combined statements of operations are not necessarily
indicative of what the results of operations would have been if the combination
had occurred on the above-mentioned dates. Additionally, they are not predictive
of future results of operations. The unaudited pro forma combined statements of
operations should be read in conjunction with the Company's audited historical
combined financial statements, along with Norand's audited historical financial
statements for the year ended August 31, 1996, included elsewhere in this
Information Statement.
20
<PAGE>
UNOVA, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNOVA NORAND
HISTORICAL HISTORICAL
SIX MONTHS TWO MONTHS
ENDED ENDED
JUNE 30, MARCH 1,
1997 1997 ADJUSTMENTS PRO FORMA
------------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Sales and Service Revenues........................ $ 732,343 $ 36,798 $ 769,141
------------- ----------- -------------
Costs and Expenses
Cost of sales................................... 512,516 21,675 534,191
Selling, general and administrative............. 152,671 17,168 169,839
In-process research and development charge...... 203,300 $ (203,300)(2)
Depreciation and amortization................... 17,035 1,932 1,136(1) 20,103
Interest -- net................................. 7,099 979 1,533 )(4 9,611
------------- ----------- ------------ -------------
Total Costs and Expenses.......................... 892,621 41,754 (200,631) 733,744
------------- ----------- ------------ -------------
Earnings (Loss) before Taxes on Income............ (160,278) (4,956) 200,631 35,397
Taxes on Income................................... (17,208) 1,487 1,562(5) (14,159)
------------- ----------- ------------ -------------
Net Earnings (Loss)............................... $ (177,486) $ (3,469) $ 202,193 $ 21,238
------------- ----------- ------------ -------------
------------- ----------- ------------ -------------
Pro Forma Net Earnings (Loss) per Share........... $ (3.29) $ (0.07) $ 3.75 $ 0.39
------------- ----------- ------------ -------------
------------- ----------- ------------ -------------
(Equivalent Shares of 53.9 million)
</TABLE>
21
<PAGE>
UNOVA, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNOVA NORAND
HISTORICAL HISTORICAL
YEAR YEAR
ENDED ENDED
DECEMBER 31, NOVEMBER 30,
1996 1996 ADJUSTMENTS PRO FORMA
-------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Sales and Service Revenues.................... $ 1,164,682 $ 241,130 $ 1,405,812
-------------- -------------- -------------
Costs and Expenses
Cost of sales............................... 841,820 139,965 981,785
Selling, general and administrative......... 218,672 87,165 305,837
Depreciation and amortization............... 27,043 12,344 $ 6,837(1) 46,224
Interest -- net............................. 7,111 5,821 2,992 )(4 15,924
Litigation settlement....................... 5,100 5,100
Cost of restructuring operations............ 4,392 4,392
-------------- -------------- ------------ -------------
Total Costs and Expenses...................... 1,094,646 254,787 9,829 1,359,262
-------------- -------------- ------------ -------------
Earnings (Loss) before Taxes on Income........ 70,036 (13,657) (9,829) 46,550
Taxes on Income............................... (28,014) 4,097 5,297(5) (18,620)
-------------- -------------- ------------ -------------
Net Earnings (Loss)........................... $ 42,022 $ (9,560) $ (4,532) $ 27,930
-------------- -------------- ------------ -------------
-------------- -------------- ------------ -------------
Pro Forma Net Earnings (Loss) per Share....... $ 0.78 $ (0.18) $ (0.08) $ 0.52
-------------- -------------- ------------ -------------
-------------- -------------- ------------ -------------
(Equivalent Shares of 53.9 million)
</TABLE>
22
<PAGE>
UNOVA, INC.
NOTES TO PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
The following pro forma adjustments give effect to the acquisition of Norand as
if it had occurred on January 1, 1996 or January 1, 1997, respectively. The pro
forma statements of operations have not been adjusted to eliminate the results
of the Material Handling division (sold in November 1996) nor the acquisitions
of UBI and Honsberg, because such results are not material to the Company's
operations.
(1) To record amortization of goodwill and other intangible assets acquired in
the acquisition of Norand.
(2) To eliminate the Company's non-recurring, non-tax-deductible charge to
expense acquired in-process research and development activities in
accordance with FIN 4.
(3) To record incremental interest expense on allocated Western Atlas corporate
debt using the Western Atlas estimated blended historical 7.5% annual rate.
(4) To eliminate Norand's historical interest expense related to short-term
borrowings under agreements which were repaid with additional Western Atlas
corporate debt concurrent with the Company's acquisition of Norand.
(5) To adjust the pro forma combined effective federal and state income tax rate
to 40%.
23
<PAGE>
UNOVA, INC.
SELECTED COMBINED HISTORICAL FINANCIAL DATA
The following selected combined historical financial data of the Company should
be read in conjunction with the historical combined financial statements and
notes thereto included elsewhere in this Information Statement. The following
selected combined historical financial data which relate to the three years in
the period ended December 31, 1996 have been derived from combined financial
statements audited by Deloitte & Touche LLP, independent auditors. The selected
combined historical financial data for the five-month period ended December 31,
1993, the one-year periods ended July 31, 1993 and 1992 and the six-month
periods ended June 30, 1997 and 1996 have been derived from unaudited combined
financial statements. In the opinion of management, the unaudited combined
financial statements reflect all adjustments, consisting only of normal
adjustments, necessary to present fairly the financial position of the Company
at December 31, 1993, July 31, 1993 and 1992 and June 30, 1997 and 1996 and the
results of operations for the five-month period ended December 31, 1993, for the
years ended July 31, 1993 and 1992 and for the six-month periods ended June 30,
1997 and 1996. The historical combined financial statements of the Company may
not necessarily reflect the results of operations or financial position that
would have been obtained had the Company been a separate, independent company.
The historical combined results for the six months ended June 30, 1997 and 1996
are not necessarily indicative of results for the entire year.
24
<PAGE>
UNOVA, INC.
SELECTED COMBINED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS FIVE MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31, ENDED
--------------------- -------------------------------- DECEMBER 31,
1997 1996 1996 1995 1994 1993
---------- --------- ---------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
OPERATING RESULTS:
Sales and Service Revenues.......................... $ 732.3 $ 504.5 $ 1,164.7 $ 942.9 $ 971.1 $ 360.9
---------- --------- ---------- --------- --------- -------
Operating Costs and Expenses
Cost of sales..................................... 512.5 356.5 841.8 669.3 689.9 270.2
Selling, general and administrative(1)............ 356.0 103.8 218.7 194.1 199.9 79.4
Depreciation and amortization..................... 17.0 12.9 27.0 26.1 28.7 12.0
---------- --------- ---------- --------- --------- -------
Total............................................. 885.5 473.2 1,087.5 889.5 918.5 361.6
---------- --------- ---------- --------- --------- -------
(Loss) Earnings before Interest and Taxes(2)........ (153.2) 31.3 77.2 53.4 52.6 (0.7)
Interest Expense-net(3)............................. (7.1) (3.1) (7.1) (9.3) (15.7) (4.3)
Taxes on Income..................................... (17.2) (11.3) (28.1) (17.9) (15.3) (0.3)
---------- --------- ---------- --------- --------- -------
Net (Loss) Earnings(2).............................. $ (177.5) $ 16.9 $ 42.0 $ 26.2 $ 21.6 $ (5.3)
---------- --------- ---------- --------- --------- -------
---------- --------- ---------- --------- --------- -------
Pro Forma Net (Loss) Earnings
per Share(2)...................................... $ (3.29) $ 0.78
Equivalent Shares(4)................................ 53,892 53,892
FINANCIAL POSITION (at end of period):
Total Assets........................................ $ 1,351.3 $ 906.6 $ 1,073.8 $ 919.0 $ 860.8 $ 799.0
Equity -- Investment by Western Atlas............... $ 590.2 $ 501.5 $ 574.5 $ 502.7 $ 439.4 $ 380.9
Notes Payable and Current Portion of Long-term
Obligations....................................... $ 57.4 $ 23.3 $ 27.5 $ 22.2 $ 41.7 $ 7.1
Long-term Obligations............................... $ 17.3 $ 14.0 $ 14.5 $ 14.1 $ 9.0 $ 8.9
Allocated Portion of Western Atlas Debt............. $ 228.2 $ 112.7 $ 109.6 $ 112.4 $ 112.8 $ 211.0
Working Capital..................................... $ 83.5 $ 192.2 $ 266.0 $ 194.7 $ 115.2 $ 53.0
Current Ratio....................................... 1.1 1.6 1.6 1.6 1.3 1.1
Total Debt as a Percentage of Total
Capitalization.................................... 34% 23% 21% 23% 27% 37%
<CAPTION>
YEAR ENDED
JULY 31,
--------------------
1993 1992
--------- ---------
<S> <C> <C>
OPERATING RESULTS:
Sales and Service Revenues.......................... $ 844.3 $ 761.8
--------- ---------
Operating Costs and Expenses
Cost of sales..................................... 589.9 526.3
Selling, general and administrative(1)............ 170.6 159.8
Depreciation and amortization..................... 26.8 26.7
--------- ---------
Total............................................. 787.3 712.8
--------- ---------
(Loss) Earnings before Interest and Taxes(2)........ 57.0 49.0
Interest Expense-net(3)............................. (5.1) (7.0)
Taxes on Income..................................... (20.5) (16.6)
--------- ---------
Net (Loss) Earnings(2).............................. $ 31.4 $ 25.4
--------- ---------
--------- ---------
Pro Forma Net (Loss) Earnings
per Share(2)......................................
Equivalent Shares(4)................................
FINANCIAL POSITION (at end of period):
Total Assets........................................ $ 748.0 $ 717.8
Equity -- Investment by Western Atlas............... $ 471.5 $ 410.9
Notes Payable and Current Portion of Long-term
Obligations....................................... $ 4.3 $ 1.8
Long-term Obligations............................... $ 19.1 $ 19.8
Allocated Portion of Western Atlas Debt............. $ 27.3 $ 76.7
Working Capital..................................... $ 199.5 $ 117.7
Current Ratio....................................... 2.0 1.5
Total Debt as a Percentage of Total
Capitalization.................................... 10% 19%
</TABLE>
- ------------------------
(1) General and Administrative Costs include allocated charges from Western
Atlas of $22.2 million, $19.9 million, $27.6 million, $8.1 million, $14.1
million and $10.4 million for the fiscal years ended December 31, 1996, 1995
and 1994, the five months ended December 31, 1993, and the fiscal years
ended July 31, 1993 and 1992, respectively, and $9.1 million and $10.8
million for the six-month periods ended June 30, 1997 and 1996,
respectively. The June 30, 1997 period includes a $203.3 million
non-tax-deductible charge, or $3.77 per share, for the value of in-process
research and development activities resulting from the Norand and UBI
acquisitions.
(2) Amounts presented for the year ended July 31, 1993 are before a cumulative
effect of a change in accounting principle for the adoption of the
provisions of SFAS No. 106, Employer's Accounting for Postretirement
Benefits Other Than Pensions. The Company elected immediate recognition of
the transition liability, and recorded a net of tax charge of $9.3 million.
Net earnings for the period were $22.1 million and earnings per share were
$0.41 after the cumulative effect of a change in accounting principle.
(3) Interest expense includes allocated charges from Western Atlas of $8.3
million, $8.4 million, $12.1 million, $3.7 million, $3.9 million and $5.8
million for the fiscal years ended December 31, 1996, 1995 and 1994, the
five months ended December 31, 1993, and the fiscal years ended July 31,
1993 and 1992, respectively, and $6.3 million and $4.1 million for the
six-month periods ended June 30, 1997 and 1996, respectively.
(4) In thousands. The number of common shares used to calculate earnings per
share for all periods presented is based on the number of shares of Western
Atlas Common Stock outstanding as of June 30, 1997.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a description of the business segments of the Company and a
discussion of the historical combined financial condition and results of
operations of the Company and factors affecting the Company's financial
resources and capital after the Distribution. This discussion should be read in
conjunction with the historical combined financial statements and notes thereto
included elsewhere in this Information Statement.
GENERAL
The Company is an industrial technologies company providing global customers
with solutions for improving their efficiency and productivity. The Company's
business segments comprise Automated Data Systems ("ADS") and Industrial
Automation Systems ("IAS").
Future growth in these businesses is expected to result from expansion of the
Company's existing operations and its customer base, and through acquisitions.
In seeking acquisitions, the Company will concentrate on technologies, products
and services which enhance customer productivity and efficiency, and those that
can be characterized as growth drivers.
Currently, the Company estimates that about 45% of its revenues will come from
ADS operations and about 55% of revenues will be derived from IAS activities for
the 1997 fiscal year.
AUTOMATED DATA SYSTEMS
ADS comprises automated data collection ("ADC") and mobile computing products
and services, conducted under the Intermec, Norand and UBI brand names. Intermec
was acquired in 1991; Norand and UBI were acquired early in 1997. Customers
include the global distribution and transportation companies, food and beverage
operations, manufacturing industries, health care providers and government
agencies. All three companies operate as one organization serving the global bar
code, data collection and mobile computing market, which has grown approximately
12% to 15% annually over the past five years. The Company's ADS operations
represented slightly more than 30% of the Company's total revenues in each of
the fiscal years ended 1996, 1995 and 1994, and were based only on Intermec's
results prior to the 1997 acquisitions of Norand and UBI. Together, the three
companies would have had combined revenues of about $700 million in 1996, which
would have represented 50% of the Company's unaudited pro forma 1996 revenues.
Intermec accounted for 32%, 34% and 31% of the Company's combined revenues in
fiscal 1996, 1995 and 1994, respectively.
This combination of companies and capabilities establishes the Company as a
leading participant in the emerging logistics automation marketplace. Together,
they offer a broad range of products which are used to gather, organize and
transmit selected data from various off-site or in-premise locations to central
computers or information retrieval systems in order to track parts, products and
people through manufacturing, distribution and other processes.
The ongoing development of the Company's ADC/Mobile Computing activities will
depend primarily on the application of new technologies and products to maintain
its position in this technology-driven market. The Company believes it has the
necessary technical expertise to achieve this goal. Future geographic
opportunities have been identified outside North America, particularly in
Europe, Latin America and Asia, where the use of data collection technology is
less developed. To capitalize on these emerging markets, the Company is
expanding its international marketing, distribution and support network, and is
engaged in an ongoing program to locate Company-owned resources in key markets
worldwide.
26
<PAGE>
INDUSTRIAL AUTOMATION SYSTEMS
IAS includes integrated manufacturing systems, body welding and assembly
systems, and precision grinding and abrasive systems, primarily serving the
worldwide automotive, off-road and diesel engine manufacturing industries.
The Company plans to continue to develop its existing IAS customer base by
seeking a greater role in customer projects, continuing its emphasis on product
development and expanding its international activities.
The Company also intends to increase its presence in IAS market segments where
it presently holds a smaller market share, such as the body welding and assembly
systems area, and the application of lower-volume flexible manufacturing systems
and CNC machines. In some areas the Company also has developed high-precision
manufacturing technologies that should allow it to establish a presence in
growth markets such as micro-electronics with its new generation of
ultra-high-precision wafer grinders.
INTEGRATED MANUFACTURING SYSTEMS. Through its Lamb, Lamb Technicon and Honsberg
Lamb operations, the Company designs, integrates and installs integrated
machining systems for the world's automotive and off-road vehicle industries.
The integrated manufacturing systems divisions design manufacturing solutions
for all production volumes of powertrain components -- primarily engines and
transmissions. Integrated manufacturing systems accounted for 39%, 38% and 44%
of the Company's combined revenues in fiscal 1996, 1995 and 1994, respectively.
BODY WELDING AND ASSEMBLY SYSTEMS. The Lamb Body Welding and Assembly Systems
division designs automated systems to assemble and weld high-quality automobile
and truck bodies as well as other industrial products. Through its Assembly and
Test Systems operations, the division also designs and builds specialized
assembly and/or testing equipment and systems for a variety of manufacturing
applications. Body Welding and Assembly Systems accounted for 12%, 8% and 9% of
the Company's combined revenues in fiscal 1996, 1995 and 1994, respectively.
PRECISION GRINDING AND ABRASIVES. The Company develops and produces precision
grinding systems and equipment for the global manufacturing market. A key area
of the Company's expertise is the application of precision cylindrical and disc
grinding technologies to medium- and high-volume production of car engines and
transmission components such as camshafts, crankshafts or connecting rods.
Precision Grinding and Abrasives accounted for 17%, 20% and 16% of the Company's
combined revenues in fiscal 1996, 1995 and 1994, respectively.
RECENT DEVELOPMENTS
The Company acquired Norand Corporation ("Norand") on March 3, 1997, and United
Barcode Industries ("UBI") on April 4, 1997. Norand designs, manufactures and
markets mobile computing systems and wireless data communications networks using
radio frequency technology. UBI is a European-based ADC company headquartered in
Sweden, with fiscal 1996 sales of approximately $100 million. These companies
are currently being integrated into the ADS segment. Both transactions were
funded using a combination of Western Atlas' committed credit facilities,
short-term uncommitted credit lines and excess cash, and are being accounted for
under the purchase method of accounting. Accordingly, the acquisition costs
(approximately $280 million and $107 million for Norand and UBI, respectively)
have been allocated to the net assets acquired based upon their relative fair
values. Such allocation resulted in $203 million assigned to in-process research
and development activities; $156 million assigned to goodwill (to be amortized
over 25 years); and $29 million assigned to other intangibles (to be amortized
over periods ranging from 4 to 18 years). During the period ended June 30, 1997,
the Company expensed the amounts assigned to in-process research and development
in accordance with Financial Accounting Standards Board Interpretation No. 4.
27
<PAGE>
RESULTS OF OPERATIONS
Sales and service revenues and segment operating profit for the six months ended
June 30, 1997 (excluding the $203 million charge for acquired in-process
research and development described above) and 1996, and each of the three years
ended December 31, were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED
JUNE 30, DECEMBER 31,
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
<CAPTION>
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
SALES AND SERVICE REVENUES
Automated Data Systems................................................ $ 282 $ 175 $ 367 $ 321 $ 303
Industrial Automation Systems......................................... 450 329 798 622 668
--------- --------- --------- --------- ---------
Total Sales and Service Revenues...................................... $ 732 $ 504 $ 1,165 $ 943 $ 971
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SEGMENT OPERATING PROFIT
Automated Data Systems................................................ $ 12 $ 13 $ 30 $ 13 $ 24
Industrial Automation Systems......................................... 49 29 70 62 56
--------- --------- --------- --------- ---------
Total Segment Operating Profit........................................ $ 61 $ 42 $ 100 $ 75 $ 80
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO 1996
Total sales and service revenues increased $228 million, or 45% for the six
months ended June 30, 1997 compared with the corresponding prior period. Total
segment operating profit, excluding a $203 million charge for acquired
in-process research and development, increased $19 million, or 45% for the six
months ended June 30, 1997 compared to the corresponding prior period.
ADS revenues increased by $107 million, or 61% due to the acquisitions of Norand
and UBI. However, ADS operating profit declined by $1 million, or 8% due
primarily to the process of integrating the newly acquired companies with
Intermec. Operating profit margins, which declined from 7.4% in 1996 to 4.3% in
1997, are expected to improve to historical levels following the completion of
the integration efforts in late 1997.
IAS revenues increased $121 million, or 37% and related operating profit
increased $20 million, or 69% for the six months ended June 30, 1997 compared
with the corresponding prior period. IAS experiences lower profit margins in the
early stages of long-term contracts (until the development risks have been
mitigated). During 1997 the Integrated Manufacturing Systems operations
experienced a higher level of revenues and profits from contracts in the final
delivery and installation phase.
These projects contributed to an increase in operating margins for IAS from 8.8%
in 1996 to 10.9% in 1997. Accordingly, IAS backlog declined from $545 million at
December 31, 1996 to $407 million at June 30, 1997.
Net interest expense was $7.1 million and $3.1 million for the six months ended
June 30, 1997 and 1996, respectively. The increase is primarily due to an
increase in the level of Western Atlas allocated debt from $113 million at June
30, 1996 to $228 million at June 30, 1997. The increase in allocated debt is
primarily attributable to the 1997 acquisitions of Norand and UBI.
28
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO 1995
Total sales and service revenues increased $222 million, or 24%, and related
segment operating profit increased $25 million, or 33% for the year ended
December 31, 1996 compared with the corresponding prior period.
ADS revenues increased by $46 million, or 14% as a result of the success of new
product introductions and increased deliveries on Intermec's five-year purchase
agreement with the U.S. Government. Revenues attributable to new product
introductions rose by $23 million, or 209%, and related unit shipments increased
213% over 1995 levels. Revenues under the purchase agreement with the U.S.
Government increased $16 million, primarily attributable to a 38% increase in
unit hardware shipments.
ADS operating profit increased by $17 million in 1996, and operating margins
improved from 4.0% in 1995 to 8.2% in 1996. In 1995 margins were adversely
impacted by changes in product mix and competitive pressure on pricing of
certain mature product lines. Approximately one percentage point of the 1996
increase was due to improved margins on media products (labels and printer
ribbons), while the remaining improvement resulted from the Company responding
to factors contributing to the 1995 decrease. The 1995 decrease in margins was
affected by the cost of a shift from proprietary to open architecture systems
which caused an approximate two percentage point decrease, while pricing
pressure contributed to an additional decrease of approximately two percentage
points.
IAS revenues increased by $176 million, or 28% in 1996, and its operating profit
increased by 13% to $70 million. Operating margins declined from 10.0% in 1995
to 8.8% in 1996 as a result of lower profit recognition in the early stages of
certain 1996 contracts. Backlog improved to $545 million at December 31, 1996
compared to $501 million at the prior year-end.
Net interest expense decreased from $9.3 million in 1995 to $7.1 million in 1996
because of lower levels of allocated Western Atlas debt, as well as reduced
interest income attributable to lower average balances in cash and marketable
securities.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO 1994
Total sales and service revenues decreased $28 million, or 3%, and related
segment operating profit decreased $5 million, or 6% for the year ended December
31, 1995 compared with the corresponding prior period.
ADS revenues increased by $18 million, or 6% in 1995. However, related operating
profit declined by $11 million, or 46%, and ADS operating margins dropped from
7.9% to 4.0% for the reasons discussed above.
IAS revenues decreased $46 million, or 7%, and related operating profit
increased $6 million, or 11% for the year ended December 31, 1995 compared with
the corresponding prior period. The decrease in sales and service revenues from
1994 compared with 1995 resulted from several large programs with automobile
customers being completed by the Integrated Manufacturing Systems operations and
shipped near the end of 1994. The increase in operating profit is partially
attributable to improvements in the operational performance of the Material
Handling Systems division in 1995 compared with 1994. This division was included
with IAS until it was sold in 1996. IAS backlog increased to $501 million at
December 31, 1995, from $353 million at December 31, 1994.
Net interest expense decreased from $15.7 million in 1994 to $9.3 million in
1995. Allocated Western Atlas debt declined following the sale of 6.9 million
Western Atlas common shares in September 1994, the proceeds of which ($286
million) were used primarily to pay down debt.
29
<PAGE>
FOREIGN CURRENCY TRANSACTIONS
The Company is subject to the effects of international currency fluctuations due
to the global nature of its operations. Currency fluctuations did not have a
significant impact on operations during fiscal years 1996, 1995 and 1994. It is
not possible to predict the Company's exposure to foreign currency fluctuations
beyond the near term because revenues generated from particular foreign
jurisdictions vary widely over time. The Company hedges transactions from time
to time, but the amount and volume of such transactions are not material.
For fiscal year 1996, the Company derived approximately 18% of its revenues and
approximately 22% of its operating profits (exclusive of corporate overhead)
from non-U.S. operations. However, at December 31, 1996, identifiable assets
attributable to foreign operations comprised 14% of total assets (of which the
largest components were attributable to European operations). Therefore,
exposure of identifiable assets to foreign currency fluctuations or
expropriations is not significant, even after considering the 1997 acquisitions
of Norand and UBI.
LIQUIDITY AND CAPITAL RESOURCES
Cash and marketable securities decreased from $149.5 million at December 31,
1996 to $21.8 million at June 30, 1997 primarily as a result of the Norand
acquisition.
The net accounts receivable balance was $495.1 million at June 30, 1997, and
$394.6 million and $284.1 million as of December 31, 1996 and 1995,
respectively. The change from December 31, 1995 to 1996 and continuing on
through June 30, 1997 is due primarily to an increase in unbilled recoverable
costs and accrued profit on progress completed on long-term contracts. The
unbilled amounts are generally billed upon completion and shipping of the
project. Fluctuation of unbilled amounts is a normal aspect of long-term
contracts, and the Company does not foresee any adverse liquidity implications
resulting from this activity. The net accounts receivable increase from December
31, 1996 to June 30, 1997 is primarily attributable to trade receivables of the
recently acquired Norand and UBI companies.
Total debt increased from $151.5 million at December 31, 1996 to $302.9 million
at June 30, 1997 due primarily to an increase in Western Atlas allocated debt
attributable to the use of a combination of Western Atlas' committed credit
facilities and short-term uncommitted credit lines to fund the Norand and UBI
acquisitions. The remaining increase is primarily attributable to capital
expenditures and working capital needs of the operations. WAI short-term
borrowings currently bear interest at an annual rate of approximately 5.75% and
have maturities of up to 60 days. The Company expects that cash flow from
operations, along with available borrowing capacity, will be adequate to meet
working capital requirements. After payment of an intercompany dividend to
Western Atlas immediately prior to the Distribution, the Company expects to have
unused committed credit facilities of approximately $170 million. The Company
does not anticipate any material adverse decline in cash flow from operations
nor any significant changes in capital expenditures required to support ongoing
operations.
INFLATION
In the opinion of management, inflation has not been a significant factor in the
markets in which the Company operates and has not had a significant impact upon
the results of its operations.
30
<PAGE>
MANAGEMENT
DIRECTORS OF THE COMPANY
Immediately following the Distribution, the Board of Directors of the Company is
expected to consist of the five persons named below. Directors for each class
will be elected at the annual meeting of shareholders held the year in which the
term for such class expires and will serve thereafter for three years. The
expiration of the initial term of each director is indicated below.
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY AND
PRINCIPAL BUSINESS AFFILIATIONS DURING
NAME AGE PAST FIVE YEARS
- --------------------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Alton J. Brann............................... 55 Chairman of the Board and Chief Executive Officer of the
Company. Chairman of the Board and Chief Executive Officer
and a director of Western Atlas since March 1994; prior
thereto President from November 1990 and Chief Executive
Officer of Litton from December 1992 to March 1994. A
director of Litton since December 1990.
Stephen E. Frank............................. 55 President and Chief Operating Officer of Southern California
Edison, a subsidiary of Edison International since June
1995; prior to that President and Chief Operating Officer of
Florida Power and Light Company since August 1990. Mr. Frank
is also a director of Washington Mutual, Inc.
Orion L. Hoch................................ 68 Chairman of the Executive Committee and a member of the
Western Atlas Board since March 1994; prior thereto Chairman
of the Board of Litton from March 1988 to March 1994; Chief
Executive Officer of Litton from December 1986 to December
1992 and a director of Litton since June 1982.
Steven B. Sample............................. 56 President of the University of Southern California since
March 1991. Dr. Sample is also a member of the Board of
Directors of Wm. Wrigley Jr. Company, Santa Catalina Company
and Presley Companies. He has been a director of Western
Atlas since March 1994.
William D. Walsh............................. 67 Partner of Sequoia Associates, a private investment firm,
since June 1982. Mr. Walsh is also a director of American
Ireland Fund, BVP, Inc., Crown Vantage, Inc., Newcourt
Credit Group, Inc. and URS Corporation. He is Chairman of
the Board of Golden Valley Produce, LLC, Clayton Group,
Inc., Consolidated Freightways Corporation, Newell
Manufacturing Corporation and Newell Industrial Corporation.
</TABLE>
On the Distribution Date, Dr. Sample will resign as a member of the Board of
Directors of Western Atlas. Mr. Brann and Dr. Hoch are expected to continue as
directors of Western Atlas, and Mr. Brann will be elected non-executive Chairman
of the Board of Western Atlas effective as of the Distribution Date.
The Certificate of Incorporation and By-laws of the Company provide that the
Company's Board will be divided into three classes of directors, with the
classes to be as nearly equal in number as possible. Of the initial directors,
Mr. Frank and Dr. Hoch will serve until the 1999 Annual Meeting of Shareholders;
Dr. Sample and Mr. Walsh will serve until the 2000 Annual Meeting of
Shareholders; and Mr. Brann will serve until the 2001 Annual Meeting of
Shareholders. Starting with the 1999 Annual Meeting of Shareholders, one class
of directors will be elected each year for a three-year term. See "Certain
Antitakeover
31
<PAGE>
Effects of Certain Provisions of the Certificate of Incorporation, the By-laws,
State Law and the Rights Plan -- Classified Board of Directors."
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information concerning the persons who
currently serve as executive officers of the Company. Each such person was
elected to the indicated office with the Company in anticipation of the
Distribution and serves at the pleasure of the Board of Directors. Those persons
who have been officers and/or employees of Western Atlas will relinquish such
positions in connection with the Distribution.
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY AND
PRINCIPAL BUSINESS AFFILIATIONS DURING
NAME AGE PAST FIVE YEARS
- --------------------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Alton J. Brann............................... 55 Chairman of the Board and Chief Executive Officer; for prior
business experience see "Directors of the Company" above.
Charles A. Cusumano.......................... 51 Vice President, Finance. Vice President, Finance, of Western
Atlas since October 1, 1996. Prior thereto, Vice President
and Controller of Western Atlas from March 1994 to September
30, 1996. Vice President, Finance, of Litton's Industrial
Automation Systems Group from October 1988 to March 1994.
Michael E. Keane............................. 41 Senior Vice President and Chief Financial Officer. Senior
Vice President and Chief Financial Officer of Western Atlas
since October 1, 1996. Prior thereto, Vice President and
Treasurer of Western Atlas from March 1994 to September 30,
1996. Director of Pensions and Insurance of Litton from
February 1991 to March 1994.
Michael Ohanian.............................. 65 Senior Vice President and Group Executive, Automated Data
Systems. Senior Vice President of Western Atlas since July
8, 1997, Vice President of Western Atlas from May 1996 to
July 1997 and President of Intermec since May 1995. Prior
thereto, an independent consultant from September 1994 to
May 1995 and Vice President, Strategic and Government
Programs, of Intermec from April 1988 to September 1994.
Norman L. Roberts............................ 62 Senior Vice President and General Counsel. Senior Vice
President and General Counsel of Western Atlas since March
1994. Prior thereto, Senior Vice President and General
Counsel of Litton from March 1990 to March 1994.
Clayton A. Williams.......................... 63 Senior Vice President and Group Executive, Industrial
Automation Systems. Senior Vice President of Western Atlas
since May 7, 1996 and Group Executive of Western Atlas'
Manufacturing Systems Group since December 1995. Prior
thereto, Vice President of Western Atlas from December 9,
1995 to May 7, 1996. Vice President of Litton from June 1992
to December 1995 and President of its Applied Technology
division from January 1990 to December 1995.
</TABLE>
32
<PAGE>
THE BOARD AND CERTAIN BOARD COMMITTEES
The Company's Board of Directors (the "Board") is expected to establish an Audit
and Compliance Committee, a Compensation Committee and a Nominating Committee.
The duties and membership of such committees will be established at the initial
meeting of the Board following the Distribution.
DIRECTORS' COMPENSATION AND RETIREMENT POLICIES
Directors who are not employees of the Company are expected to be paid an annual
fee for Board service of $30,000, payable in quarterly installments, and an
attendance fee of $2,000 for each Board meeting attended and each meeting of a
committee of the Board attended. In addition, any nonemployee director serving
as Chair of the Audit and Compliance Committee or the Compensation Committee
will receive a separate annual fee of $4,000, and any nonemployee director
serving as Chair of the Nominating Committee will receive a separate annual fee
of $3,000. Directors may elect prior to the Distribution Date (for fees earned
in 1997) and prior to the commencement of the calendar year for each year
thereafter, to receive 50% or more of the fees described in the two preceding
sentences in Company Common Stock pursuant to the Director Stock Option and Fee
Plan described below; PROVIDED, that new directors may make such election during
the 30-day period immediately following commencement of service as a director.
The number of shares of Company Common Stock which may be received in lieu of
cash fees shall equal the quarterly fees earned which the director has elected
to convert into Company Common Stock, divided by the average for the quarter of
the average of the high and low prices of the Company Common Stock on each
trading day during the quarter. Directors who are employees of the Company are
not paid any fee or additional remuneration for services as members of the Board
or any committee thereof. Director fees, including fees elected to be paid in
Company Common Stock, may be deferred pursuant to the Director Stock Option and
Fee Plan described below.
The Company is expected to adopt a policy establishing the mandatory retirement
date of each director and advisory director as the date of the Annual Meeting of
the shareholders of the Company next following his or her 72nd birthday.
DIRECTOR STOCK OPTION AND DEFERRED FEE PLAN
Under the terms of the UNOVA, Inc. Director Stock Option and Fee Plan (the
"Director Plan"), directors (including advisory directors, if any) who are not
employees of the Company or any subsidiary thereof automatically receive annual
grants of options to purchase shares of the Company Common Stock at the fair
market value of such stock on the date of grant. The initial grants under the
Director Plan will be made as of the Distribution Date (for purposes of the
initial grants made as of the Distribution Date, fair market value shall be
based on the average of the high and low daily prices of the Company Common
Stock as reported in the NYSE Composite Tape on the sixth through tenth trading
dates, inclusive, following the Distribution Date). Each of these initial grants
will cover 25,000 shares of the Company Common Stock. Any person who joins the
Board as a nonemployee director subsequent to the date of the initial grant of
options under the Director Plan and who neither received options under the 1997
Plan during the two-year period preceding the date of commencement of Board
membership nor was an employee of the Company or a subsidiary of the Company
during such two-year period will receive an initial grant of options to purchase
25,000 shares upon joining the Board. Commencing in 1999, on the first business
day following the Company's annual shareholders' meeting for each year during
the term of the Director Plan, each nonemployee director automatically will
receive a grant of an option for 2,500 shares. All options granted under the
Director Plan become fully exercisable on the first anniversary of the grant
thereof; however, if a director dies or becomes permanently disabled while
serving on the Board, or if the director retires pursuant to the policy for
mandatory retirement of directors described below, then all options held by such
director become exercisable in full. In addition, if a change in control of the
Company (as defined in the 1997 Stock Incentive Plan as described below) occurs,
then all options granted under the Director Plan become fully exercisable. An
aggregate of 500,000 shares of
33
<PAGE>
Company Common Stock, subject to adjustment for certain events affecting the
Company's capitalization, are authorized for issuance under the Director Plan.
Options granted under the Director Plan shall remain exercisable until three
years following the first to occur of the retirement or resignation of the
director from the Board (or the director's failure to be re-elected to the
Board), the total and permanent disability of the director, or the death of the
director.
Pursuant to the Director Plan, nonemployee directors may elect to defer all or a
portion of their fees described under the caption "Directors' Compensation and
Retirement Policies" to either a deferred stock account or cash account. The
deferred stock account will enable directors to defer their fees into phantom
Company Common Stock, and the cash account will provide a deferral into an
interest-based account. An election to defer fees must be made prior to the
Distribution Date (for fees earned in 1997) and prior to the commencement of the
calendar year for fees earned in each year thereafter; provided, that new
directors may make such election during the 30-day period following commencement
of service as a director.
The deferred stock account will be a bookkeeping account credited with share
units representing shares of Company Common Stock. Dividends paid on Company
Common Stock will be treated as paid on the number of share units in the
deferred stock account and as reinvested in share units credited to the deferred
stock account. The cash account will accrue interest at a rate equal to the
prime rate as reported by Morgan Guaranty Trust Company of New York on the first
business day of the applicable quarter.
Credits to the deferred stock and cash accounts shall be made on the first
business day following the end of each quarter. A director's stock account will
be credited with the number of shares of Company Common Stock into which the
director's fees would be converted pursuant to an election to receive Company
Common Stock in lieu of cash fees, and are the subject of a deferral election.
Transfers between the stock account and the cash account will not be permitted.
Deferred amounts will be paid to each director commencing in the January
following the director's termination of service with the Board. Such payments
may be made in a lump sum or in two to fifteen annual installments as elected by
the director at the time of the deferral election. Notwithstanding the
foregoing, upon a change in control of the Company, all deferred accounts will
be paid out immediately. The deferred stock account will be paid in shares of
Company Common Stock equal to the number of share units credited to such
account, and the cash account will be paid in cash.
The Director Plan will be administered by the Board, which will have authority
to interpret, and make rules and regulations relating to, the Director Plan and
to determine the provisions of the individual option agreements to be entered
into under the Director Plan. The Director Plan will terminate on December 15,
2007 (unless earlier discontinued by the Board), but such termination will not
affect the rights of the holder of any option or participant in a deferred stock
or cash account outstanding on such date of termination. The Board may suspend
or discontinue the Director Plan or amend it in any respect whatsoever;
PROVIDED, HOWEVER, that no such amendment shall adversely affect the rights of
any director without such director's consent or shall be made without
stockholder approval if such approval is required by any regulation, law or
stock exchange rule.
Of the individuals named on page 31, all except Mr. Brann are expected to be
eligible to participate in the Director Plan immediately following the
Distribution Date.
The foregoing summary of the Director Plan is qualified by reference to the text
of the Director Plan which is attached to this Information Statement as Annex A.
34
<PAGE>
ANNUAL MEETING
The Company's By-laws provide that annual meetings of shareholders shall be held
at such place and time as may be fixed by resolution of the Board. The first
annual meeting for which proxies will be solicited from shareholders is expected
to be held in May 1999.
HISTORICAL COMPENSATION
The following table sets forth, for the chief executive and the four other
executive officers of the Company who, based upon employment by Western Atlas
and its subsidiaries, received the highest compensation with respect to the
fiscal year ended December 31, 1996 (the "Named Executive Officers"),
information concerning compensation paid in fiscal 1996 to such persons by
Western Atlas or its subsidiaries. The principal positions listed in the table
are those expected to be held by the Named Executive Officers following the
Distribution.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
AWARDS
SECURITIES
UNDERLYING ALL OTHER
SALARY BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(A) (#) ($)(B)
- -------------------------------------------------- --------- --------- --------- ----------- --------------
Alton J. Brann 1996 687,030 928,125 50,000 17,382
Chairman of the Board and 1995 649,065 669,638 50,000 17,130
Chief Executive Officer 1994 573,092 625,000 175,000 157,994
Charles A. Cusumano 1996 226,289 174,242 15,000 4,936
Vice President, Finance
Michael Ohanian 1996 269,232 269,232 11,000 9,250
Senior Vice President
Norman L. Roberts 1996 295,846 292,887 15,000 9,057
Senior Vice President 1995 285,774 220,455 15,000 10,090
and General Counsel 1994 267,027 210,000 25,000 39,289
Clayton A. Williams 1996 257,500 321,875 12,000 45,540
Senior Vice President 1995 15,385(c) 0 25,000 0
</TABLE>
- ------------------------
(a) Bonuses awarded to the Named Executive Officers, with respect to 1996 were
paid as follows: an amount equal to 50% of the recipient's annual base pay
in effect on January 1, 1996, was paid in February 1997, and the remainder
will be paid one year later provided the recipient is then in the employ of
the Company, or has terminated employment by reason of death, disability, or
retirement or is on an approved leave of absence. Where a bonus exceeded
100% of the recipient's base pay at January 1, 1996, an amount equal to one
half of such base pay was paid in February 1997; and, subject to
satisfaction of the conditions set forth in the preceding sentence, an
additional amount equal to 50% of such base pay will be paid in February
1998; and the remainder, in February 1999.
(b) Included in this column for 1996 are the following: (i) present value costs
of Western Atlas' portion of the 1996 premium for split-dollar life
insurance for Mr. Brann of $1,936; (ii) the amount of $2,793 representing
premiums paid by Western Atlas with respect to the participation in Western
Atlas' Executive Medical Plan of each of Messrs. Brann and Roberts; (iii)
the following amounts representing interest imputed to and taxable to the
holder of loans from Western Atlas: Mr. Brann, $10,903, Mr. Cusumano,
$3,186, and Mr. Roberts, $4,514; (iv) Western Atlas matching contributions
of $1,750 made to the respective accounts of Messrs. Brann, Cusumano,
Ohanian and Roberts under
35
<PAGE>
Western Atlas' 401(k) plan; and (v) the amount of $7,500 paid to Mr. Ohanian
by a subsidiary of Western Atlas pursuant to an executive flexible benefits
plan; and (vi) the amount of $45,540 paid to Mr. Williams as relocation
expenses and relocation bonus in connection with his move from San Francisco
to the Detroit area in December 1995, to assume the position of Group
Executive for Western Atlas' Manufacturing Systems Operations.
(c) Represents salary paid to Mr. Williams from the date of his employment by
Western Atlas, December 9, 1995, through December 31, 1995.
The following table shows stock option grants with respect to shares of Western
Atlas Common Stock under employee stock option plans of Western Atlas to the
Named Executive Officers during the 1996 fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
<S> <C> <C> <C> <C> <C>
NUMBER OF PERCENTAGE OF
SECURITIES TOTAL OPTIONS GRANT DATE
UNDERLYING GRANTED TO EXERCISE PRESENT
OPTIONS EMPLOYEES IN PRICE EXPIRATION VALUE
NAME GRANTED (#)(A) FISCAL YEAR ($/SH) DATE ($)(B)
- --------------------------------------- -------------- ------------------- ----------- ------------ -----------
Alton J. Brann......................... 1,731(c) 0.29% 57.75 8/15/2006 54,653
48,269(d) 7.98% 57.75 8/15/2006 1,523,990
Charles A. Cusumano.................... 1,731(c) 0.29% 57.75 8/15/2006 54,653
13,269(e) 2.19% 57.75 8/15/2006 418,940
Michael Ohanian........................ 8,655(f) 1.43% 57.75 8/15/2006 273,263
2,345(g) 0.39% 57.75 8/15/2006 74,038
Norman L. Roberts...................... 1,731(c) 0.29% 57.75 8/15/2006 54,653
13,269(e) 2.19% 57.75 8/15/2006 418,940
Clayton A. Williams.................... 1,731(c) 0.29% 57.75 8/15/2006 54,653
10,269(h) 1.70% 57.75 8/15/2006 324,222
</TABLE>
- ------------------------
(a) All options granted to the Named Executive Officers were granted at the
prevailing market price of the Western Atlas Common Stock on the date of
grant. These options permit payment of the exercise price and any
withholding tax due upon exercise by the surrender of already owned shares
of Western Atlas Common Stock having a fair market value equal to the
exercise price or the amount of withholding tax, as the case may be, or
payment of withholding tax by applying shares otherwise receivable upon
exercise. All such options become immediately exercisable upon the
occurrence of certain events resulting in a change in control of Western
Atlas, and accelerated vesting schedules become applicable in the event of
the death of the optionee while in the employ of Western Atlas. Change in
control has the meaning described on page 47.
(b) The Black-Scholes model was used to determine the grant date present value
of stock options. This method requires the assumption of certain values that
affect the option price. The values which were used in this model are the
volatility of Western Atlas' stock price and the estimate of the risk-free
interest rate. Since Western Atlas does not pay a dividend, no yield on the
Western Atlas Common Stock was assumed. For purposes of the model used to
value the options in this table, a volatility factor of 26%, determined from
historical stock price fluctuations, and a 6.7% risk-free interest rate,
determined from market information prevailing on the grant date, were used.
No adjustments were made for the nontransferability or risk of forfeiture of
the stock options. This model assumed all options are exercised on their
respective expiration dates. There is no assurance that these assumptions
will prove true in the future. The actual value of the options depends on
the market price of the Western Atlas Common Stock at the date of exercise,
which may vary from the theoretical value indicated in the table.
36
<PAGE>
(c) Incentive Stock Options. These options become 100% exercisable on the fifth
anniversary of the date of grant.
(d) Nonqualified Stock Options. These options become exercisable in four
installments of 10,000 shares each on the first through the fourth
anniversaries of the date of grant, and in one installment of 8,269 shares
on the fifth anniversary of the date of grant.
(e) Nonqualified Stock Options. These options become exercisable in four
installments of 3,000 shares each on the first through the fourth
anniversaries of the date of grant, and one installment of 1,269 shares on
the fifth anniversary of the date of grant.
(f) Incentive Stock Options. These options become exercisable in five equal
installments of 1,731 shares on each of the first through the fifth
anniversaries of the date of grant.
(g) Nonqualified Stock Options. These options become exercisable in five equal
installments of 469 shares each on the first through the fifth anniversaries
of the date of grant.
(h) Nonqualified Stock Options. These options become exercisable in four
installments of 2,400 shares each on the first through the fourth
anniversaries of the date of grant, and one installment of 669 shares on the
fifth anniversary of the date of grant.
37
<PAGE>
The following table provides information with respect to options to purchase
Western Atlas Common Stock exercised by any of the Named Executive Officers
during 1996 and with respect to the number and value of unexercised options held
by each Named Executive Officer at December 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES(A)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED OPTIONS AT IN-THE-MONEY OPTIONS AT
ON VALUE DECEMBER 31, 1996(#) DECEMBER 31, 1996($)
EXERCISE REALIZED ---------------------------- ----------------------------
NAME (#)(B) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------- ----------- --------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Alton J. Brann......................... 12,644 498,880 72,196 273,440 2,605,610 7,440,925
Charles A. Cusumano.................... 0 0 18,640 37,360 984,220 885,010
Michael Ohanian........................ 0 0 3,390 12,110 167,809 201,379
Norman L. Roberts...................... 0 0 17,600 59,400 795,780 1,604,768
Clayton A. Williams.................... 0 0 5,000 32,000 104,675 576,200
</TABLE>
- ------------------------
(a) The number and value of unexercised options to purchase Western Atlas Common
Stock at the end of 1996 are shown in the table. In addition, Messrs. Brann,
Cusumano, Ohanian and Roberts held options to purchase shares of Litton
common stock, adjusted on account of the 1994 distribution of the Western
Atlas Common Stock to the shareholders of Litton and granted to them prior
to such distribution, as follows:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY LITTON OPTIONS
LITTON OPTIONS AT AT
DECEMBER 31, 1996 (#) DECEMBER 31,1996 ($)
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------------- ------------ -------------- ------------ --------------
Alton J. Brann............................... 0 33,440 0 887,569
Charles A. Cusumano.......................... 9,940 2,560 326,878 82,604
Michael Ohanian.............................. 3,390 1,110 108,760 37,108
Norman L. Roberts............................ 14,600 7,400 460,596 233,951
</TABLE>
- ------------------------
(b) During 1996 Mr. Brann exercised Litton options to purchase 49,840 shares,
thereby realizing $1,388,406.
ADJUSTMENTS TO OUTSTANDING WESTERN ATLAS OPTIONS AS A RESULT OF THE
DISTRIBUTION. Western Atlas has granted outstanding options to purchase Western
Atlas Common Stock under the Western Atlas Inc. 1993 Stock Incentive Plan and
the Western Atlas Inc. Director Stock Option Plan (collectively, the "Western
Atlas Options"). Upon the Distribution, each Western Atlas Option will be
adjusted by (i) multiplying the number of shares of Western Atlas Common Stock
subject to the option by the Adjustment Factor and (ii) dividing the exercise
price per share of the option by the Adjustment Factor. For these purposes, the
"Adjustment Factor" is defined as the quotient obtained by dividing (x) the
Average Market Price of the Western Atlas Common Stock plus the Average Market
Price of the Company Common Stock by (y) the Average Market Price of the Western
Atlas Common Stock. The "Average Market Price" of Western Atlas Common Stock or
Company Common Stock, as the case may be, is defined to be the average of the
high and low daily prices of such security as reported on the NYSE Composite
Tape on the sixth through tenth trading days, inclusive, following the date of
the Distribution. The Western Atlas Options will be amended to provide that, (i)
for purposes of the vesting, exercisability and duration of these options,
service with the Company as an employee (or as a director, with respect to
Western Atlas Options granted under the Western Atlas Inc. Director Stock Option
Plan) shall be deemed to be service with Western Atlas, and (ii) upon the
occurrence of certain events resulting in a change of control of the Company,
these options will become immediately vested and exercisable to the extent not
previously vested and exercisable.
38
<PAGE>
EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS
Messrs. Brann, Cusumano, Keane, Roberts and certain additional officers of the
Company have entered into change in control agreements with the Company
(collectively, the "Agreements"). The Agreements are operative only upon the
occurrence of a change in control, which includes substantially those events
described below. Absent a change in control, the Agreements do not require the
Company to retain the executives or pay them any specified level of compensation
or benefits.
Generally, under the Agreements, a change in control is deemed to have occurred
if: (a) a majority of the Board becomes composed of persons other than persons
for whose election proxies have been solicited by the Board, or other than
persons who are then serving as directors appointed by the Board to fill
vacancies caused by death or resignation (but not removal) of a director or to
fill newly created directorships; (b) another party becomes the beneficial owner
of at least 30% of the Company's outstanding voting stock, other than as a
result of a repurchase by the Company of its voting stock; (c) the approval by
the shareholders of the Company of a merger, reorganization, or consolidation
with another party (other than certain limited types of mergers) or sells or
otherwise disposes of all or substantially all of the Company's assets; or (d)
the shareholders approve the liquidation or dissolution of the Company.
Each Agreement provides that for three years after a change in control there
will be no adverse change in the executive's salary, bonus opportunity,
benefits, or location of employment. If, during this three-year period, the
executive's employment is terminated by the Company other than for cause, or if
the executive terminates his or her employment for good reason as such terms are
defined in the Agreements (including compensation reductions, demotions,
relocation, and requiring excessive travel), or voluntarily during the 30-day
period following the first anniversary of the change in control, the executive
is entitled to receive an accrued salary and annual incentive payment through
the date of the termination and, except in the event of death or disability, a
lump-sum severance payment equal to three times the sum of the executive's base
salary and annual bonus (and certain pension credit and insurance and other
welfare plan benefits). Further, an additional payment is required in such
amount that after the payment of all taxes, income and excise, the executive
will be in the same after-tax position as if no excise tax under the Code had
been imposed. In the event of termination of employment by reason of death or
disability or for cause, the Agreements terminate and the sole obligation of the
Company is to pay any amounts theretofore accrued thereunder.
The Agreements will terminate effective as of the Distribution, but it is
expected that the Company will enter into agreements with these individuals and
other officers and key employees with substantially identical terms.
The Company has entered into an employment agreement with Clayton A. Williams
whereby Mr. Williams has agreed to accept employment from the period from the
Distribution Date to February 13, 1999, initially as Group Executive of the
Company's Industrial Automation Systems operations and Senior Vice President of
the Company. Under this agreement, Mr. Williams will receive a current annual
salary of not less than $280,000 and is entitled to participate in the cash
bonus plan or plans for which he is eligible. In the event of Mr. Williams'
termination of employment without cause, he is entitled to receive the remaining
installments of base salary payable during the term of the agreement and a pro
rata portion of the bonus for which he would have qualified had he remained
employed throughout the year of any such termination.
Mr. Ohanian has an employment contract with Intermec Corporation, a subsidiary
of the Company, which provides for his employment through February 28, 1998, for
a base salary of $300,000 and provides that he is eligible to receive an annual
bonus, subject to the satisfaction of performance goals established by the
Compensation Committee of the Company's Board of Directors, in accordance with
the terms of any cash bonus plan in which he is eligible to participate.
39
<PAGE>
RETIREMENT BENEFITS
Prior to the Distribution, the Company's management will be participants in the
tax-qualified and non-qualified retirement plans of Western Atlas (the "Western
Atlas Retirement Plans"). Effective at the time of the Distribution, the Company
will adopt tax-qualified and non-qualified retirement plans that will replicate,
in all material respects, the Western Atlas Retirement Plans (the "Company
Retirement Plans"). The following is a description of the expected terms of the
Company Retirement Plans.
THE FSSP AND RELATED RETIREMENT PLAN. Messrs. Brann, Cusumano, Ohanian and
Roberts are expected to participate in the Company's Financial Security and
Savings Program (the "FSSP"), a defined contribution plan intended to qualify
under Sections 401(a) and 401(k) of the Code. Participation in the FSSP is
generally available to employees of the Company located in the United States.
A participant in the FSSP may elect to defer from 2% to 18% of his or her
covered compensation for investment in the trust established under the FSSP, but
the maximum amount which the employee may contribute to the FSSP for any
calendar year is limited by provisions of the Code relating to the maximum
amount, as adjusted for inflation, which may be contributed to plans qualified
under Section 401(k) of the Code (the "401(k) Maximum Amount"), which is $9,500
for 1997. Deposits of 2% to 4% of the participant's compensation are invested in
the FSSP Retirement Fund, while deposits in excess of 4% are invested in one or
more investment funds as designated by the participant.
The Company adds to the investment fund account of an FSSP participant an amount
(not to exceed 2% of the participant's compensation) equal to 50% of the
participant's deposits in excess of 4% of his or her compensation. In the case
of employees who are classified as highly compensated pursuant to applicable
Treasury releases (those earning over $80,000 for 1997), such employees'
permissible contributions may be reduced further and the amount of the
employer's matching contributions may be limited if certain nondiscrimination
tests set forth in the Code are not achieved. A participant is entitled to
receive his or her entire FSSP account, to the extent it has become vested, upon
retirement or earlier termination of employment with the Company.
Benefits under the FSSP are intended to supplement benefits under the Company's
related retirement plan, which is a defined benefit plan. Although deposits to
the FSSP do not comprise part of the retirement plan's trust (except for
transfers of assets made at the request of a participant in connection with a
distribution, as described below), the extent of an employee's participation in
the Retirement Fund of the FSSP will affect the amount of such employee's
benefit under the related retirement plan. The employee's contribution to the
FSSP of 2% to 4% of his or her gross earnings causes the employee (if eligible
to participate in the Company's retirement plan) to become eligible to accrue
benefits under such retirement plan. Covered compensation for purposes of both
the retirement plans and the FSSP Retirement Fund is aggregate cash compensation
including bonuses and commissions but would, in the case of Messrs. Brann,
Cusumano, Ohanian and Roberts be limited to $160,000 pursuant to provisions of
the Code.
The amount of a participant's annual retirement benefit at his or her normal
retirement date (generally age 65) under the Company's defined benefit
retirement plan is the higher of (A) 60% of the participant's deposits to the
Retirement Fund of the FSSP (during the entire period of his or her employment)
or (B) 85% of such deposits minus 75% of the participant's estimated Social
Security primary benefit at age 65, with adjustments in the amount of the
benefit to take into account factors such as age at retirement, degree of
vesting, and form of benefit selected. In the case of Company employees who
transferred directly from Western Atlas to the Company, contributions to the
Retirement Fund of the FSSP will be included in the computation of a
participant's total deposits for purposes of the formula set forth above. The
annual retirement benefit at normal retirement age is reduced by the actuarial
equivalent of lump sum distributions made (at the request of the participant) of
the participant's Retirement Fund account in the FSSP. Should a participant wish
to receive the entire benefit described in the formula set forth above,
40
<PAGE>
the participant may direct that his or her Retirement Fund balance consisting of
deposits with earnings be transferred to the retirement plan trust.
RESTORATION PLAN.The limitations in the Code establishing the 401(k) Maximum
Amount cause certain participants in the FSSP to lose Company-provided benefits
which they could otherwise have derived from the deposit of a full 8% of their
covered compensation to the FSSP. Consequently, the Company has adopted a
noncontributory and unfunded plan (the "Restoration Plan") designed to restore
the approximate amount of lost employer-provided benefits to those employees who
participate in the FSSP to the fullest extent permitted by the applicable Code
provisions but who are unable (as a result of the 401(k) Maximum Amount
limitation) to contribute 8% of their compensation to the FSSP. Such lost
employer-provided benefits which are restored under this plan consist of (i) all
or part of the 50% matching contribution to the investment fund account of the
FSSP participant and (ii) except in the case of Mr. Brann, who participates in a
supplemental contractual arrangement (as described below), a portion of the full
benefit under the Company's retirement plan if the participant's contributions
to the FSSP Retirement Fund are limited to less than 4% of his or her
compensation. Amounts that would have been deposited to the employee's
Retirement Fund account by the employee and to his or her investment fund
account by the Company are projected with interest to the participant's normal
retirement date. Based upon these amounts, the participant's lost benefits from
the Company's retirement plan and lost Company contributions to the investment
fund are determined and converted to, and payable upon the participant's
retirement as, a single life annuity if the participant is unmarried at such
time or as a 100% joint and survivor annuity if the participant is then married;
however, no payment will commence until the participant reaches the age of 62.
SUPPLEMENTAL ARRANGEMENT FOR MR. BRANN. In addition to the FSSP, the related
retirement plan, and the Restoration Plan, the Company has a noncontributory and
unfunded supplemental contractual arrangement (the "Supplemental Arrangement")
designed to provide additional retirement benefits to Mr. Brann. If Mr. Brann
retires on or after age 65 following 25 years of service with the Company
(including prior service with Western Atlas and Litton), his annual benefit
(computed as a single life annuity) under the Supplemental Arrangement is 55% of
his final average compensation, less amounts payable to Mr. Brann under Social
Security and less that portion of pension benefits deemed to have been provided
by the employer's (as opposed to Mr. Brann's) contributions which would have
been received by Mr. Brann under any other retirement plan sponsored by the
Company, Western Atlas or Litton if he was eligible to participate and had
participated at all times in any such plan to the maximum extent permitted
(regardless of the degree of actual participation). Final average compensation
means one-third of covered cash compensation (including salary and bonus) deemed
to have been awarded to or received by Mr. Brann during any three periods of 12
consecutive months specified by Mr. Brann occurring during the 60-month period
preceding his retirement. Salary is deemed to have been received when paid and
bonuses are deemed to have been received when determined and awarded to Mr.
Brann by the Compensation Committee, regardless of when paid. For purposes of
the Supplemental Arrangement, Mr. Brann had 24 credited years of service at
August 1, 1997.
If Mr. Brann's employment is terminated before he has completed 25 years of
service or attained the age of 65, then the percentage of 55% referred to above
is reduced in accordance with a schedule relating to age and length of service;
however, payment of retirement benefits to Mr. Brann under the Supplemental
Arrangement will, in no event, commence until he reaches age 62. The
Supplemental Arrangement also provides for certain salary continuation payments
in the event of Mr. Brann's disability and certain survivors' benefits in the
event of his death while employed by the Company and prior to the commencement
of the payment of retirement benefits.
The following table indicates the approximate annual combined benefit which
would be received by Mr. Brann representing the sum of (a) the benefit under the
Company's basic retirement plan deemed to have been provided by the employer's
contributions and (b) the benefit under the Supplemental Arrangement, based on
the following assumptions: (i) participation in the voluntary retirement plans
to the maximum extent permitted during the entire period of Mr. Brann's
employment, (ii) retirement at age 65, and (iii) election of the benefit in the
form of a single life annuity.
41
<PAGE>
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------
<S> <C> <C> <C>
REMUNERATION 15 20 25 OR MORE
- -------------------------------------------------------------------------- ----------- ----------- -----------
$1,200,000................................................................ $ 420,000 $ 570,000 $ 660,000
1,400,000................................................................ 490,000 665,000 770,000
1,600,000................................................................ 560,000 760,000 880,000
1,800,000................................................................ 630,000 855,000 990,000
2,000,000................................................................ 700,000 950,000 1,100,000
</TABLE>
Although, as indicated above, the amount of such combined benefit would be
reduced by Mr. Brann's Social Security primary benefit, the foregoing table does
not give effect to such offset. Covered compensation under the Supplemental
Arrangement is aggregate cash compensation, including salary and bonus, actually
paid to Mr. Brann during the fiscal year. Since Mr. Brann received incentive
awards from Western Atlas payable in installments, and since Mr. Brann's bonus
awarded by Western Atlas for fiscal 1996 was not paid during 1996, the cash
compensation paid to Mr. Brann during 1996 was $1,312,000, rather than the
amount shown in the Summary Compensation Table.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. Messrs. Cusumano, Ohanian and Roberts
participate in the Company's Supplemental Executive Retirement Plan, an unfunded
plan which provides additional retirement benefits to key executive employees
designated by the Compensation Committee of the Board after nomination by the
Chief Executive Officer. A participant in this plan does not ordinarily vest in
a retirement benefit until reaching the age of 60 and completing 15 years of
service following the participant's 40th birthday and may not ordinarily begin
receiving a retirement benefit thereunder until reaching age 62. Under this plan
a participant's annual retirement benefit is the actuarial equivalent, as of the
age of the participant at retirement, of the following computation (a) 1.6% of
"average earnings" of the participant up to $125,000 (which amount is adjusted
annually for inflation) plus (b) 2.2% of "average earnings" in excess of such
amount, the sum of (a) plus (b) then being multiplied by the participant's
number of years of service (not to exceed 25) following the participant's 40th
birthday. Average earnings for purposes of this plan is the average of base
salary and cash bonus awarded by the Company to the participant in the three
periods of 12 consecutive months in which the participant's compensation was
highest during the final 60 months of the participant's employment. There is
offset from the benefit calculated in the manner described above the
participant's Social Security primary benefit as well as all amounts of
"Company-provided" retirement benefit which the participant receives (or could
have received assuming full participation at all times of eligibility) under
other retirement plans sponsored by the Company. For purposes of this plan, Mr.
Roberts had 22 credited years of service, Mr. Ohanian had 9 credited years of
service and Mr. Cusumano had 11 credited years of service at August 1, 1997.
The following table indicates the approximate combined annual retirement benefit
which would be received by a participant in this plan representing the sum of
(a) the Company-provided benefit under the Company's basic retirement plan; (b)
the benefit under the Restoration Plan; and (c) the benefit under the
Supplemental Executive Retirement Plan based on retirement at age 65, full
participation at all relevant times in the basic retirement plans, and election
of a benefit in the form of a single life annuity. The table does not give
effect to the offset of the participant's Social Security benefit.
42
<PAGE>
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------
<S> <C> <C> <C>
REMUNERATION 15 20 25 OR MORE
- -------------------------------------------------------------------------- ----------- ----------- -----------
$ 600,000................................................................. $ 177,739 $ 236,986 $ 296,232
800,000................................................................. 243,739 324,986 406,232
1,000,000................................................................ 309,739 412,986 516,232
1,200,000................................................................ 375,739 500,986 626,232
</TABLE>
In addition to retirement benefits, certain benefits are payable under this plan
in the event of the death or disability of the participant. In the event of a
change of control of the Company, a participant is immediately vested in the
retirement benefit and is entitled to receive a lump sum payment equal to the
actuarial equivalent, as of the age of the participant on the date of the change
of control of the Company, of the retirement benefit which would have been
payable at age 65, unless the committee which then administers the plan elects
to defer such lump sum payment.
INDEBTEDNESS OF MANAGEMENT TO THE COMPANY
As a form of additional incentive for its key employees, Western Atlas provides
loans to certain such employees located in the United States. Under such
program, loans in the aggregate principal amount of $1,196,000 were outstanding
at August 1, 1997 to four executive officers of the Company, as follows: Alton
J. Brann, $616,000; Charles A. Cusumano, $225,000; Michael E. Keane, $100,000;
and Norman L. Roberts, $255,000. These loans are unsecured, currently bear
interest at the rate of 4% per annum, and are payable on the Company's demand,
but, in any event, not later than the earlier of (i) termination of the
borrower's employment with the Company or any subsidiary thereof, or (ii)
December 31, 1998. The foregoing amounts represent the largest amount of
indebtedness of each such executive officer and present executive officers as a
group under such loan program outstanding since December 31, 1995.
It is anticipated that the Company will establish a similar program effective as
of the Distribution Date, and that the receivables of Western Atlas representing
such loans will be transferred to the Company. The final maturity date of these
loans is expected to be extended to December 31, 2002.
INCENTIVE COMPENSATION PLANS FOLLOWING THE DISTRIBUTION
The following are descriptions of the incentive compensation plans that are
expected to provide benefits to management employees of the Company after the
Distribution.
1997 STOCK INCENTIVE PLAN
The UNOVA, Inc. 1997 Stock Incentive Plan (the "1997 Plan") has been adopted
by the Board of Directors of the Company and approved by Western Atlas as the
Company's sole shareholder. The Company's Board believes that the adoption of
the 1997 Plan will help the Company to attract, retain and provide appropriate
incentives for management personnel. The description of the 1997 Plan set forth
below is a summary only and is qualified in its entirety by reference to the
text of the 1997 Plan, which is attached to this Information Statement as Annex
B.
GENERAL. The 1997 Plan provides that the total number of shares available for
grant shall be 5,500,000 shares of Company Common Stock plus a number of shares
of Company Common Stock equal to 1% of the number of shares of Company Common
Stock outstanding as of January 1 of each year beginning in 1999; any amount not
used in a given year may be carried over into the next year. In addition to the
foregoing limitation, no more than 5,000,000 shares of Company Common Stock may
be granted over the life of the 1997 Plan for incentive stock options (within
the meaning of Section 422 of the Code) ("ISOs"), and no more than 30% of the
shares of Company Common Stock available for grant under the plan as of the
first day of any fiscal year during which the 1997 Plan is in effect may be
utilized in that
43
<PAGE>
fiscal year for awards in the form of restricted stock ("Company Restricted
Stock"). Shares subject to an option or award may be authorized but unissued
shares or treasury shares. In each calendar year, no individual may be granted
awards covering more than 1,000,000 shares of Company Common Stock.
If an award granted under the 1997 Plan expires, terminates or lapses for any
reason, without the issuance of shares of Company Common Stock thereunder, such
shares will again be available under the 1997 Plan.
In the event of a merger, reorganization, consolidation, recapitalization,
spin-off, stock dividend, stock split, extraordinary distribution with respect
to the Company Common Stock or any other similar event, the Board or its
Compensation Committee (the "Compensation Committee") shall make such
adjustments in the aggregate number and kind of shares reserved for issuance,
the maximum number of shares that can be granted to any participant in any
single year, the number of shares covered by outstanding awards and the exercise
prices specified therein and make such other equitable adjustments as may be
determined to be appropriate. An employee may satisfy a tax withholding
requirement by applying shares to which the employee is entitled as a result of
the exercise of a nonqualified stock option or the termination of the restricted
period with respect to any shares of Company Restricted Stock awarded under the
1997 Plan.
ELIGIBILITY AND PARTICIPATION. Participants in the 1997 Plan will be selected by
the Compensation Committee, which will administer the 1997 Plan. The 1997 Plan
contemplates that awards will be granted to officers and other key employees of
the Company and that participants will be such employees of the Company and its
subsidiaries and affiliates, including officers of the Company, as from time to
time are designated as such by the Compensation Committee.
ADMINISTRATION. The 1997 Plan requires that the Compensation Committee consist
solely of at least two directors of the Company who are "non-employee
directors," as such term is used in Rule 16b-3 under the Exchange Act and are
"outside directors" within the meaning of Section 162(m) of the Code.
Accordingly, members of the Compensation Committee may not be current employees
of the Company, former officers of the Company or be receiving fees from the
Company other than in their capacity as directors and may not be engaged in any
transaction or business relationship with the Company which would require
disclosure under the proxy rules of the Commission. Under the 1997 Plan and
subject to the limitations thereunder, the Compensation Committee is authorized
(i) to select participants in the 1997 Plan, (ii) to determine whether and to
what extent awards are to be made, (iii) to determine the number of shares of
Company Common Stock to be covered by each award, (iv) to determine the terms
and conditions of any award, (v) to adjust the terms and conditions of any
award, (vi) to determine to what extent and under what circumstances Company
Common Stock and other amounts payable with respect to an award are to be
deferred and (vii) to determine under what circumstances an award may be settled
in cash or stock under the plan. The Compensation Committee also has authority
to adopt, alter and repeal administrative rules, guidelines and practices, to
interpret the terms and provisions of the 1997 Plan and any award issued
thereunder, and to otherwise supervise the administration of the 1997 Plan.
AMENDMENT AND TERMINATION. The 1997 Plan will terminate on September 24, 2007.
Under the 1997 Plan, options to purchase Company Common Stock ("Company
Options") or other awards granted and outstanding as of the date the 1997 Plan
terminates are not affected or impaired by such termination.
The Board may amend, alter or discontinue the 1997 Plan in such respects as the
Board may deem advisable; but no such amendment, alteration or discontinuation
may be made without shareholder approval to the extent such approval is required
by law or agreement. No such amendment, alteration or discontinuation may impair
the rights of participants under outstanding awards without the consent of the
participants affected thereby (except for any amendment made to cause the plan
to qualify for an exemption provided by Rule 16b-3) or make any change that
would disqualify the 1997 Plan from the exemption provided by Rule 16b-3.
44
<PAGE>
The Compensation Committee may amend any award theretofore granted,
prospectively or retroactively. No such amendment or modification may impair the
rights of any participant under any award without the consent of such
participant (except for any amendment made to cause the plan to qualify for an
exemption provided by Rule 16b-3). However, the Compensation Committee may not
lower the exercise price of a previously granted option or replace an option
with a new option having a lower exercise price.
PRICING OF OPTIONS. Under the 1997 Plan, an employee to whom a Company Option is
granted will have the right to purchase the number of shares of Company Common
Stock covered by the Company Option, subject to the terms and provisions of the
1997 Plan. The exercise price to be paid by a participant, which may not be less
than the fair market value of the Company Common Stock subject thereto on the
date of grant, is determined by the Compensation Committee and will be set forth
in a Company Option agreement between the Company and the participant.
Under the 1997 Plan, the purchase price of a Company Option is payable, (i) in
cash or (ii) by the surrender, at the fair market value on the date on which the
Company Option is exercised, of shares of unrestricted Company Common Stock
already owned by the optionee for at least six months.
STOCK APPRECIATION RIGHTS. The 1997 Plan authorizes the Compensation Committee
to grant stock appreciation rights ("SARs") in connection with all or part of
any Company Option. An SAR entitles its holder to receive from the Company, at
the time of exercise of such right, an amount equal to the excess of the fair
market value (determined in accordance with procedures to be established by the
Compensation Committee) at the date of exercise of a share of Company Common
Stock over the exercise price of the related Company Option multiplied by the
number of shares as to which the holder is exercising the SAR. The amount
payable may be paid by the Company in Company Common Stock (valued at its fair
market value on the date of exercise), cash or a combination thereof, as the
Compensation Committee may determine, which determination may be made after
considering any preference expressed by the holder. To the extent an SAR is
exercised, any related Company Option will be cancelled and, to the extent the
related Company Option is exercised, any SAR will be cancelled.
INCENTIVE STOCK OPTIONS. ISOs may be granted at the discretion of the
Compensation Committee under the 1997 Plan. No term of the 1997 Plan relating to
ISOs may be interpreted or authority exercised so as to disqualify the plan
under Section 422 of the Code.
EXERCISABILITY OF OPTIONS AND SARS. Company Options and SARs will become fully
exercisable upon a Change in Control (as defined below). Otherwise, the 1997
Plan provides that if such participant's employment by the Company or its
subsidiaries is terminated for any reason, other than death, disability or
retirement, such participant may exercise a Company Option or SAR to the extent
then exercisable, or on such accelerated basis as the Compensation Committee may
determine, within the period ending on the earlier of three months after such
termination (seven months if the termination follows a Change in Control) or the
date the Company Option or SAR expires in accordance with its terms; provided,
however, that if the optionee dies within such three-month period, any
unexercised Company Option or SAR held by such optionee shall, notwithstanding
the expiration of such three-month period, continue to be exercisable to the
extent to which it was exercisable at the time of death for a period of twelve
months from the date of such death or until the expiration of the stated term of
such Company Option or SAR, whichever period is shorter.
Unless otherwise determined by the Compensation Committee, if such participant
dies prior to termination of employment, his legatees, executors, distributees
or personal representatives may, subject to the provisions of the 1997 Plan,
exercise the Company Option or SAR granted to such participant within the period
ending on the earlier of (i) twelve months after the date of such death or (ii)
the date the Company Option or SAR expires in accordance with its terms.
Unless otherwise determined by the Compensation Committee, if an optionee's
employment terminates by reason of disability, any Company Option or SAR held by
such optionee may thereafter be exercised
45
<PAGE>
by the optionee, to the extent it was exercisable at the time of termination or
on such accelerated basis as the Compensation Committee may determine, for a
period of three years (or such other period as the Compensation Committee may
prescribe in the option agreement) from the date of such termination of
employment or until the expiration of the stated term of such Company Option or
SAR, whichever period is the shorter, provided, however, that if the optionee
dies within such three-year (or other) period, any unexercised Company Option or
SAR held by such optionee shall, notwithstanding the expiration of such
three-year (or other) period, continue to be exercisable to the extent to which
it was exercisable at the time of death for a period of twelve months from the
date of such death or until the expiration of the stated term of such Company
Option or SAR, whichever period is the shorter.
Unless otherwise determined by the Compensation Committee, if an optionee's
employment terminates by reason of retirement, any Company Option or SAR held by
such optionee may thereafter be exercised by the optionee, to the extent it was
exercisable at the time of such retirement or on such accelerated basis as the
Compensation Committee may determine, until the expiration of the stated term of
such Company Option or SAR.
The right of any participant to exercise a Company Option may not be transferred
in any way other than (i) by will or the laws of descent and distribution or
(ii) as otherwise expressly permitted under the applicable option agreement
including, if so permitted, pursuant to a gift to the optionee's family, whether
directly or indirectly or by means of a trust or partnership or otherwise. All
Company Options are exercisable by a participant during his or her lifetime
only, by the optionee, or any guardian or legal representative or permitted
transferee.
AWARDS OF RESTRICTED STOCK. The 1997 Plan also permits the Compensation
Committee to grant shares of Company Restricted Stock to a participant subject
to the terms and conditions imposed by the Compensation Committee. Each
certificate for Company Restricted Stock will be evidenced in such manner as the
Compensation Committee may deem appropriate, including book entry registration
or issuance of one or more certificates registered in the name of the
participant. The Compensation Committee may require that such certificate be
legended and deposited with the Company. There will be established for each
award of Company Restricted Stock a restriction period (the "restriction
period") of such length as is determined by the Compensation Committee. Shares
of Company Restricted Stock may not be sold, assigned, transferred, pledged or
otherwise encumbered, except as described below, during the restriction period.
Except for such restrictions on transfer and such other restrictions as the
Compensation Committee may impose, the participant will have all the rights of a
holder of Stock as to such Company Restricted Stock including, if applicable,
the right to vote the shares and the right to receive any cash dividends. If so
determined by the Compensation Committee in the applicable Company Restricted
Stock Agreement, the Compensation Committee may require the payment of cash
dividends to be deferred and reinvested in additional Company Restricted Stock.
At the expiration of the restriction period, the Company will redeliver to the
participant unlegended certificates. Except as provided by the Compensation
Committee at the time of grant or otherwise, upon a termination of employment
for any reason during the restriction period, all shares still subject to
restriction are forfeited by the participant. The 1997 Plan provides that shares
of Company Restricted Stock will cease to be subject to restrictions on transfer
upon a Change in Control.
The vesting of Company Restricted Stock may, in the discretion of the Committee,
be conditioned upon the achievement by the participant of pre-established
performance goals determined by the Committee or upon the continued service of
the participant, or may be conditioned upon a combination of both such criteria.
It is expected that the award of Company Restricted Stock to participants, the
deductibility of whose compensation may be limited by the limitation on
deductibility imposed by Section 162(m) of the Code will require the achievement
of such performance goals by the recipient of the award, such that the
compensation received thereunder will not be subject to such limitation on
deductibility.
The 1997 Plan provides that in the case of an award of Company Restricted Stock
the vesting of which is conditioned only upon the continued service of the
participant, such award will not vest earlier than the
46
<PAGE>
first, second and third anniversaries of the date of grant thereof, on each of
which dates a maximum of one-third of the shares subject to the award may vest.
In the case of an award of Company Restricted Stock the vesting of which is
conditioned upon the attainment of a specified performance goal or goals, such
award will not vest earlier than the first anniversary of the date of grant
thereof.
CHANGE IN CONTROL. For purposes of the 1997 Plan, a "Change in Control" means
(i) the acquisition by, any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 30 percent or more of either (a) the then outstanding shares of Company
Common Stock (the "Outstanding Company Common Stock") or (b) the combined voting
power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); except that the following acquisitions of stock will not
constitute a Change in Control: (1) any acquisition directly from the Company,
other than an acquisition by virtue of the exercise of a conversion privilege,
unless the security being so converted was itself acquired directly from the
Company, (2) any acquisition by the Company, (3) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (4) any acquisition by any corporation
pursuant to a transaction which complies with subclauses (a), (b) and (c) of
clause (iii) of this paragraph; or (ii) individuals who, as of the effective
date of the Plan, constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; except that any
individual becoming a director subsequent to such date whose election, or
nomination for election by the shareholders of the Company, was approved by a
vote of at least a majority of the directors then comprising the Incumbent Board
will be considered as though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-II of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a person other than the Board; or
(iii) approval by the shareholders of the Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination") or, if consummation of such
Business Combination is subject at the time of such approval by shareholders to
the consent of any government or governmental agency, the obtaining of such
consent (either explicitly or implicitly by consummation), unless following such
Business Combination, (a) more than 60 percent of, respectively, the then
outstanding shares of common stock, and the combined voting power of the then
outstanding voting securities, entitled to vote generally, in the election of
directors, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which, as a result of such
transaction owns the Company or all or substantially all of the Company's
assets) will be beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business Combination in
substantially the same proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (b) no Person (excluding any
employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) will beneficially own, directly or
indirectly, 30 percent or more of, respectively, the outstanding shares of
common stock of the corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors except to
the extent that such ownership existed prior to the Business Combination and (c)
at least a majority of the members of the board of directors of the corporation
resulting from such Business Combination will be members of the Incumbent Board
at the time of the execution of the initial agreement, or action of the Board
providing for such Business Combination; or (iv) approval by the shareholders of
the Company of a complete liquidation or dissolution of the Company.
47
<PAGE>
In the event of a Change in Control:
(i) any Company Options and SARs outstanding as of the date such Change
in Control is determined to have occurred and not then exercisable and
vested shall become fully, exercisable and vested to the full extent of the
original grant; and
(ii) the restrictions applicable to any Company Restricted Stock shall
lapse, and such Company Restricted Stock shall become free of all
restrictions and become fully vested and transferable to the full extent of
the original grant.
The 1997 Plan further provides that during the 60-day period following a Change
in Control, the holder of a Company Option has the right to surrender such
option for cash in an amount equal to the difference between the "change in
control price" (as defined in the 1997 Plan) and the exercise price.
Notwithstanding the foregoing, if the receipt of cash upon surrender of an
option would make a Change in Control transaction ineligible for
pooling-of-interests accounting treatment, the Committee may substitute for the
cash payment common stock with a fair market value equal to the cash that would
otherwise be payable.
48
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS OF COMPANY COMMON STOCK
BY MANAGEMENT
The following table sets forth the number of shares of Company Common Stock
expected to be beneficially owned following the Distribution, directly or
indirectly, by each director, each Named Executive Officer and all directors and
executive officers as a group, based upon the ownership by such persons of
Western Atlas Common Stock as of September 30, 1997 and based upon the expected
participation of certain directors in the Director Plan. A list of current
executive officers of the Company is set forth on page 32 of this Information
Statement. Except as otherwise indicated, each individual named is expected to
have sole investment and voting power with respect to the securities shown.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL
PERCENT PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP CLASS
- --------------------------------------------------------------------------------- ------------ ---------------
<S> <C> <C>
Alton J. Brann................................................................... 16,199 *
Charles A. Cusumano.............................................................. 2,053 *
Stephen E. Frank................................................................. 25,000(a) *
Orion L. Hoch.................................................................... 126,657( (b) *
Michael E. Keane................................................................. 1,355 *
Michael Ohanian.................................................................. 472 *
Norman L. Roberts................................................................ 8,715 *
Steven B. Sample................................................................. 25,500(a) *
William D. Walsh................................................................. 25,000(a) *
Clayton A. Williams.............................................................. 400 *
All directors and executive officers (10 persons)................................ 231,351 *
</TABLE>
- ------------------------
(*) Less than 1%.
(a) Includes options to purchase 25,000 shares expected to be granted on the
Distribution Date pursuant to the Director Plan.
(b) Includes 1,080 shares expected to be owned by Dr. Hoch's wife, as to which
shares Dr. Hoch will disclaim beneficial ownership.
BY OTHERS
The following table sets forth each person or entity that is expected to
beneficially own more than 5% of the Company Common Stock outstanding
immediately following the Distribution, based upon the
49
<PAGE>
ownership of Western Atlas Common Stock as reported to the Company (except as
noted) as of December 31, 1996.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP CLASS
- ------------------------------------------------------------------- ------------- ---------
<S> <C> <C>
Unitrin, Inc....................................................... 12,657,764(a) 23.58%
One East Wacker Dr.
Chicago, IL 60601
FMR Corp........................................................... 4,145,115(b) 7.71%
82 Devonshire Street
Boston, MA 02109
The Capital Group Companies, Inc................................... 5,558,100(c) 10.31%
333 South Hope Street
Los Angeles, CA 90071
Merrill Lynch & Co., Inc........................................... 3,125,031(d) 5.82%
World Financial Center,
North Tower
250 Vesey Street
New York, NY 10281
</TABLE>
- ------------------------
(a) Unitrin, Inc., ("Unitrin"), has reported in a filing on Schedule 13D under
the Exchange Act that these shares are owned by two of its subsidiaries,
Trinity Universal Insurance Company (7,206,776 shares) and United Insurance
Company of America (5,450,988 shares). Unitrin reported that it had sole
voting power and sole dispositive power with respect to all such shares.
Based upon the foregoing, Unitrin would beneficially own 12,657,764 shares
of Company Common Stock immediately following the Distribution.
(b) FMR Corp. ("FMR") has reported in a filing on Schedule 13G under the
Exchange Act that, as of July 31, 1997, it has sole dispositive power with
respect to these shares and sole voting power with respect to 237,491 of
such shares. Based upon the foregoing, FMR would beneficially own 4,145,115
shares of Company Common Stock immediately following the Distribution.
(c) In a filing on Schedule 13G under the Exchange Act, The Capital Group
Companies, Inc., stated that, as of July 9, 1997, it has sole voting power
with respect to 1,068,000 shares and sole dispositive power with respect to
5,558,100 shares. The Capital Group Companies, Inc., has advised Western
Atlas that 4,111,800 of such shares are beneficially owned by its wholly
owned subsidiary Capital Research and Management Company, which acts as
investment manager for institutional investors such as pension funds and
mutual funds, and the remainder of such shares are beneficially owned by
others of its subsidiaries. The Capital Group Companies, Inc., disclaims
beneficial ownership of these shares.
(d) In a filing on Schedule 13G under the Exchange Act, Merrill Lynch & Co.,
Inc. stated that it held shared voting power and shared dispositive power
with respect to 3,125,031 shares. The filing further discloses that the
beneficial owner of the shares reported is a registered investment company
advised by Merrill Lynch Asset Management known as Merrill Lynch Growth Fund
for Investment and Retirement. Merrill Lynch & Co. and various of its
affiliates disclaim beneficial ownership of the shares of Western Atlas
reported.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The Company's authorized capital stock consists of 50,000,000 shares of
preferred stock, par value $.01 per share (the "Company Preferred Stock"), and
250,000,000 shares of Company Common Stock. No shares of Company Preferred Stock
will be issued in connection with the Distribution. Based on the number of
shares of Western Atlas Common Stock outstanding at , 1997, up to
approximately 53.9 million shares of Company Common Stock will be issued to
shareholders of Western Atlas in the Distribution. All of the shares of Company
Common Stock issued in the Distribution will be validly issued, fully paid and
nonassessable.
COMPANY COMMON STOCK
The holders of Company Common Stock will be entitled to one vote for each share
on all matters voted on by shareholders, including elections of directors, and,
except as otherwise required by law or provided in any resolution adopted by the
Board with respect to any series of Company Preferred Stock, the holders of such
shares exclusively will possess all voting power. The Certificate of
Incorporation of the Company (the "Certificate") does not provide for cumulative
voting in the election of directors. Subject to any preferential rights of any
outstanding series of Company Preferred Stock created by the Board from time to
time, the holders of Company Common Stock will be entitled to such dividends as
may be declared from time to time by the Board from funds available therefor,
and upon liquidation will be entitled to receive pro rata all assets of the
Company available for distribution to such holders. See "Risk Factors --
Dividend Policies."
DIRECT REGISTRATION SYSTEM. The Company maintains a direct registration system
("DRS") for the Company Common Stock. Under the DRS, which will be operational
at the time of the Distribution, the transfer agent will establish a book-entry
account for each shareholder of record of Western Atlas who is entitled to
receive shares of Company Common Stock in the Distribution. The transfer agent
will mail an account statement to each such shareholder promptly following the
Distribution.
The DRS permits each shareholder to maintain the registration of his or her
shares of Company Common Stock in his or her own name without the need for the
Company to issue, or for the shareholder to maintain or store, a physical stock
certificate. The Company believes that the DRS will enable the Company to reduce
the costs of maintaining shareholder accounts and will enable shareholders to
eliminate the costs of storing and safeguarding stock certificates and
facilitate the timely settlement of trading in the Company Common Stock. Any
shareholder who wants to receive a physical certificate evidencing his or her
shares of Company Common Stock will be able to obtain a certificate at no charge
by contacting the transfer agent.
Additional information concerning the DRS is contained in the separate printed
materials being distributed with this Information Statement. Copies of such
information can also be obtained by contacting UNOVA, Inc. Shareholder Services
at (310) 888-2660.
COMPANY PREFERRED STOCK
Under the Certificate, the Board will be authorized to provide for the issue of
shares of Company Preferred Stock, in one or more series, and to fix for each
such series such powers, designations, preferences and relative, participating,
optional and other special rights, and such qualifications, limitations or
restrictions, as are stated in the resolution adopted by the Board providing for
the issue of such series and are permitted by the Delaware General Corporation
Law (the "Delaware Law"). See "Certain Antitakeover Effects of Certain
Provisions of the Certificate of Incorporation, the By-laws, State Law and the
Rights Plan -- Preferred Stock."
51
<PAGE>
CERTAIN ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS
OF THE CERTIFICATE OF INCORPORATION,
THE BY-LAWS, STATE LAW AND THE RIGHTS PLAN
The Certificate, the By-laws of the Company (the "By-laws") and the Rights Plan
contain certain provisions that could make more difficult the acquisition of the
Company by means of a tender offer, a proxy contest or otherwise. The
description set forth below is intended as a summary only and is qualified in
its entirety by reference to the Certificate and the By-laws, which are attached
to this Information Statement as Annex C and Annex D, respectively.
CLASSIFIED BOARD OF DIRECTORS
The Certificate and By-laws provide that the Board will be divided into three
classes of directors, with the classes to be as nearly equal in number as
possible. The Board consists of the persons referred to in "Management --
Directors of the Company" above. The Certificate and the By-laws provide that,
of the initial directors of the Company, approximately one-third will continue
to serve until the 1999 Annual Meeting of Shareholders, approximately one-third
will continue to serve until the 2000 Annual Meeting of Shareholders, and
approximately one-third will continue to serve until the 2001 Annual Meeting of
Shareholders. Of the initial directors, Mr. Frank and Dr. Hoch will serve until
the 1999 Annual Meeting of Shareholders, Dr. Sample and Mr. Walsh will serve
until the 2000 Annual Meeting of Shareholders and Mr. Brann will serve until the
2001 Annual Meeting of Shareholders. Starting with the 1999 Annual Meeting of
Shareholders, one class of directors will be elected each year for a three-year
term.
The classification of directors will have the effect of making it more difficult
for shareholders to change the composition of the Board. At least two annual
meetings of shareholders, instead of one, will generally be required to effect a
change in a majority of the Board. Such a delay may help ensure that the
Company's directors, if confronted by a holder attempting to force a proxy
contest, a tender or exchange offer, or an extraordinary corporate transaction,
would have sufficient time to review the proposal as well as any available
alternatives to the proposal and to act in what they believe to be the best
interest of the shareholders. The classification provisions will apply to every
election of directors, however, regardless of whether a change in the
composition of the Board would be beneficial to the Company and its shareholders
and whether or not a majority of the Company's shareholders believe that such a
change would be desirable.
The classification provisions could also have the effect of discouraging a third
party from initiating a proxy contest, making a tender offer or otherwise
attempting to obtain control of the Company, even though such an attempt might
be beneficial to the Company and its shareholders. The classification of the
Board could thus increase the likelihood that incumbent directors will retain
their positions. In addition, because the classification provisions may
discourage accumulations of large blocks of the Company's stock by purchasers
whose objective is to take control of the Company and remove a majority of the
Board, the classification of the Board could tend to reduce the likelihood of
fluctuations in the market price of the Company Common Stock that might result
from accumulations of large blocks for such a purpose. Accordingly, shareholders
could be deprived of certain opportunities to sell their shares of Company
Common Stock at a higher market price than might otherwise be the case.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The Certificate provides that, subject to any rights of holders of Company
Preferred Stock to elect additional directors under specified circumstances, the
number of directors will be fixed from time to time exclusively pursuant to a
resolution adopted by the Board. In addition, the By-laws provide that, subject
to any rights of holders of Preferred Stock, and unless the Board otherwise
determines, any vacancies will be filled only by the affirmative vote of a
majority of the remaining directors, though less
52
<PAGE>
than a quorum. Accordingly, the Board could prevent any shareholder from
enlarging the Board and filling the new directorships with such shareholder's
own nominees.
Under the Delaware Law, unless otherwise provided in the Certificate, directors
serving on a classified board may only be removed by the shareholders for cause.
In addition, the Certificate and the By-laws provide that directors may be
removed only for cause and only upon the affirmative vote of holders of at least
80 percent of the voting power of all the then outstanding shares of stock
entitled to vote generally in the election of directors ("Voting Stock"), voting
together as a single class.
NO SHAREHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The Certificate and the By-laws provide that, subject to the rights of any
holders of Company Preferred Stock to elect additional directors under specified
circumstances, shareholder action can be taken only at an annual or special
meeting of shareholders and prohibit shareholder action by written consent in
lieu of a meeting. The By-laws provide that special meetings of shareholders can
be called only upon a written request stating the purpose of such meeting
delivered to the Chairman of the Board, the President (if any) or the Secretary,
signed by a majority of the Board or by resolution of the Board or the Executive
Committee (if any). Shareholders are not permitted to call a special meeting or
to require that the Board call a special meeting of shareholders. Moreover, the
business permitted to be conducted at any special meeting of shareholders is
limited to the business brought before the meeting pursuant to the notice of
meeting given by the Company.
The provisions of the Certificate and the By-laws prohibiting shareholder action
by written consent may have the effect of delaying consideration of a
shareholder proposal until the next annual meeting unless a special meeting is
called at the request of a majority of the Board or by resolution of the Board
or the Executive Committee thereof. These provisions would also prevent the
holders of a majority of the voting power of the Voting Stock from unilaterally
using the written consent procedure to take shareholder action and from taking
action by consent. Moreover, a shareholder could not force shareholder
consideration of a proposal over the opposition of the Chairman and the Board by
calling a special meeting of shareholders prior to the time the Chairman or a
majority of the Board believes such consideration to be appropriate.
FAIR PRICE PROVISION
Article IX of the Certificate ("Article IX") places certain limitations on the
Company's ability to effect a Business Combination with an Interested
Shareholder (as each such term is defined therein).
DEFINITIONS. Article IX confers upon a majority of the Whole Board, or, if a
majority of the Whole Board does not consist of Continuing Directors (as
hereinafter defined), a majority of the then Continuing Directors, the power and
duty to determine, on the basis of information known after reasonable inquiry,
the applicability of certain defined terms used in Article IX as well as all
other facts necessary to determine compliance with Article IX. A summary of the
definitions of certain of these terms follows.
An "Interested Shareholder" is any person (other than the Company or a
subsidiary) who or which is (a) the beneficial owner (as defined below) of ten
percent or more of the voting power of the outstanding Voting Stock, or (b) an
"Affiliate" or an "Associate" (as defined in Article IX) of the Company or at
any time within the two-year period immediately prior to the date in question
was the beneficial owner of ten percent or more of the voting power of the then
outstanding Voting Stock, or (c) an assignee of or has otherwise succeeded to
any shares of Voting Stock which were at any time within the two-year period
immediately prior to the date in question Beneficially Owned (as defined below)
by a person described in (a) or (b) above (other than shares acquired through a
public offering). Notwithstanding the foregoing, neither Unitrin nor any of its
subsidiaries will be an Interested Shareholder as long as such entities in the
aggregate beneficially own less than 12,658,000 shares of Company Common Stock.
53
<PAGE>
A person is the "beneficial owner" of, or "Beneficially Owns," any shares of
Voting Stock which such person or any of its Affiliates or Associates (as
defined in Article IX) directly or indirectly owns or has the right to acquire
or vote or which are beneficially owned by any member of any group of such
persons having any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of Voting Stock.
A "Business Combination" includes the following transactions: (a) a merger or
consolidation of the Company or any of its subsidiaries with an Interested
Shareholder or any corporation (whether or not itself an Interested Shareholder)
which is, or after such merger or consolidation would be, an Affiliate of such
Interested Shareholder; (b) the sale or other disposition (in one transaction or
a series of transactions) by the Company or any of its subsidiaries of assets
having an aggregate "Fair Market Value" (as defined in Article IX) of $10
million or more if an Interested Shareholder or any Affiliate or Associate of an
Interested Shareholder is a party to the transaction; (c) the issuance or
transfer (in one transaction or a series of transactions) of any securities of
the Company or of any of its subsidiaries to an Interested Shareholder or any
Affiliate or Associate of an Interested Shareholder in exchange for cash or
property (including stock or other securities) having an aggregate Fair Market
Value of $10 million or more; (d) the adoption of any plan or proposal for the
liquidation or dissolution of the Company proposed by or on behalf of an
Interested Shareholder or any Affiliate or Associate of an Interested
Shareholder; (e) any reclassification of securities, recapitalization, merger
with a subsidiary or other transaction which has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding stock of
any class of the Company or any of its subsidiaries Beneficially Owned by an
Interested Shareholder or any Affiliate or Associate of an Interested
Shareholder.
A "Continuing Director" is any member of the Company's Board, who is not
affiliated with the Interested Shareholder in question and was a director of the
Company prior to the time such Interested Shareholder became an Interested
Shareholder, and any director who is thereafter appointed to fill any vacancy on
the Company's Board or who is elected and who, in either event, is not
affiliated with an Interested Shareholder and in connection with his or her
initial assumption of office was recommended by a majority of the Continuing
Directors then on the Company's Board.
SHAREHOLDER VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS. Article IX requires
the approval of the holders of 80 percent of the voting power of all of the then
outstanding shares of the Voting Stock, voting together as a single class, as a
condition to Business Combinations, except in cases in which one of the two
alternatives described under "Exceptions to Higher Vote Requirement" were
applicable and were satisfied. In the event that either of such alternatives
were applicable and satisfied with respect to the particular Business
Combination, the affirmative vote otherwise required by the Delaware Law and the
other provisions of the Certificate and by the terms of any class or series of
stock of the Company which might be outstanding at the time of the Business
Combination would apply. (Although the Certificate authorizes 50,000,000 shares
of preferred stock, no such shares will be outstanding immediately after the
Distribution and the Board has no present intention of issuing any such shares,
other than the shares reserved for issuance in connection with the Company's
Share Purchase Rights Plan. If any authorized preferred stock were in the future
issued, its terms might be such as to require the approval of a Business
Combination by its holders, voting as a series or class. That requirement would
be in addition to, and would not be affected by, Article IX.) Thus, depending
upon the circumstances, Article IX may require an 80 percent shareholder vote
for a Business Combination in cases in which either a majority vote or no vote
would presently be required under the Delaware Law.
Even if an Interested Shareholder could obtain a 80 percent affirmative
shareholder vote in favor of a Business Combination under the Delaware Law such
Business Combination may nevertheless (depending upon its nature) require
approval by the Company's Board prior to its submission to a shareholder vote
(such would be the case, for instance, with respect to a merger or consolidation
involving the Company). In that case, the Interested Shareholder could not
effect such Business Combination, regardless of its ability to assure an 80
percent shareholder vote, without Board action. Further, even were an Interested
Shareholder able to obtain votes sufficient to effect a repeal of such
provisions, it
54
<PAGE>
could not, under the Certificate, exercise its power by written consent or
compel the Board to call a special meeting of shareholders for the purpose of
voting on such repeal. As discussed above, as a result of the classified board
provisions in the Certificate, an interested shareholder could not be assured of
gaining control of the Board until at least two shareholder meetings had been
held. In addition, Section 203 of the Delaware Law ("Section 203"), which
restricts second-step mergers with "Interested Shareholders" (and is described
more fully below) might also operate to prevent the ability of an Interested
Shareholder to effect a Business Combination.
EXCEPTIONS TO HIGHER VOTE REQUIREMENT. In the case of a Business Combination
that involved the receipt of cash or other consideration by the Company's
shareholders, solely in their capacity as shareholders, the 80 percent
affirmative shareholder vote requirement would not apply if either (a) the
Business Combination were approved by a majority of the Continuing Directors of
the Company (in order for this condition to be satisfied there must be at least
three Continuing Directors), or (b) all of the requirements described in
paragraphs (1), (2) and (3) below were satisfied.
If the Business Combination did not involve the receipt of consideration by the
Company's shareholders solely as shareholders (E.G., because it took the form of
a sale of assets or an original issuance of the Company's securities to an
Interested Shareholder), only approval by a majority of the Continuing Directors
would avoid the requirement for such 80 percent shareholder vote, although, as
noted above (see "--Shareholder Vote Required for Certain Business
Combinations"), such Business Combination might, depending upon the
circumstances, otherwise require a lesser or no shareholder vote. If there were
fewer than three Continuing Directors, such Business Combination would
necessarily require such 80 percent shareholder vote. On the other hand,
approval by a majority of the Continuing Directors would, with respect to any
Business Combination, avoid both the 80 percent shareholder vote requirement and
the need to satisfy all of the requirements described below.
As noted above, under the Delaware Law a particular Business Combination may,
depending upon its nature, require approval of the Board and/or
less-than-80-percent shareholder approval. Neither the approval of such Business
Combination by a majority of the Continuing Directors nor the satisfaction of
the form of consideration, minimum price and procedural requirements of Article
IX with respect to such Business Combination would supersede such other approval
requirements of the Delaware Law or any class voting requirements with respect
to any series or class of stock of the Company then outstanding. It also would
not supersede the requirements of Section 203, discussed below. Rather, such
approval or satisfaction of such form of consideration, minimum price and
procedural requirements would eliminate only the requirement for the 80 percent
shareholder vote otherwise required by Article IX.
In order to avoid the requirement of an 80 percent shareholder vote or approval
by a majority of the Continuing Directors in the case of a Business Combination
that involved the receipt of cash or other consideration by the Company's
shareholders, the following conditions must be met:
(1) FORM OF CONSIDERATION REQUIREMENT. The consideration to be received by
holders of a particular class (or series) of capital stock in the Business
Combination would be required to be either cash or the same type of
consideration used by the Interested Shareholder and its Affiliates in acquiring
the largest portion of their interest in such class (or series) of capital
stock. If the Interested Shareholder and its Affiliates have not previously
purchased any shares of such class (or series) of capital stock, the
consideration paid to holders of shares of that class (or series) in the
Business Combination would be required to be cash.
(2) MINIMUM PRICE REQUIREMENTS. The aggregate of (x) the cash and (y) the
Fair Market Value, as of the date of consummation of the Business Combination
(the "Consummation Date"), of any consideration other than cash to be received
per share by holders of Company Common Stock, in the Business Combination would
have to be at least equal to the higher of (i) the highest per share price paid
by the Interested Shareholder or any of its Affiliates in acquiring any shares
of Company Common Stock during the two years immediately prior to the date of
the first public announcement of the proposal of the
55
<PAGE>
Business Combination (the "Announcement Date") or in any transaction in which
the Interested Shareholder became an Interested Shareholder (whichever is
higher), plus interest compounded annually from the first date on which the
Interested Shareholder became an Interested Shareholder (the "Determination
Date") through the Consummation Date at the publicly announced base rate of
interest of Morgan Guaranty Trust Company of New York, or such other major bank
headquartered in New York, New York, as may be selected by the Continuing
Directors, from time to time in effect in New York, New York, LESS the aggregate
dividends paid on each share of Company Common Stock from the Determination Date
through the Consummation Date up to but not exceeding the amount of interest so
payable per share of Company Common Stock, and (ii) the Fair Market Value per
share of Company Common Stock on the Announcement Date or the Determination
Date, as the case may be, whichever is higher.
The higher of (i) and (ii) above would have to be paid in respect of all
outstanding shares of Company Common Stock, whether or not the Interested
Shareholder or any of its Affiliates had previously acquired any shares of
Company Common Stock. If the Interested Shareholder and its Affiliates did not
purchase any shares of Company Common Stock, as the case may be, during the
two-year period prior to the Announcement Date or in the transaction in which
the Interested Shareholder became an Interested Shareholder (E.G., if the
Interested Shareholder became an Interested Shareholder by purchasing shares of
any then-outstanding class of voting Preferred Stock), the minimum price would
be as determined under (ii). Under (i), interest and dividends would be computed
from the Determination Date whether the highest price during the two-year period
prior to the Announcement Date were higher than the price paid in the
transaction on the Determination Date or vice versa and whether the
Determination Date occurred before or after the beginning of such two-year
period. Thus, for instance, if the highest price per share paid by the
Interested Shareholder and its Affiliates during such two-year period was higher
than the price paid in the transaction on the Determination Date and the
Determination Date occurred before the beginning of such two-year period,
interest and dividends would nevertheless be required to be computed on such
highest price from the Determination Date. Since (ii) does not include an
interest factor, if (ii) exceeded (i) no interest would be included in computing
the per share amount required to be paid in the Business Combination.
The following example illustrates the application of the form of consideration
and minimum price requirements to a Business Combination with an Interested
Shareholder acting alone which (x) acquired in the open market, during the
two-year period prior to the Announcement Date, 4.9 percent of the outstanding
Company Common Stock (the only then outstanding class of Voting Stock), for
which its highest per share price was $40, (y) became an Interested Shareholder
by purchasing 45 percent of the outstanding Company Common Stock in a cash
tender offer at $50 per share, and (z) then announced a proposed Business
Combination with the Company at a time when the Company Common Stock was trading
at $55 per share:
(i) highest price paid by the Interested Shareholder per
share of Company Common Stock during the two-year period prior to the
Announcement Date ($40) or on the Determination Date in the transaction in
which the Interested Shareholder became such ($50), whichever is higher
(I.E., $50), plus the net amount (assumed herein to be $2) representing
interest (on $50), less dividends paid or declared (if ultimately paid) per
share of Company Common Stock, from the Determination Date through the
Consummation Date: $52.
(ii) Fair Market Value per share of Company Common Stock
on the Announcement Date: $55.
Accordingly, in the above example, in order to comply with Article IX's minimum
price requirements, the Interested Shareholder would be required to pay at least
$55 per share (the higher of the two alternatives above) and, in order to comply
with Article IX's form of consideration requirement, such price would have to be
paid in cash.
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<PAGE>
The per share prices and interest assumptions used in the foregoing example were
selected for illustrative purposes only and are not intended, and should not be
treated, as estimates of future prices of Company Common Stock or future
interest rates. Such prices and interest rates will be determined in the
marketplace and cannot be predicted.
As indicated above, none of the Company Preferred Stock will be outstanding
immediately after the Distribution and the Board has no present plans to issue
any thereof, other than the shares reserved for issuance in connection with the
Company's Share Purchase Rights Plan. If any series of the Company Preferred
Stock were in the future issued with voting rights and were outstanding at the
time of consummation of the Business Combination, then unless such series were
excluded from the provisions of Article IX by the terms of the resolution
authorizing such series, the payments to holders of shares of such series of
Preferred Stock would have to be at least equal to the higher of (x) the highest
per share price determined with respect to such series in the same manner as
described above with respect to Company Common Stock, and (y) the highest
preferential amount per share to which the holders of such class or series of
Preferred Stock would be entitled in the event of a voluntary or involuntary
liquidation, dissolution or winding up of the Company. The minimum price
requirement would have to be met with respect to each class or series of
outstanding Voting Stock whether or not the Interested Shareholder was a
beneficial owner of shares of that class or series prior to the Business
Combination.
Under the minimum price requirements, the Fair Market Value of non-cash
consideration to be received by holders of shares of any class of Voting Stock
in a Business Combination is to be determined as of the Consummation Date. Where
the definitive terms of such non-cash consideration were established in advance
of the Consummation Date, intervening adverse developments, either in the
economy or the market generally or in the financial condition or business of the
Interested Shareholder, could result in a decline in the originally anticipated
Fair Market Value of such consideration, so that, on the date scheduled for its
consummation, the Business Combination, which had theretofore been considered as
not requiring an 80 percent shareholder vote or approval by a majority of the
Continuing Directors (I.E., because it was expected to satisfy the minimum price
requirements and it satisfied the form of consideration and procedural
requirements), could not be consummated because it had not received such vote or
approval (even if it had received any less-than-80-percent shareholder vote
required by the Delaware Law, and any separate class vote required by the terms
of any class or series of then-outstanding stock of the Company) and did not, in
fact, meet the minimum price requirements on such date. However, an Interested
Shareholder could avoid such a situation by establishing, in advance, terms for
the Business Combination whereby the non-cash consideration was to be finalized
by reference to its Fair Market Value on the Consummation Date. Such an
approach, which has in fact been used in connection with mergers and similar
second-step transactions in the past, would assure that the Interested
Shareholder would bear the risk of a decline in the Fair Market Value of the
offered consideration prior to the consummation of the Business Combination.
Article IX uses the Consummation Date as the determination date of the Fair
Market Value of non-cash consideration to be paid in a Business Combination in
order to ensure that the Interested Shareholder uses this approach so that the
Interested Shareholder, and not the other shareholders, would bear this risk.
In addition, since the minimum price requirements call for a determination to be
made with respect to interest at the base rate compounded, and dividends per
share paid, through the Consummation Date, in a particular case it might not be
possible to determine with certainty whether, at the time a Business Combination
was submitted for shareholder approval, it would ultimately satisfy the minimum
price requirements on the Consummation Date. Accordingly, it might not be
possible to determine with certainty whether the Business Combination would
require an 80 percent shareholder vote or the lesser vote otherwise applicable
under the Delaware Law and, until the Consummation Date, there might be
uncertainty as to whether the Business Combination, if it in fact received less
than an 80 percent affirmative shareholder vote, could be consummated under
Article IX. This uncertainty could deter an Interested Shareholder who did not
own (and was not assured of obtaining the affirmative votes of) 80 percent of
the voting power of the Voting Stock from going forward with a Business
Combination that
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had not been approved by a majority of the Continuing Directors. However,
Western Atlas and the Company consider that it is appropriate, for the reasons
indicated above, to use the Consummation Date as the determination date with
respect to the minimum price requirements of Article IX and that this will
benefit shareholders by encouraging the Interested Shareholder to negotiate with
the Continuing Directors (and to refrain from taking action which would result
in there being fewer than three Continuing Directors) and obtain their approval
of the Business Combination, since such approval would avoid the applicability
of both the 80 percent shareholder approval requirement and the minimum price
requirement.
(3) PROCEDURAL REQUIREMENTS. In order to avoid the requirement of an 80
percent affirmative shareholder vote or approval by a majority of the Continuing
Directors, after an Interested Shareholder became an Interested Shareholder and
prior to the Consummation Date, all of the following procedural requirements, as
well as the form of consideration and minimum price requirements, must be
complied with.
The first procedural requirement would be that the Company, after the
Determination Date, not have failed to pay full quarterly dividends on any
then-outstanding Company Preferred Stock and not have reduced the rate of
dividends paid on Company Common Stock, unless such failure or reduction was
approved by a majority of the Continuing Directors. This provision is designed
to prevent an Interested Shareholder from attempting to depress the market price
of the Voting Stock prior to proposing a Business Combination by reducing
dividends thereon, and thereby reducing the consideration required to be paid
pursuant to the minimum price requirements of Article IX.
The second procedural requirement would be that the Interested Shareholder and
its Affiliates not have acquired any additional shares of the Voting Stock,
directly from Company, or otherwise, in any transaction subsequent to the
transaction pursuant to which the Interested Shareholder became an Interested
Shareholder (other than any such acquisition pursuant to a stock split or
similar transaction that does not increase the Interested Shareholder's
proportionate share of any class or series of stock of the Company). This
provision is intended to prevent an Interested Shareholder from purchasing
additional shares of Voting Stock at prices which are lower than those set by
the minimum price requirements of Article IX. Since all of the forms of
consideration, minimum price and procedural requirements must be satisfied in
order for the Interested Shareholder to avoid the need for either an 80 percent
affirmative shareholder vote or the approval of a majority of any Continuing
Directors, an effect of this provision, where the Interested Shareholder or any
of its Affiliates acquired additional shares of Voting Stock after the
Interested Shareholder became an Interested Shareholder, is that the Interested
Shareholder could only acquire all of the Voting Stock by means of a Business
Combination if such Business Combination either satisfied the 80 percent
shareholder approval requirements or were approved by a majority of the
Continuing Directors.
The third procedural requirement would be that the Interested Shareholder and
its Affiliates not have received, at any time after the Interested Shareholder
became an Interested Shareholder, whether in connection with the Business
Combination or otherwise, the benefit of any loans or other financial assistance
or tax advantages provided by the Company (other than proportionately, solely in
its capacity as a shareholder). This provision is intended to deter an
Interested Shareholder from self-dealing or otherwise taking advantage of its
equity position in the Company by using the Company's resources to finance the
Business Combination or otherwise for its own purposes in a manner not
proportionately available to all shareholders.
The fourth procedural requirement would be that a proxy or information statement
disclosing the terms and conditions of the Business Combination and complying
with the requirements of the proxy rules promulgated under the Exchange Act or
any replacement legislation be mailed to all shareholders of the Company at
least 30 days prior to the consummation of the Business Combination, whether or
not such proxy or information statement is required to be mailed pursuant to the
Exchange Act or any such replacement legislation. This provision is intended to
ensure that shareholders will be fully informed of the terms and conditions of
the Business Combinations even if the Interested Shareholder were not otherwise
required by law to disclose such information to shareholders.
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The final procedural requirements would be that the Interested Shareholder have
supplied the Company with all information requested by the Continuing Directors
pursuant to Article IX. Under Article IX, the Continuing Directors have the
right to request information as to the beneficial ownership of stock by the
Interested Shareholder and other factual matters relating to the applicability
and effect of Article IX.
ADVANCE NOTICE PROVISIONS FOR SHAREHOLDER NOMINATIONS AND SHAREHOLDER PROPOSALS
The By-laws establish an advance notice procedure for shareholders to make
nominations of candidates for election as directors, or bring other business
before an annual meeting of shareholders of the Company (the "Shareholder Notice
Procedure").
The Shareholder Notice Procedure provides that only persons who are nominated
by, or at the direction of, the Board, or by a shareholder who has given timely
written notice to the Secretary of the Company prior to the meeting at which
directors are to be elected, will be eligible for election as directors of the
Company. The Shareholder Notice Procedure provides that at an annual meeting
only such business may be conducted as has been brought before the meeting by,
or at the direction of, the Chairman or the Board or by a shareholder who has
given timely written notice to the Secretary of the Company of such
shareholder's intention to bring such business before such meeting. Under the
Shareholder Notice Procedure, for notice of shareholder nominations to be made
at an annual meeting to be timely, such notice must be received by the Company
not less than 70 days nor more than 90 days prior to the first anniversary of
the previous year's annual meeting (or if the date of the annual meeting is
advanced by more than 20 days, or delayed by more than 70 days, from such
anniversary date, not earlier than the 90th day prior to such meeting and not
later than the later of (x) the 70th day prior to such meeting and (y) the 10th
day after public announcement of the date of such meeting is first made).
Notwithstanding the foregoing, in the event that the number of directors to be
elected is increased and there is no public announcement naming all of the
nominees for director or specifying the size of the increased Board made by the
Company at least 80 days prior to the first anniversary of the preceding year's
annual meeting, a shareholder's notice will be timely, but only with respect to
nominees for any new positions created by such increase, if it is received by
the Company not later than the 10th day after such public announcement is first
made by the Company. Under the Shareholder Notice Procedure, for notice of a
shareholder nomination to be made at a special meeting at which directors are to
be elected to be timely, such notice must be received by the Company not earlier
than the 90th day before such meeting and not later than the later of (x) the
70th day prior to such meeting and (y) the 10th day after public announcement of
the date of such meeting is first made.
Under the Shareholder Notice Procedure, a shareholder's notice to the Company
proposing to nominate a person for election as a director must contain certain
information, including, without limitation, the identity and address of the
nominating shareholder, the class and number of shares of stock of the Company
which are owned by such shareholder, and all information regarding the proposed
nominee that would be required to be included in a proxy statement soliciting
proxies for the proposed nominee. Under the Shareholder Notice Procedure, a
shareholder's notice relating to the conduct of business other than the
nomination of directors must contain certain information about such business and
about the principal shareholders, including, without limitation, a brief
description of the business the shareholder proposed to bring before the
meeting, the reasons for conducting such business at such meeting, the name and
address of such shareholder, the class and number of shares of stock of the
Company beneficially owned by such shareholder, and any material interest of
such shareholder in the business so proposed. If the Chairman of the Board or
other officer presiding at a meeting determines that a person was not nominated,
or other business was not brought before the meeting, in accordance with the
Shareholder Notice Procedure, which person will not be eligible for election as
a director, or such business will not be conducted at such as the case may be.
By requiring advance notice of nominations by shareholders, the Shareholder
Notice Procedure will afford the Board an opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the Board, to inform shareholders about such qualifications.
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By requiring advance notice of other proposed business, the Shareholder Notice
Procedure will also provide a more orderly procedure for conducting annual
meetings of shareholders and, to the extent deemed necessary or desirable by the
Board, will provide the Board with an opportunity to inform shareholders, prior
to such meetings, of any business proposed to be conducted at such meetings,
together with any recommendations as to the Board's position regarding action to
be taken with respect to such business, so that shareholders can better decide
whether to attend such a meeting or to grant a proxy regarding the disposition
of any such business.
Although the By-laws do not give the Board any power to approve or disapprove
shareholder nominations for the election of directors or proposals for action,
they may have the effect of precluding a contest for the election of directors
or the consideration of shareholder proposals if the proper procedures are not
followed, and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
own proposal, without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to the Company and its shareholders.
PREFERRED STOCK
The Certificate authorizes the Board to establish one or more series of Company
Preferred Stock and to determine, with respect to any series of Company
Preferred Stock, the terms and rights of such series, including (i) the
designation of the series, (ii) the number of shares of the series, which number
the Board may thereafter (except where otherwise provided in the Preferred Stock
Designation) increase or decrease (but not below the number of shares thereof
then outstanding), (iii) whether dividends, if any, will be cumulative or
noncumulative and the dividend rate of the series, (iv) the dates at which
dividends, if any, will be payable, (v) the redemption rights and price or
prices, if any, for shares of the series, (vi) the terms and amounts of any
sinking fund provided for the purchase or redemption of shares of the series,
(vii) the amounts payable on shares of the series in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Company, (viii) whether the shares of the series will be convertible into shares
of any other class or series, or any other security, of the Company or any other
corporation, and, if so, the specification of such other class or series or such
other security, the conversion price or prices or rate or rates, any adjustments
thereof, the date or dates as of which such shares shall be convertible and all
other terms and conditions upon which such conversion may be made, (ix)
restrictions on the issuance of shares of the same series or of any other class
or series, and (x) the voting rights, if any, of the holders of such series.
Western Atlas and the Company believe that the ability of the Board to issue one
or more series of Company Preferred Stock will provide the Company with
flexibility in structuring possible future financings and acquisitions, and in
meeting other corporate needs which might arise. The authorized shares of
Company Preferred Stock, as well as shares of Company Common Stock, will be
available for issuance without further action by the Company's shareholders,
unless such action is required by applicable law or the rules of any stock
exchange or automated quotation system on which the Company's securities may be
listed or traded. The NYSE currently requires shareholder approval as a
prerequisite to listing shares in several instances, including where the present
or potential issuance of shares could result in an increase in the number of
shares of common stock, or in the amount of voting securities outstanding, of at
least 20 percent. If the approval of the Company's shareholders is not required
for the issuance of shares of Company Preferred Stock or Company Common Stock,
the Board may determine not to seek shareholder approval.
Although the Board has no intention at the present time of doing so, it could
issue a series of Company Preferred Stock that could, depending on the terms of
such series, impede the completion of a merger, tender offer or other takeover
attempt. The Board will make any determination to issue such shares based on its
judgment as to the best interests of the Company and its shareholders. The
Board, in so acting, could issue Company Preferred Stock having terms that could
discourage an acquisition attempt through which an acquirer may be able to
change the composition of the Board, including a tender offer or other
transaction that some, or a majority, of the Company's shareholders might
believe to be in their
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best interests or in which shareholders might receive a premium for their stock
over the then current market price of such stock.
AMENDMENT OF CERTAIN PROVISIONS OF THE CERTIFICATE AND BY-LAWS
Under the Delaware Law, the shareholders have the right to adopt, amend or
repeal the By-laws and, with the approval of the board of directors, the
certificate of incorporation of a corporation. In addition, if the certificate
of incorporation so provides, the By-laws may be adopted, amended or repealed by
the board of directors. The Certificate provides that the affirmative vote of
the holders of at least 80 percent of the voting power of the outstanding shares
of Voting Stock, voting together as a single class, is required to amend
provisions of the Certificate relating to the prohibition of shareholder action
without a meeting; the number, election and term of the Company's directors; or
the removal of directors. The vote of the holders of a majority of the voting
power of the outstanding shares of Voting Stock is required to amend all other
provisions of the Certificate. The Certificate further provides that the By-laws
may be amended by the Board or by the affirmative vote of the holders of at
least 80 percent of the voting power of the outstanding shares of Voting Stock,
voting together as a single class. These 80 percent voting requirements will
have the effect of making more difficult any amendment by shareholders of the
By-laws or of any of the provisions of the Certificate described above, even if
a majority of the Company's shareholders believe that such amendment would be in
their best interests.
ANTITAKEOVER LEGISLATION
Section 203 of the Delaware Law provides that, subject to certain exceptions
specified therein, a corporation shall not engage in any business combination
with any "interested shareholder" for a three-year period following the date
that such shareholder becomes an interested shareholder unless (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction which resulted in the shareholder becoming an
interested shareholder, (ii) upon consummation of the transaction which resulted
in the shareholder becoming an interested shareholder, the interested
shareholder owned at least 85 percent of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding certain shares), or
(iii) on or subsequent to such date, the business combination is approved by the
board of directors of the corporation and by the affirmative vote of at least 66
2/3 percent of the outstanding voting stock which is not owned by the interested
shareholder. Except as specified in Section 203 of the Delaware Law, an
interested shareholder is defined to include (x) any person that is the owner of
15 percent or more of the outstanding voting stock of the corporation, or is an
affiliate or associate of the corporation and was the owner of 15 percent or
more of the outstanding voting stock of the corporation, at any time within
three years immediately prior to the relevant date and (y) the affiliates and
associates of any such person.
Under certain circumstances, Section 203 of the Delaware Law makes it more
difficult for a person who would be an "interested shareholder" to effect
various business combinations with a corporation for a three-year period,
although the shareholders may elect to exclude a corporation from the
restrictions imposed thereunder. The Certificate does not exclude the Company
from the restrictions imposed under Section 203 of the Delaware Law. It is
anticipated that the provisions of Section 203 of the Delaware Law may encourage
companies interested in acquiring the Company to negotiate in advance with the
Board, since the shareholder approval requirement would be avoided if a majority
of the directors then in office approve, prior to the time the shareholder
becomes an interested shareholder, either the business combination or the
transaction which results in the shareholder becoming an interested shareholder.
RELATIONSHIP OF ARTICLE IX TO SECTION 203
Each of Article IX and Section 203 should encourage persons interested in
acquiring the Company to negotiate in advance with the Board of Directors since
the higher shareholder voting requirements imposed would not be invoked if, (i)
in the case of Article IX, such person obtains the approval of a majority of the
Continuing Directors for the proposed business combination transaction, and (ii)
in the
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case of Section 203, such person, prior to acquiring 15 percent of the Company's
voting stock, obtains the approval of the Board for such stock acquisition or
for the proposed business combination transaction (unless such person acquires
85 percent or more of the Company's voting stock in such transaction excluding
certain shares as described above). As stated above, in the event of a proposed
acquisition of the Company, the Boards of Western Atlas and the Company believe
that the interests of the Company's shareholders will best be served by a
transaction that results from negotiations based upon careful consideration of
the proposed terms, such as the price to be paid to minority shareholders, the
form of consideration paid and tax effects of the transaction.
The protection afforded the remaining shareholders by Section 203 is stronger in
some respects than the protection that would be afforded by Article IX in
situations in which the provisions of both apply. This is because, unless the
requisite Board or shareholder approval is obtained or the acquiror succeeds in
obtaining at least 85% of the target corporation's voting stock in the initial
transaction, Section 203 would prevent any of the specified business combination
transactions which could be used by an acquiror to eliminate such remaining
shareholders, use the assets of the company to finance its acquisition or
otherwise abuse its equity position from occurring for a period of three years
thereafter, whereas Article IX would merely require that the specified minimum
price and procedural conditions be satisfied. Nonetheless, Article IX has been
included in the Certificate for several reasons.
First, the term "Business Combination" is defined differently in Article IX than
it is in Section 203 and, as a result, Article IX may afford protection to the
Company's shareholders in certain situations in which Section 203 would not
apply. In addition, Article IX would apply to transactions with or for the
benefit of any person (together with such person's affiliates and associates)
beneficially owning 10 percent of the Company's voting stock while Section 203
would only apply to transactions involving persons (together with their
affiliates and associates) beneficially owning 15 percent or more of the
Company's voting stock.
Second, although the constitutionality of Section 203 has so far been upheld in
the courts, it is possible that a higher court might yet find Section 203 to be
unconstitutional. If Section 203 were to be challenged and struck down as
unconstitutional prior to or in connection with any acquisition of the Company,
Article IX would continue to afford its protections to shareholders.
Neither Article IX nor Section 203 will prevent a hostile takeover of the
Company. They may, however, make more difficult or discourage a takeover of the
Company or the acquisition of control of the Company by a significant
shareholder and thus the removal of incumbent management. Such effect will be
enhanced by the fact that the Company will have a Share Purchase Rights Plan.
Some shareholders may find this disadvantageous in that they may not be afforded
the opportunity to participate in takeovers which are not approved by the
Continuing Directors but in which they might receive, for at least some of their
shares, a substantial premium above the market price at the time of a tender
offer or other acquisition transaction. Article IX should not prevent or
discourage transactions in which the acquiring person is willing to negotiate in
good faith with the Board and is prepared to pay the same price to all
shareholders of each class of the Company's voting stock.
RIGHTS PLAN
As of the Distribution Date, the Board of Directors of the Company will have
adopted a Share Purchase Rights Plan (the "Rights Plan") under which the Board
of Directors declared a dividend of one preferred share purchase right (a
"Right") for each outstanding share of Common Stock. Each share of Company
Common Stock distributed on the Distribution will have attached to it (as
described below) an associated Right. Rights are issuable in respect of all
shares of Company Common Stock issued after the Distribution Date and prior to
the earliest of (i) the Rights Distribution Date (as defined below), (ii) the
date on which the Rights are redeemed or exchanged as discussed below or (iii)
______, 2007. Each Right entitles the registered holder to purchase from the
Company one one-hundredth of a share of Series A Junior Participating Preferred
Stock, par value $.01 per share (the "Preferred Shares"), of the Company
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at a price of $70 (the "Purchase Price"), subject to adjustment. The terms of
the Rights are set forth in a Rights Agreement (the "Rights Agreement") between
the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agents (the
"Rights Agent").
The Rights Agreement provides that, until the Rights Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferred
with and only with the shares of Company Common Stock. The Rights Distribution
Date is the earlier to occur of (i) ten days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of 15 percent or more of the
outstanding shares of Company Common Stock or (ii) ten business days (or such
later date as may be determined by action of the Board of Directors prior to
such time as any person or group of affiliated persons becomes an Acquiring
Person) following the commencement of, or announcement of an intention to make,
a tender offer or exchange offer, the consummation of which would result in the
beneficial ownership by a person or group of 15 percent or more of the
outstanding shares of Company Common Stock. As soon as practicable following the
Rights Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the shares of Company
Common Stock as of the close of business on the Rights Distribution Date and
such separate Rights Certificates alone will evidence the Rights.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereafter be void), will
thereafter have the right to receive upon exercise that number of shares of
Company Common Stock having a market value of two times the exercise price of
the Right. At any time prior to the time a person or group of affiliated or
associated persons becomes an Acquiring Person, the Board of Directors of the
Company may redeem the Rights in whole, but not in part, at a price of $.01 per
Right (the "Redemption Price"). The redemption of the Rights may be made
effective at such time on such basis with such conditions as the Board of
Directors in its sole discretion may establish.
If the Rights are not redeemed as provided above and in the event that the
Company is acquired in a merger or other business combination transaction or 50
percent or more of its consolidated assets or earning power are sold after a
person or group has become an Acquiring Person, each holder of a Right will
thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the Right, that number of shares of common stock of
the acquiring company which at the time of such transaction will have a market
value of two times the exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and prior to
the acquisition by such person or group of 50 percent or more of the outstanding
shares of Company Common Stock, the Board of Directors of the Company may
exchange the Rights (other than Rights owned by such person or group which will
have become void), in whole or in part, at an exchange ratio of one share of
Company Common Stock, or one-hundredth of a Preferred Share, per Right (subject
to adjustment).
Preferred Shares which are purchasable under the Rights Plan will not be
redeemable. Each Preferred Share will be entitled to an aggregate dividend of
100 times the dividend declared per share of Company Common Stock but in no
event shall such minimum preferential quarterly payment be less than $1 per
share. In the event of liquidation, the holders of the Preferred Shares will be
entitled to an aggregate payment of 100 times the payment made per share of
Company Common Stock, but in no event shall they receive less than $100 per
share. Each Preferred Share will have 100 votes, voting together with the shares
of Company Common Stock. Finally, in the event of any merger, consolidation, or
other transaction in which shares of Company Common Stock are exchanged, each
Preferred Share will be entitled to receive 100 times the amount received per
share of Company Common Stock. These rights are protected by customary
antidilution provisions.
Until a Right is exercised, the holder thereof, as such, will have no rights as
a shareholder of the Company, including, without limitation, the right to vote
or to receive dividends. While the distribution of
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the Rights is not taxable, shareholders may recognize taxable income upon the
occurrence of subsequent events -- for example, upon the redemption, sale, or
other disposition of the Rights, or upon the Rights becoming exercisable with
respect to an acquiror's stock whether or not exercised. The Rights will expire
on , 2007 (the "Final Expiration Date"), unless the Final Expiration Date
is extended or unless the Rights are earlier redeemed or exchanged by the
Company.
As of December 31, 1996, Unitrin and its subsidiaries owned 23.6 percent of the
outstanding shares of Western Atlas Common Stock, and on that assumption would
own an identical percentage of the shares of Company Common Stock immediately
following the Distribution. The Rights Plan does not affect the Unitrin
companies so long as they do not purchase additional shares of Company Common
Stock or their shares are not transferred to a third party or group which would
thereby beneficially own 15 percent or more of the outstanding shares of Company
Common Stock.
The terms of the Rights may be amended by the Board of Directors of the Company
without the consent of the holders of the Rights, including an amendment to
lower the 15 percent thresholds described above to not less than the greater of
(i) the sum of .001 percent and the largest percentage of the outstanding
Company Common Stock then known to the Company to be beneficially owned by any
person or group or affiliated or associated persons (other than Unitrin and its
subsidiaries) and (ii) 10 percent, except that from and after such time as any
person or group of affiliated or associated persons becomes an Acquiring Person
no such amendment may adversely affect the interest of the holders of the
Rights.
The Rights have certain anti-takeover effects. The Rights will cause substantial
dilution to a person or group that attempts to acquire the Company without
conditioning the offer on the Rights being redeemed or a substantial number of
Rights being acquired.
This summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, which is
incorporated by reference as an exhibit to the Registration Statement which
includes this Information Statement.
COMPARISON WITH RIGHTS OF HOLDERS OF WESTERN ATLAS COMMON STOCK
The Company's Certificate, By-laws and Rights Plan are essentially identical to
the corresponding instruments of Western Atlas except that (i) any amendment by
shareholders of the Company's By-laws requires the vote of 80 percent of the
outstanding Company Common Stock, while amendments by shareholders to the
Western Atlas By-laws require either a majority of the votes cast at a meeting
at which a quorum is present or 80 percent of the outstanding Western Atlas
Common Stock, depending on which By-law is being amended, and (ii) Western Atlas
does not have in its certificate of incorporation any provision analogous to
Article IX of the Certificate.
LIABILITY AND INDEMNIFICATION
OF DIRECTORS AND OFFICERS
ELIMINATION OF LIABILITY OF DIRECTORS
The Certificate provides that a director of the Company will not be personally
liable to the Company or its shareholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware Law, which concerns
unlawful payments of dividends, stock purchases or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
Delaware Law is amended after the approval by the shareholders of the
Certificate to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
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Company shall be eliminated or limited to the fullest extent permitted by the
Delaware Law, as so amended from time to time.
While the Certificate provides directors with protection from awards for
monetary damages for breaches of their duty of care, it does not eliminate such
duty. Accordingly, the Certificate will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions of the Certificate described
above apply to an officer of the Company only if he or she is a director of the
Company and is acting in his or her capacity as director, and do not apply to
officers of the Company who are not directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate provides that each person who is or was a director or officer of
the Company or who is or was serving or who had agreed to serve at the request
of the Board or an officer of the Company as a director, officer or employee of
another Corporation, Partnership, joint venture, trust or other enterprise, will
be indemnified by the Company, in accordance with the By-laws, to the full
extent permitted from time to time by Delaware Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Company to provide broader indemnification
rights than said law permitted the Company to provide prior to such amendment)
or any other applicable laws as presently or hereafter in effect. In addition,
the Certificate provides that the Company may provide indemnification to other
persons as provided in the By-laws and may enter into one or more agreements
with any person which provide for indemnification greater as different than that
provided in the Certificate.
The By-laws provide that each person who was or is made a party or is threatened
to be made a party or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "Proceeding"), by reason of
the fact that he or she or a person of whom he or she is the legal
representative is or was a director or officer of the Company or is or was
serving at the request of the Company, as a director, officer, employee or agent
of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans maintained
or sponsored by the Company, whether the basis of such Proceeding is alleged
action in an official capacity as a director, officer, employee or agent or in
any other capacity while serving as a director, officer, employee or agent, will
be indemnified and held harmless by the Company to the fullest extent authorized
by Delaware law as the same exists or may in the future be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Company to provide broader indemnification rights than said law permitted the
Company to provide prior to such amendment), against all expense, liability and
loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith and such indemnification will
continue as to a person who has ceased to be a director, officer, employee or
agent and will inure to the benefit of his or her heirs, executors and
administrators; however, except as described in the following paragraph with
respect to Proceedings to enforce rights to indemnification, the Company will
indemnify any such person seeking indemnification in connection with a
Proceeding (or part thereof) initiated by such person only if such Proceeding
(or part thereof) was authorized by the Board.
Pursuant to the By-laws, if a claim described in the preceding paragraph is not
paid in full by the Company within thirty days after a written claim has been
received by the Company, the claimant may at any time thereafter bring suit
against the Company to recover the unpaid amount of the claim and, if successful
in whole or in part, the claimant will be entitled to be paid also the expense
of prosecuting such claim. The By-laws provide that it will be a defense to any
such action (other than an action brought to enforce a claim for expenses
incurred in defending any Proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the Company)
that the claimant has not met the standards of conduct which make it permissible
under the Delaware Law for the Company to indemnify the claimant for the amount
claimed, but the burden of proving such defense will
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be on the Company. Neither the failure of the Company (including the Board,
independent legal counsel or shareholders) to have made a determination prior to
the commencement of such action that indemnification of the claimant is proper
in the circumstances because he or she has met the applicable standard of
conduct set forth in the Delaware Law, nor an actual determination by the
Company (including the Board, independent legal counsel or shareholders) that
the claimant has not met such applicable standard of conduct, will be a defense
to the action or create a presumption that the claimant has not met the
applicable standard of conduct.
The By-laws provide that the right to indemnification and the payment of
expenses incurred in defending a Proceeding in advance of its final disposition
conferred in the Certificate will not be exclusive of any other right which any
person may have or may in the future acquire under any statute, provision of the
Certificate, the By-laws, agreement, vote of shareholders or disinterested
directors or otherwise. The Certificate permits the Company to maintain
insurance, at its expense, to protect itself and any director, officer, employee
or agent of the Company or any person serving at the request of the Company, as
a director, officer, employee or agent of another corporation, or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans maintained or sponsored by the Company,
against any such expense, liability or loss, whether or not the Company would
have the power to indemnify such person against such expense, liability or loss
under the Delaware Law. The Company intends to obtain directors' and officers'
liability insurance providing coverage to its directors and officers.
The Certificate provides that the right to indemnification conferred therein is
a contract right and includes the right to be paid by the Company the expenses
incurred in defending any such Proceeding in advance of its final disposition,
except that if Delaware law requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a Proceeding, will be made
only upon delivery to the Company of an undertaking by or on behalf of such
director or officer, to repay all amounts so advanced if it is ultimately
determined that such director or officer is not entitled to be indemnified under
the Certificate or otherwise.
66
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
UNOVA, INC.
Independent Auditors' Report............................................................................. F-2
Combined Statements of Operations for the three years ended December 31, 1996............................ F-3
Combined Balance Sheets at December 31, 1996 and December 31, 1995....................................... F-4
Combined Statements of Cash Flows for the three years ended December 31, 1996............................ F-5
Notes to Combined Financial Statements................................................................... F-6
Combined Statements of Operations for the six-month periods ended June 30, 1997 (unaudited) and June 30,
1996 (unaudited)....................................................................................... F-21
Combined Balance Sheets at June 30, 1997 (unaudited) and December 31, 1996............................... F-22
Combined Statements of Cash Flows for the six-month periods ended June 30, 1997 (unaudited) and June 30,
1996 (unaudited)....................................................................................... F-23
Notes to Combined Financial Statements (unaudited)....................................................... F-24
NORAND CORPORATION
Report of Independent Public Accountants................................................................. F-27
Consolidated Balance Sheet at August 31, 1996............................................................ F-28
Consolidated Statement of Operations for the fiscal year ended August 31, 1996........................... F-29
Consolidated Statement of Stockholders' Equity at August 31, 1996........................................ F-30
Consolidated Statement of Cash Flows for the fiscal year ended August 31, 1996........................... F-31
Notes to Consolidated Financial Statements............................................................... F-32
Consolidated Balance Sheet at March 1, 1997 (unaudited).................................................. F-44
Consolidated Statements of Operations for the six-month periods ended March 1, 1997 (unaudited) and March
2, 1996 (unaudited).................................................................................... F-45
Consolidated Statements of Cash Flows for the six-month periods ended March 1, 1997 (unaudited) and March
2, 1996 (unaudited).................................................................................... F-46
Notes to Consolidated Financial Statements (unaudited)................................................... F-47
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholder
UNOVA, Inc.
Beverly Hills, California
We have audited the accompanying combined balance sheets of the businesses
comprising UNOVA, Inc. and subsidiaries as of December 31, 1996 and 1995, and
the related combined statements of operations, and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of UNOVA, Inc. and subsidiaries as of
December 31, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
As described in Note A, the accompanying combined financial statements have been
prepared from the separate records maintained by the Western Atlas Inc.
divisions comprising UNOVA, Inc. and may not necessarily be indicative of the
conditions that would have existed or the results of operations if UNOVA, Inc.
had been operated as a separate company. Portions of debt, interest, and
corporate expenses represent allocations made from Western Atlas Inc.
DELOITTE & TOUCHE LLP
Los Angeles, California
August 13, 1997
F-2
<PAGE>
UNOVA, INC.
COMBINED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
<S> <C> <C> <C>
1996 1995 1994
------------- ----------- -----------
Sales and Service Revenues............................................... $ 1,164,682 $ 942,852 $ 971,138
------------- ----------- -----------
Costs and Expenses
Cost of sales.......................................................... 841,820 669,279 689,852
Selling, general and administrative.................................... 218,672 194,069 199,927
Depreciation and amortization.......................................... 27,043 26,116 28,727
Interest--net.......................................................... 7,111 9,347 15,691
------------- ----------- -----------
Total Costs and Expenses................................................. 1,094,646 898,811 934,197
------------- ----------- -----------
Earnings before Taxes on Income.......................................... 70,036 44,041 36,941
Taxes on Income.......................................................... (28,014) (17,837) (15,367)
------------- ----------- -----------
Net Earnings............................................................. $ 42,022 $ 26,204 $ 21,574
------------- ----------- -----------
------------- ----------- -----------
Pro Forma Net Earnings per Share......................................... $ .78
-------------
-------------
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE>
UNOVA, INC.
COMBINED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1996 1995
------------- -------------
ASSETS
Current Assets
Cash and cash equivalents......................................................... $ 149,467 $ 103,501
Accounts receivable less allowance for doubtful accounts of $5,124 (1996) and
$4,810 (1995)................................................................... 394,572 284,056
Inventories less progress billings................................................ 94,452 113,769
Deferred tax assets............................................................... 53,636 41,741
Other current assets.............................................................. 3,664 3,445
------------- -------------
Total Current Assets................................................................ 695,791 546,512
Property, Plant and Equipment, Net.................................................. 132,508 137,337
Goodwill and Other Intangibles, Net of Amortization of $42,095 (1996) and $40,603
(1995)............................................................................ 178,810 182,850
Other Assets........................................................................ 66,684 52,325
------------- -------------
Total Assets........................................................................ $ 1,073,793 $ 919,024
------------- -------------
------------- -------------
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable.................................................................. $ 242,168 $ 161,903
Payrolls and related expenses..................................................... 50,567 55,275
Due to Western Atlas Inc.......................................................... 109,574 112,429
Notes payable and current portion of long-term obligations........................ 27,461 22,214
------------- -------------
Total Current Liabilities........................................................... 429,770 351,821
Long-term Obligations............................................................... 14,507 14,099
Deferred Tax Liabilities............................................................ 22,727 20,883
Other Long-term Liabilities......................................................... 32,281 29,562
Commitments and Contingencies
Equity--Investment by Western Atlas Inc............................................. 574,508 502,659
------------- -------------
Total Liabilities and Equity........................................................ $ 1,073,793 $ 919,024
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE>
UNOVA, INC.
COMBINED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
<S> <C> <C> <C>
1996 1995 1994
----------- ----------- ----------
Cash and Cash Equivalents at Beginning of Year............................. $ 103,501 $ 29,190 $ 2,618
----------- ----------- ----------
Cash Flows from Operating Activities:
Net earnings............................................................. 42,022 26,204 21,574
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization........................................ 27,043 26,116 28,727
Deferred taxes....................................................... (9,803) 7,519 (4,817)
Change in accounts receivable........................................ (142,159) 47,712 (25,830)
Change in inventories................................................ 21,986 (19,613) 8,338
Change in other current assets....................................... (804) 4,012 1,479
Change in accounts payable........................................... 73,701 (11,572) 30,406
Change in payrolls and related expenses.............................. (2,382) (99) 25,989
Other operating activities........................................... (446) (1,253) (6,225)
----------- ----------- ----------
Net cash provided by operating activities.................................. 9,158 79,026 79,641
----------- ----------- ----------
Cash Flows from Investing Activities:
Capital expenditures................................................... (22,541) (23,944) (22,625)
Proceeds from sale of businesses....................................... 31,100
Acquisition of businesses net of cash acquired......................... (5,916)
Other investing activities............................................. 1,049 775 (1,717)
----------- ----------- ----------
Net cash provided by (used in) investing activities........................ 9,608 (29,085) (24,342)
----------- ----------- ----------
Cash Flows from Financing Activities:
Net transactions with Western Atlas Inc................................ 25,747 38,195 36,356
Due to Western Atlas Inc............................................... (2,855) (352) (98,204)
Repayment of long-term obligations..................................... (649) (1,280)
Short-term obligations, net............................................ 3,818 (20,848) 34,402
Other financing activities............................................. 1,139 7,375 (1)
----------- ----------- ----------
Net cash provided by (used in) financing activities........................ 27,200 24,370 (28,727)
----------- ----------- ----------
Resulting in Increase in Cash and Cash Equivalents......................... 45,966 74,311 26,572
----------- ----------- ----------
Cash and Cash Equivalents at End of Year................................... $ 149,467 $ 103,501 $ 29,190
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE>
UNOVA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
GENERAL INFORMATION. On May 4, 1997, the Board of Directors of Western Atlas
Inc. ("WAI") approved in principle, subject to formal declaration of a dividend
at a later date, a plan for the distribution (the "Distribution") to holders of
WAI common stock of all of the outstanding shares of common stock of UNOVA, Inc.
("UNOVA" or the "Company"), a wholly-owned subsidiary of WAI. At the time of the
Distribution the Company will own substantially all of WAI's industrial
automation businesses.
The Distribution is expected to occur before December 31, 1997 and will be made
on the basis of one share of Company common stock for each share of WAI common
stock outstanding on the record date for the Distribution. The Distribution will
be reported by WAI as a tax-free dividend for tax reporting purposes.
In connection with the Distribution, the Company and WAI have entered into
various agreements, including a Distribution and Indemnity Agreement, a Tax
Sharing Agreement and certain agreements relating to employee benefits and
intellectual property.
The Distribution and Indemnity Agreement provides for, among other items, the
transfer to the Company of WAI's interest in the assets, liabilities and
businesses that will constitute UNOVA and the payment by the Company of
approximately $230 million as a dividend to WAI. In connection therewith, the
Company will obtain financing in the form of loans from a group of banks
adequate to pay the aforementioned dividend to WAI and to meet its other capital
requirements. The combined pro forma financial statements included elsewhere in
this Information Statement have been presented as if this financing had been in
effect as of January 1, 1996. For purposes of historical presentation, total
UNOVA debt has been adjusted based on the historical capital needs of the UNOVA
businesses compared to that of other WAI businesses. The Distribution Agreement
also provides for the division between WAI and the Company of certain other
liabilities and certain other agreements governing the relationship between the
Company and WAI following the Distribution.
In general, the Tax Sharing Agreement provides that WAI will be liable for
consolidated federal income tax and joint state income tax liabilities,
including any such liabilities resulting from the audit of or other adjustment
to previously filed tax returns, which are attributable to the Company and its
domestic subsidiaries (the "Company Group") through the date of the
Distribution. WAI will be entitled to tax benefits resulting from any audit or
other adjustments to the Company's pre-date of the Distribution consolidated
federal income tax and joint state income tax liabilities, when and if realized
by the Company. The Company Group will generally be liable for all other state,
local and foreign tax liabilities which are attributable to the Company Group
through the date of the Distribution and the pre-acquisition tax liabilities of
Norand.
NATURE OF OPERATIONS. UNOVA is an industrial technologies company providing
global customers with solutions for improving their efficiency and productivity.
The Automated Data Systems business segment is comprised of automated data
collection ("ADC") and mobile computing products and services, principally
serving the industrial market. Customers are the global distribution and
transportation companies, food and beverage operations, manufacturing
industries, health care providers and government agencies. The Industrial
Automation Systems business segment includes integrated manufacturing systems,
body welding and assembly systems, and precision grinding and abrasives,
primarily serving the worldwide automotive, off-road and diesel engine
manufacturing industries.
F-6
<PAGE>
UNOVA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE A: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A different automotive industry customer was significant to the Company's
revenues in each of the three years ended 1996. One such customer represented
15% of revenues in 1996, another represented 11% of revenues in 1995, and
another represented 28% of revenues in 1994.
PRINCIPLES OF COMBINATION. The historical combined financial statements for the
Company have been presented as if the operations included herein have been
operating as one entity for the periods presented. They include, at their
historical amounts, the assets, liabilities, revenues and expenses directly
related and those allocated to the businesses which will comprise the Company's
operations.
A pro rata share of certain general and administrative corporate costs incurred
by WAI have been allocated to the Company based on the relative ratio of such
projected costs to be incurred by WAI and the Company individually. Such costs
include general management, legal, tax, treasury, insurance, financial audit,
financial reporting, human resources and real estate services.
The Company's historical debt includes an allocation of a portion of WAI's
corporate debt, based on the Company's estimated past capital requirements.
Interest expense related thereto has been included in the Company's statements
of operations at WAI's estimated blended historical rate of interest on long-
term borrowings of 7.5%.
Management believes the above stated allocations were made on a reasonable
basis; however, they do not necessarily reflect the results of operations which
would have occurred had the Company been an independent entity nor are they
necessarily indicative of future expenses or income (see Note J).
The Company consolidates its subsidiaries and companies in which it has a
controlling interest. Investments in companies over which UNOVA has influence
but not a controlling interest are accounted for using the equity method. All
material intercompany transactions have been eliminated.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses for each reporting period. Actual results could differ
from those estimates.
EARNINGS PER SHARE. Earnings per share computations in each year were based on
53,891,534 shares of WAI common stock outstanding at June 30, 1997. Management
estimates that this amount is representative of the number of shares that will
be issued upon the Distribution. Historical Western Atlas common stock
equivalents arising from various stock option plans have been excluded from the
Company's earnings per share calculation as such options will not be converted
into UNOVA stock options (see Note F).
CASH EQUIVALENTS. The Company considers time deposits and commercial paper
purchased within three months of their date of maturity to be cash equivalents.
INVENTORIES. Inventories are stated at the lower of cost (first-in, first-out
method) or market.
REVENUE RECOGNITION. Revenues are generally recognized when products are shipped
or as services are performed. Revenues and profits on long-term contracts
associated with the Company's operations are
F-7
<PAGE>
UNOVA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE A: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
recorded under the percentage-of-completion method of accounting. Any
anticipated losses on contracts are charged to operations as soon as they are
determinable. General and administrative costs are expensed as incurred.
RESEARCH AND DEVELOPMENT. Research and development costs are charged to expense
as incurred. Worldwide expenditures on research and development activities
amounted to $29.7 million, $27.5 million and $31.7 million, in the years ended
December 31, 1996, 1995 and 1994, respectively.
PROPERTY, PLANT AND EQUIPMENT. Investment in property, plant and equipment is
stated at cost. Depreciation, computed generally by the straight-line method for
financial reporting purposes, is provided over the estimated useful lives of the
related assets.
INCOME TAXES. The Company measures tax assets and liabilities based on a balance
sheet approach. Tax assets and liabilities are stated at the tax rate in effect
when the estimated assets and liabilities will be realized. For further
discussion of accounting policies for taxes see Note G.
The Company's domestic operations and their foreign branches have been included
in WAI's consolidated tax return. Any tax benefits related to these operations
have been recorded in these financial statements if such were realizable by WAI
on a consolidated basis. Foreign entities included in these financial statements
provide taxes in accordance with local laws and regulations. Earnings of these
entities are deemed permanently invested in their operating environments and
U.S. taxes have not been provided.
CONCENTRATIONS OF CREDIT RISK. Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of cash and cash
equivalents and trade receivables. The Company places its cash and cash
equivalents with high credit quality institutions and limits the amount of
credit exposure with any one institution. Concentrations of credit risk with
respect to trade receivables are limited because a large number of
geographically diverse customers make up the Company's customer base, thus
spreading the trade credit risk. The Company evaluates the creditworthiness of
its customers and maintains allowance for anticipated losses.
FOREIGN CURRENCIES. The currency effects of translating the financial statements
of those non-U.S. entities of the Company which operate in local currency
environments are included in the "cumulative currency translation adjustment"
component of equity. Currency transaction gains and losses are included in the
combined statements of operations and were not material for any periods
presented herein.
GOODWILL AND OTHER INTANGIBLES. Goodwill is amortized on a straight-line basis
over periods ranging from 15 to 40 years. Other intangibles are amortized on a
straight-line basis over periods ranging from four to 18 years. The Company
assesses the recoverability of goodwill at the end of each fiscal year or as
circumstances warrant. Factors considered in evaluating recoverability include
management's plans with respect to the operations to which the goodwill relates,
particularly the historical earnings and projected undiscounted cash flows of
such operations.
IMPAIRMENT OF LONG-LIVED ASSETS. The Company regularly reviews long-lived assets
for impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be fully recoverable. Impairment is
recognized in the event that the undiscounted cash flows estimated to be
generated by the asset are less than its carrying amount.
F-8
<PAGE>
UNOVA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE A: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ENVIRONMENTAL COSTS. Provisions for environmental costs are recorded when the
Company determines its responsibility for remedial efforts and such amounts are
reasonably estimable.
NEW ACCOUNTING PRONOUNCEMENTS. In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128
("SFAS 128") "Earnings per Share" which will be effective for the Company
beginning with the period ending December 31, 1997. SFAS 128 replaces the
presentation of primary earnings per share with a presentation of basic earnings
per share based upon the weighted average number of common shares for the
period. It also requires dual presentation of basic and diluted earnings per
share of companies with complex capital structures. Pro forma basic and diluted
EPS for all historical periods presented, assuming SFAS No. 128 was effective at
the beginning of each such historical period, would not differ from the
presentations herein.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 REPORTING FOR COMPREHENSIVE INCOME and
No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION.
These statements are effective for financial statements issued for periods
beginning after December 15, 1997. The Company is evaluating what, if any,
additional disclosures may be required upon the implementation of SFAS Nos. 130
and 131.
NOTE B: BUSINESS ACQUISITIONS, INVESTMENTS AND DISPOSITIONS
ACQUISITIONS AND INVESTMENTS
The Company acquired Norand Corporation ("Norand") on March 3, 1997, and United
Barcode Industries ("UBI") on April 4, 1997. Norand designs, manufactures and
markets mobile computing systems and wireless data communications networks using
radio frequency technology. UBI is a European-based ADC company headquartered in
Sweden. These companies are currently being integrated into the Automated Data
Systems segment. Both transactions were funded using a combination of WAI's
committed credit facilities, short-term uncommitted credit lines and excess
cash, and are being accounted for under the purchase method of accounting.
Accordingly, the acquisition costs (approximately $280 million and $107 million
for Norand and UBI, respectively) have been allocated to the net assets acquired
based upon their relative fair values. Such allocation resulted in $203 million
assigned to in-process research and development activities; $156 million
assigned to goodwill (to be amortized over 25 years using the straight-line
method); and $29 million assigned to other intangibles (to be amortized over
periods ranging from four to 18 years using the straight-line method). During
the period ended June 30, 1997, the Company expensed the amounts assigned to
in-process research and development projects that have not yet achieved
technological feasibility in accordance with Financial Accounting Standards
Board Interpretation No. 4. The Norand acquisition added increased knowledge and
capabilities in wireless data communication using radio frequency ("RF")
technology and mobile computing solutions for the logistics markets. In the
communications area, Norand brings advanced axis point and docking station
technology, communication software, product configuration and ergonomics. This
acquisition also expands the Company's offering in the RF spread-spectrum
technology. The mobile computing technology allows the Company to enter the
route accounting, meter reading, and field service markets. Norand provides the
Company with pen-based, hand-held computers with desktop PC performance that is
important to these markets. The UBI acquisition provides two major product line
technologies: bar code on-demand printers with labels and ribbons, and hand-held
scanners. UBI's printer technology complements the Company's existing printer
offerings with low-end, low cost printers and high-end, high speed printers. UBI
also provides enhanced media-handling systems, such as linerless adhesive labels
and software. The scanner technology includes scanners based on charge-
F-9
<PAGE>
UNOVA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE B: BUSINESS ACQUISITIONS, INVESTMENTS AND DISPOSITIONS (CONTINUED)
coupled device ("CCD") technology, which is an alternative to laser scanners in
many applications. UBI also brings software that improves laser scanning for
one- and two-dimensional symbologies. In addition to the amount charged to
in-process research and development, the Company expects to expend an additional
$30 million over the next three years to develop these technologies into
commercially viable products. These expenditures include engineering labor,
material costs, overhead charges, and software development, as well as general
and administrative expenses.
The allocation of the acquisition cost of Norand and UBI is preliminary and
subject to revision upon receipt of pending information, such as final
assessment of certain legal and environmental exposures and the completion of
certain appraisals. Any such revisions are not expected to have a material
impact on the Company's combined financial statements.
The Company made several acquisitions and investments during 1995, including 49%
of Honsberg, a German machine tool maker. Cranfield Precision Engineering, a
grinding technology company located in the United Kingdom, was also acquired in
1995. The remaining 51% of Honsberg was acquired in the second quarter of 1997.
These acquisitions are integral to the Company's goals, though not material in
the aggregate to the Company's combined financial statements.
DISPOSITIONS
The Company sold its Material Handling Systems operations in November of 1996
and received cash proceeds of approximately $31 million. The activities of the
division were not considered a core business of the Company.
NOTE C: CASH AND CASH EQUIVALENTS, DEBT AND INTEREST
Cash and cash equivalents amounted to $149.5 million and $103.5 million at
December 31, 1996 and December 31, 1995, respectively, and consisted mainly of
time deposits and commercial paper.
Notes payable and long-term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
<CAPTION>
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Short-term notes payable with average interest
at 6.3% (1996) and 6.9% (1995)........................................................... $ 27,045 $ 21,894
Other, with average interest at 5.6% (1996)
and 5.5% (1995), due through 2005........................................................ 14,923 14,419
--------- ---------
41,968 36,313
Less short-term notes payable and
current portion of long-term obligations................................................. (27,461) (22,214)
--------- ---------
$ 14,507 $ 14,099
--------- ---------
--------- ---------
</TABLE>
F-10
<PAGE>
UNOVA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE C: CASH AND CASH EQUIVALENTS, DEBT AND INTEREST (CONTINUED)
Notes payable and long-term obligations at December 31, 1996 mature as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, (THOUSANDS OF DOLLARS)
- ----------------------------------------------------------------------
<S> <C>
1997.................................................................. $ 27,461
1998.................................................................. 234
1999.................................................................. 234
2000.................................................................. 250
2001.................................................................. 182
Thereafter............................................................ 13,607
--------
$ 41,968
--------
--------
</TABLE>
Financial instruments on the Company's combined balance sheet include accounts
receivable, notes payable, accounts payable, and payrolls and related expenses,
which approximate their market values due to their short maturity. The fair
market value of long-term obligations does not differ significantly from their
carrying value as of December 31, 1996, based on comparisons to similar types of
debt in the market. As discussed in Note I, WAI also has off-balance-sheet
guarantees and letter-of-credit agreements relating to UNOVA customers with face
values totaling $95 million at December 31, 1996 relating principally to the
guarantee of future performance on contracts. Such guarantees and
letters-of-credit will be assumed by the Company upon the Distribution.
Debt allocated from WAI was $109.6 million and $112.4 million as of December 31,
1996 and 1995, respectively. Interest expense related thereto of $8.3 million,
$8.4 million, and $12.1 million of WAI's corporate debt for the years ended
December 31, 1996, 1995 and 1994, respectively, has been included in the
Company's statements of operations at WAI's estimated blended historical rate of
interest on long-term borrowings of 7.5%.
Net interest expense is composed of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Interest expense............................................................... $ 11,533 $ 12,174 $ 17,496
Interest income................................................................ (4,422) (2,827) (1,805)
--------- --------- ---------
Net interest expense........................................................... $ 7,111 $ 9,347 $ 15,691
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company made interest payments to non-related parties of $2.6 million, $3.8
million, and $5.8 million in the years ended December 31, 1996, 1995 and 1994,
respectively. Capitalized interest costs in each of the periods presented were
not material.
F-11
<PAGE>
UNOVA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE D: ACCOUNTS RECEIVABLE AND INVENTORIES
Following are the details of net accounts receivable:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
<S> <C> <C>
1996 1995
----------- -----------
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Trade receivables....................................................................... $ 132,814 $ 143,462
Receivables related to long-term contracts
Amounts billed........................................................................ 49,538 65,352
Unbilled recoverable costs and accrued profit on progress
completed and retentions............................................................ 212,220 75,242
----------- -----------
$ 394,572 $ 284,056
----------- -----------
----------- -----------
</TABLE>
The unbilled recoverable costs and retentions at December 31, 1996 are expected
to be entirely billed and collected in fiscal year 1997.
Summarized below are the components of inventory balances:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1996 1995
--------- -----------
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Raw materials and work in process........................................................ $ 65,016 $ 79,845
Finished goods........................................................................... 18,697 21,803
Inventoried costs related to long-term contracts......................................... 35,062 33,549
Less progress billings................................................................... (24,323) (21,428)
--------- -----------
Net inventories.......................................................................... $ 94,452 $ 113,769
--------- -----------
--------- -----------
</TABLE>
NOTE E: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1996 1995
------------ ------------
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Property, plant and equipment, at cost
Land................................................................................ $ 23,283 $ 23,617
Buildings and improvements.......................................................... 105,445 107,246
Machinery and equipment............................................................. 165,257 165,172
Less accumulated depreciation......................................................... (161,477) (158,698)
------------ ------------
Net investment in property, plant and equipment....................................... $ 132,508 $ 137,337
------------ ------------
------------ ------------
</TABLE>
The net book value of assets utilized under capital leases was not material at
December 31, 1996 and 1995.
F-12
<PAGE>
UNOVA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE E: PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
The range of estimated useful lives for determining depreciation and
amortization of the major classes of assets are:
<TABLE>
<S> <C>
Buildings.................................................... 10-45 years
Building improvements........................................ 2-20 years
Machinery and equipment...................................... 2-15 years
</TABLE>
As of December 31, 1996, minimum rental commitments under noncancellable
operating leases were:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- --------------------------------------------------------------------------- OPERATING LEASES
-----------------
(THOUSANDS OF
DOLLARS)
<S> <C>
1997..................................................................... $ 6,180
1998..................................................................... 4,056
1999..................................................................... 2,455
2000..................................................................... 1,624
2001..................................................................... 1,180
Thereafter............................................................... 5,359
--------
$ 20,854
--------
--------
</TABLE>
Rental expense for operating leases, including amounts for short-term leases
with nominal, if any, future rental commitments, was $10.4 million, $9.8 million
and $10.8 million, for the years ended December 31, 1996, 1995 and 1994,
respectively. The minimum future rentals receivable under subleases and the
contingent rental expenses were not significant.
NOTE F: EQUITY--INVESTMENT BY WESTERN ATLAS INC.
At the date of the Distribution, holders of WAI common stock will receive one
share of Company common stock for each share held of WAI common stock. If the
Distribution had occurred on June 30, 1997, approximately 53.9 million shares of
Company common stock would have been issued.
F-13
<PAGE>
UNOVA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE F: EQUITY--INVESTMENT BY WESTERN ATLAS INC. (CONTINUED)
Changes in equity are summarized below:
<TABLE>
<CAPTION>
RETAINED EARNINGS
AND CUMULATIVE CUMULATIVE
TRANSACTIONS WITH CURRENCY NET INVESTMENT
WESTERN ATLAS, TRANSLATION BY WESTERN
INC. ADJUSTMENT ATLAS INC.
------------------ ----------- ---------------
<S> <C> <C> <C>
(THOUSANDS OF DOLLARS)
Balance at December 31, 1993.................................. $ 385,124 $ (4,216) $ 380,908
Net earnings.................................................. 21,574 21,574
Currency translation adjustment............................... 577 577
Net transactions with Western Atlas Inc....................... 36,356 36,356
---------- ----------- ---------------
Balance at December 31, 1994.................................. 443,054 (3,639) 439,415
Net earnings.................................................. 26,204 26,204
Currency translation adjustment............................... (1,155) (1,155)
Net transactions with Western Atlas Inc....................... 38,195 38,195
---------- ----------- ---------------
Balance at December 31, 1995.................................. 507,453 (4,794) 502,659
Net earnings.................................................. 42,022 42,022
Currency translation adjustment............................... 4,080 4,080
Net transactions with Western Atlas Inc....................... 25,747 25,747
---------- ----------- ---------------
Balance at December 31, 1996.................................. $ 575,222 $ (714) $ 574,508
---------- ----------- ---------------
---------- ----------- ---------------
</TABLE>
STOCK OPTION INFORMATION
Under the UNOVA, Inc. 1997 Stock Incentive Plan (the "Plan"), an aggregate of
5,500,000 shares of Company common stock will initially be available for the
issuance of stock options, stock appreciation rights and restricted stock. The
number of shares available under the Plan increases by one percent of the total
number of shares of common stock outstanding as of the first day of each
calendar year beginning after December 31, 1999. Under the Plan, stock options
may not be granted at a price less than the fair market value of the Company's
common stock on the date of grant. There have been no issuances made under the
Plan to date, but it is expected that the initial issuances will occur soon
after the date of the Distribution.
The Distribution Agreement provides that all employee and director options to
purchase WAI common stock outstanding immediately prior to the Distribution will
be adjusted by increasing the number of shares subject to the option and
decreasing the exercise price per share so as to preserve the difference between
the aggregate exercise price of the option and the aggregate market value of the
shares subject to the option.
NOTE G: TAXES ON INCOME
See Note K for earnings by geographic area.
F-14
<PAGE>
UNOVA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE G: TAXES ON INCOME (CONTINUED)
The components of taxes on income consist of the following provisions
(benefits):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1996 1995 1994
---------- ---------- ----------
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Currently Payable:
U.S. taxes................................................................ $ 31,619 $ 8,926 $ 28,450
International taxes....................................................... 6,446 1,392 7,506
---------- ---------- ----------
38,065 10,318 35,956
---------- ---------- ----------
Deferred:
U.S. taxes................................................................ (9,685) 8,220 (17,379)
International taxes....................................................... (366) (701) (3,210)
---------- ---------- ----------
(10,051) 7,519 (20,589)
---------- ---------- ----------
$ 28,014 $ 17,837 $ 15,367
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Deferred taxes result from the effect of transactions which are recognized in
different periods for financial and tax reporting purposes and relate primarily
to employee benefits, depreciation and other valuation allowances.
The primary components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
-------------------- --------------------
<S> <C> <C> <C> <C>
ASSET LIABILITY ASSET LIABILITY
--------- --------- --------- ---------
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Accrued liabilities................................................ $ 32,197 $ 21,025
Receivables and inventory.......................................... 8,426 7,326
Retiree medical benefits........................................... 4,501 5,871
Pensions........................................................... $ 11,239 $ 7,834
Accelerated depreciation........................................... 6,892 6,756
Other items........................................................ 8,512 4,596 7,519 6,293
--------- --------- --------- ---------
$ 53,636 $ 22,727 $ 41,741 $ 20,883
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The following is a reconciliation of income taxes at the U.S. statutory rate to
the provision for income taxes:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Tax at U.S. statutory rate..................................................... $ 24,513 $ 15,414 $ 12,929
State income taxes net of federal benefit...................................... 1,382 1,285 1,513
Amortization of nondeductible goodwill......................................... 1,916 1,916 1,902
Foreign earnings taxed at other than U.S. statutory rate....................... 60 100
Other items.................................................................... 143 (878) (977)
--------- --------- ---------
$ 28,014 $ 17,837 $ 15,367
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company made tax payments of $26.1 million, $15.1 million and $25.8 million,
in the years ended December 31, 1996, 1995 and 1994, respectively.
F-15
<PAGE>
UNOVA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE H: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
Benefit plans covering employees of the Company are sponsored by WAI. These
plans include retirement and pension plans which cover most of its employees.
Most of the Company's U.S. employees are covered by a contributory defined
benefit plan.
Under a contributory defined benefit plan generally available to U.S. employees
of the Company, annual contributions are made to the extent such contributions
are actuarially determined.
There are also defined contribution voluntary savings programs generally
available for U.S. employees, which are intended to qualify under Sections
401(a) and 401(k) of the Internal Revenue Code. These plans are designed to
enhance the retirement programs of participating employees. Under these plans,
the Company matches up to 50% of a certain portion of participants'
contributions.
The Company's non-U.S. subsidiaries also have WAI sponsored retirement and
savings plans for employees. The pension liabilities and their related costs are
computed in accordance with the laws of the individual nations and appropriate
actuarial practices.
For employees of the Company, who are participants in any of WAI's various
benefit plans, new benefit plans will be established effective as of the date of
the Distribution. Assets will be transferred to such plans from corresponding
WAI plans based upon actuarial determinations made in conformity with regulatory
requirements.
U.S. PENSION PLANS
A summary of the components of net periodic pension cost for the U.S. defined
benefit plans and defined contribution plans for the years ended December 31,
1996, 1995 and 1994, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1996 1995 1994
---------- ---------- ----------
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Defined benefit plans
Service cost--benefits earned during the period........................... $ 6,507 $ 4,565 $ 3,867
Interest cost on projected benefit obligation............................. 10,107 9,619 7,710
Actual return on plan assets.............................................. (41,727) (58,985) (3,562)
Net amortization and deferral............................................. 19,371 37,439 (16,643)
---------- ---------- ----------
Net periodic pension income............................................... (5,742) (7,362) (8,628)
Defined contribution plans.................................................. 2,983 2,414 2,338
---------- ---------- ----------
Net periodic pension income................................................. $ (2,759) $ (4,948) $ (6,290)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Actuarial assumptions for the Company's U.S. defined benefit plans included an
expected long-term rate of return on plan assets of 9 1/4% for fiscal years 1996
and 1995. The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7 1/2% at December 31,
1996 and 1995. The rate of increase in future compensation levels was 5% at
December 31, 1996 and 1995.
F-16
<PAGE>
UNOVA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE H: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (CONTINUED)
The following table sets forth the funded status of the Company's U.S. plans and
amounts recognized in the Company's balance sheet at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1996 1995
------------ ------------
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of benefit obligations
Vested benefit obligation........................................................... $ (125,121) $ (123,933)
------------ ------------
------------ ------------
Accumulated benefit obligation...................................................... $ (126,092) $ (124,648)
------------ ------------
------------ ------------
Projected benefit obligation........................................................ $ (139,026) $ (136,526)
Fair value of plan assets............................................................. 267,956 234,874
Unrecognized net transition asset..................................................... (16,268) (18,432)
Unrecognized net gain................................................................. (87,550) (58,239)
------------ ------------
Prepaid pension cost.................................................................. $ 25,112 $ 21,677
------------ ------------
------------ ------------
</TABLE>
The above table includes prepaid pension cost presented net of pension
liabilities for plans in which accumulated benefits exceed plan assets. As of
December 31, 1996 and 1995, these liabilities amounted to $13.5 million and $7.4
million, respectively.
Plan assets consist primarily of equity securities and U.S. Government
securities. The excess of plan assets over the projected benefit obligation at
August 1, 1986 (when the Company adopted SFAS No. 87) and subsequent
unrecognized gains and losses are fully amortized over the average remaining
service period of active employees expected to receive benefits under the plans,
generally 15 years.
NON-U.S. PENSION PLANS
For the principal non-U.S. pension plans located in the United Kingdom, the
weighted-average discount rate used was approximately 8% at December 31, 1996.
The rate of increase in future compensation used was approximately 5%, and the
rate of return on assets was 8 1/2% at December 31, 1996.
Pension costs for non-U.S. plans were not material for any of the periods
presented herein. The actuarial present value of projected benefits at December
31, 1996 was $42.3 million compared with net assets available for benefits of
$47.2 million.
OTHER POSTRETIREMENT BENEFITS
In addition to pension benefits, certain of the Company's U.S. employees are
covered by postretirement health care and life insurance benefit plans provided
by WAI. These benefit plans are unfunded.
The net periodic postretirement benefit costs were not material for any of the
periods presented herein. The accumulated benefit obligation at December 31,
1996 was $18.5 million, of which $14.7 million was attributable to retirees and
$3.8 million to other active plan participants. The accumulated benefit
obligation at December 31, 1995 was $18.0 million, of which $14.7 million was
attributable to retirees and $3.3 million was attributable to active plan
participants.
Actuarial assumptions used to measure the accumulated benefit obligation include
a discount rate of 7 1/2% at December 31, 1996 and 1995. The assumed health care
cost trend rate for fiscal year 1996 was
F-17
<PAGE>
UNOVA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE H: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (CONTINUED)
12.7% and is projected to decrease over 20 years to 6%, where it is expected to
remain thereafter. The effect of a one-percentage-point increase in the assumed
health care cost trend rate on the service cost and interest cost components of
the net periodic postretirement benefit cost is not material. A one-
percentage-point increase in the assumed health care cost trend rate on the
accumulated benefit obligation results in an increase of approximately $1.5
million.
NOTE I: LITIGATION, COMMITMENTS AND CONTINGENCIES
The Company is currently, and is from time to time, subject to claims and suits
arising in the ordinary course of its business. In the opinion of the Company's
General Counsel, the ultimate resolution of currently pending proceedings will
not have a material adverse effect on the Company's consolidated financial
statements.
WAI has off-balance-sheet guarantees and letter of credit agreements relating to
UNOVA customers with face values totaling $95 million at December 31, 1996
relating principally to the guarantee of future performance on contracts. Such
guarantees and letters-of-credit will be assumed by the Company upon the
Distribution.
NOTE J: RELATED PARTY TRANSACTIONS
Included in other assets are amounts due from related parties of $1.6 million
and $2.1 million at December 31, 1996 and 1995, respectively.
Included in general and administrative costs are allocated charges from WAI of
$22.2 million, $19.9 million and $27.6 million, for the years ended December 31,
1996, 1995 and 1994, respectively.
Included in interest expense are allocated charges from WAI of $8.3 million,
$8.4 million and $12.1 million, for the years ended December 31, 1996, 1995 and
1994, respectively.
NOTE K: BUSINESS SEGMENT REPORTING
The Company reports its operations in two business segments: the Automated Data
Systems segment and the Industrial Automation Systems segment. Material Handling
Systems and VantageWare divisions were sold during the fourth quarter of 1996.
Figures for these divisions were reported as part of the Industrial Automation
Systems segment.
Activities are primarily product sales oriented. Export sales are not material.
Corporate and other amounts include corporate operating costs, net interest
expense and currency transaction gains and losses (see Notes A and J). Assets
classified as corporate and other amounts consist primarily of cash and cash
equivalents and deferred taxes.
F-18
<PAGE>
UNOVA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE K: BUSINESS SEGMENT REPORTING (CONTINUED)
OPERATIONS BY BUSINESS SEGMENT
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
AUTOMATED INDUSTRIAL CORPORATE
YEAR ENDED DATA AUTOMATION AND OTHER
DECEMBER 31, SYSTEMS SYSTEMS AMOUNTS TOTAL
--------------- ------------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Sales.................................................. 1996 $ 367 $ 798 $ 1,165
1995 321 622 943
1994 303 668 971
Operating profit (loss)................................ 1996 30 70 $ (23) 77
1995 13 62 (22) 53
1994 24 56 (27) 53
Capital expenditures................................... 1996 9 14 23
1995 8 16 24
1994 9 12 2 23
Depreciation and amortization expense.................. 1996 11 15 1 27
1995 12 13 1 26
1994 12 16 1 29
Identifiable assets at year end........................ 1996 271 636 167 1,074
1995 279 533 107 919
1994 280 558 23 861
</TABLE>
OPERATIONS BY GEOGRAPHIC AREA
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
CORPORATE
YEAR ENDED UNITED OTHER AND OTHER
DECEMBER 31, STATES EUROPE NATIONS AMOUNTS
--------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Sales..................................................... 1996 $ 950 $ 193 $ 22
1995 771 151 21
1994 811 144 16
Operating profit (loss)................................... 1996 78 22 $ (23)
1995 70 4 1 (22)
1994 71 5 4 (27)
Identifiable assets at year end........................... 1996 761 136 10 167
1995 695 105 12 107
1994 709 115 14 23
<CAPTION>
TOTAL
---------
<S> <C>
Sales..................................................... $ 1,165
943
971
Operating profit (loss)................................... 77
53
53
Identifiable assets at year end........................... 1,074
919
861
</TABLE>
F-19
<PAGE>
UNOVA, INC.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
GROSS NET
SALES PROFIT EARNINGS
--------- --------- -----------
<S> <C> <C> <C>
(MILLIONS OF DOLLARS)
YEAR ENDED DECEMBER 31, 1996
First Quarter...................................................................... $ 240.4 $ 68.0 $ 8.2
Second Quarter..................................................................... 264.1 73.4 8.7
Third Quarter...................................................................... 310.0 81.0 11.0
Fourth Quarter..................................................................... 350.2 88.0 14.1
YEAR ENDED DECEMBER 31, 1995
First Quarter...................................................................... $ 208.7 $ 62.5 $ 6.1
Second Quarter..................................................................... 240.3 66.1 5.6
Third Quarter...................................................................... 246.4 64.5 6.5
Fourth Quarter..................................................................... 247.5 67.0 8.0
</TABLE>
F-20
<PAGE>
UNOVA, INC.
COMBINED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
<S> <C> <C>
1997 1996
------------ -----------
Sales and Service Revenues.......................................................... $ 732,343 $ 504,471
------------ -----------
Costs and Expenses
Cost of sales..................................................................... 512,516 356,532
Selling, general and administrative............................................... 152,671 103,783
In-process research and development charge........................................ 203,300
Depreciation and amortization..................................................... 17,035 12,889
Interest--net..................................................................... 7,099 3,075
------------ -----------
Total Costs and Expenses............................................................ 892,621 476,279
------------ -----------
(Loss) Earnings before Taxes on Income.............................................. (160,278) 28,192
Taxes on Income..................................................................... (17,208) (11,277)
------------ -----------
Net (Loss) Earnings................................................................. $ (177,486) $ 16,915
------------ -----------
------------ -----------
Pro Forma Net (Loss) per Share...................................................... $ (3.29)
------------
------------
</TABLE>
See accompanying notes to combined financial statements.
F-21
<PAGE>
UNOVA, INC.
COMBINED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------- --------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current Assets
Cash and cash equivalents........................................................ $ 21,839 $ 149,467
Accounts receivable, net......................................................... 495,051 394,572
Inventories less progress billings............................................... 142,120 94,452
Deferred tax assets.............................................................. 95,365 53,636
Other current assets............................................................. 12,583 3,664
------------- --------------
Total Current Assets............................................................... 766,958 695,791
Property, Plant and Equipment, Net................................................. 152,523 132,508
Goodwill and Other Intangibles, Net................................................ 368,942 178,810
Other Assets....................................................................... 62,879 66,684
------------- --------------
Total Assets....................................................................... $ 1,351,302 $ 1,073,793
------------- --------------
------------- --------------
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable................................................................. $ 332,159 $ 242,168
Payrolls and related expenses.................................................... 65,740 50,567
Due to Western Atlas Inc......................................................... 228,244 109,574
Notes payable and current portion of long-term obligations....................... 57,400 27,461
------------- --------------
Total Current Liabilities.......................................................... 683,543 429,770
Long-term Obligations.............................................................. 17,267 14,507
Deferred Tax Liabilities........................................................... 16,770 22,727
Other Long-term Liabilities........................................................ 43,512 32,281
Commitments and Contingencies......................................................
Equity--Investment by Western Atlas Inc. .......................................... 590,210 574,508
------------- --------------
Total Liabilities and Equity....................................................... $ 1,351,302 $ 1,073,793
------------- --------------
------------- --------------
</TABLE>
See accompanying notes to combined financial statements.
F-22
<PAGE>
UNOVA, INC.
COMBINED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
<S> <C> <C>
1997 1996
------------ -----------
Cash and Cash Equivalents at Beginning of Period.................................... $ 149,467 $ 103,501
------------ -----------
Cash Flows from Operating Activities:
Net (loss) earnings............................................................... (177,486) 16,915
Adjustments to reconcile net (loss) earnings to net cash used in operating
activities:
Charge for in-process research and development costs.......................... 203,300
Depreciation and amortization................................................. 17,035 12,889
Deferred taxes................................................................ (834) (2,142)
Change in accounts receivable................................................. (15,297) (42,215)
Change in inventories......................................................... (4,224) (565)
Change in other current assets................................................ 4,767 (1,003)
Change in accounts payable.................................................... (28,958) (3,212)
Change in payrolls and related expenses....................................... 360 (12,374)
Other operating activities.................................................... (9,620) (2,444)
------------ -----------
Net cash used in operating activities............................................... (10,957) (34,151)
------------ -----------
Cash Flows from Investing Activities:
Acquisition of businesses, net of cash acquired................................... (377,546)
Capital expenditures.............................................................. (11,011) (9,464)
Other investing activities........................................................ 5,061 32
------------ -----------
Net cash used in investing activities............................................... (383,496) (9,432)
------------ -----------
Cash Flows from Financing Activities:
Net transactions with Western Atlas Inc........................................... 195,566 (17,944)
Due to Western Atlas Inc.......................................................... 118,670 305
Repayment of borrowings........................................................... (62,134)
Short-term obligations, net....................................................... 14,723 1,289
Other financing activities........................................................ (176)
------------ -----------
Net cash provided by (used in) financing activities................................. 266,825 (16,526)
------------ -----------
Resulting in Decrease in Cash and Cash Equivalents.................................. (127,628) (60,109)
------------ -----------
Cash and Cash Equivalents at End of Period.......................................... $ 21,839 $ 43,392
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to combined financial statements.
F-23
<PAGE>
UNOVA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
1. The amounts included in these interim financial statements are unaudited;
however in the opinion of management, all adjustments necessary for a fair
statement of results for the stated periods have been included. These
adjustments are of a normal recurring nature. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted. It is suggested that these consolidated financial statements be
read in conjunction with the audited financial statements and notes thereto
included in this information statement. The results of operations for the
six months ended June 30, 1997 are not necessarily indicative of operating
results for the entire year.
2. The Company acquired Norand Corporation ("Norand") on March 3, 1997, and
United Barcode Industries ("UBI") on April 4, 1997. Norand designs,
manufactures and markets mobile computing systems and wireless data
communications networks using radio frequency technology. UBI is a
European-based ADC company headquartered in Sweden, with fiscal 1996 sales
of approximately $100 million. These companies are currently being
integrated into the Automated Data Systems segment. Both transactions were
funded using a combination of WAI's committed credit facilities, short-term
uncommitted credit lines and excess cash, and are being accounted for under
the purchase method of accounting. Accordingly, the acquisition costs
(approximately $280 million and $107 million for Norand and UBI,
respectively) have been allocated to the net assets acquired based upon
their relative fair values. Such allocation resulted in $203 million
assigned to in-process research and development activities; $156 million
assigned to goodwill (to be amortized over 25 years using the straight-line
method); and $29 million assigned to other intangibles (to be amortized over
periods ranging from four to 18 years using the straight-line method).
During the period ended June 30, 1997, the Company expensed the amounts
assigned to in-process research and development projects that have not yet
achieved technological feasibility in accordance with Financial Accounting
Standards Board Interpretation No. 4. The Norand acquisition added increased
knowledge and capabilities in wireless data communication using radio
frequency ("RF") technology and mobile computing solutions for the logistics
markets. In the communications area, Norand brings advanced axis point and
docking station technology, communication software, product configuration
and ergonomics. This acquisition also expands the Company's offering in the
RF spread-spectrum technology. The mobile computing technology allows the
Company to enter the route accounting, meter reading, and field service
markets. Norand provides the Company with pen-based, hand-held computers
with desktop PC performance that is important to these markets. The UBI
acquistion provides two major product line technologies: bar code on-demand
printers with labels and ribbons, and hand-held scanners. UBI's printer
technology complements the Company's existing printer offerings with
low-end, low cost printers and high-end, high speed printers. UBI also
provides enhanced media-handling systems, such as linerless adhesive labels
and software. The scanner technology includes scanners based on
charge-coupled device ("CCD") technology, which is an alternative to laser
scanners in many applications. UBI also brings software that improves laser
scanning for one- and two-dimensional symbologies. In addition to the amount
charged to in-process research and development, the Company expects to
expend an additional $30 million over the next three years to develop these
technologies into commercially viable products. These expenditures include
engineering labor, material costs, overhead charges, and software
development, as well as general and administrative expenses.
F-24
<PAGE>
UNOVA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
The allocation of the acquisition cost of Norand and UBI is preliminary and
subject to revision upon receipt of pending information, such as final
assessment of certain legal and environmental exposures, and the completion
of certain appraisals. Any such revisions are not expected to have a material
impact on the Company's combined financial statements.
The following unaudited pro forma financial information for the Company
reflects the Norand acquisition as if it had occurred on January 1, 1996,
after giving effect to certain pro forma adjustments, including amortization
of goodwill and other intangibles, and interest associated with the increase
in allocated WAI debt. The 1997 pro forma information excludes the $203
million charge for acquired in-process research and development activities.
The unaudited pro forma information is not necessarily indicative of what
results would have been if the combination had occurred on the
above-mentioned date. Pro forma sales and services revenues, net earnings and
earnings per share for the six months ended June 30, 1997 are $769.1 million,
$21.2 million and $0.39, respectively. Pro forma sales and service revenues,
net earnings and earnings per share for the year ended December 31, 1996 are
$1,405.8 million, $27.9 million and $0.52, respectively.
The Company acquired the remaining 51% of Honsberg, a German machine tool
maker, in the second quarter of 1997. The original 49% of Honsberg was
acquired during 1995.
The fair values of Norand, UBI and Honsberg assets and liabilities at their
respective acquisition dates are presented below for supplemental cash flow
disclosure purposes:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
----------------------
<S> <C>
Current assets........................................................ $ 150,911
Net property, plant and equipment..................................... 22,820
Goodwill and other intangibles........................................ 193,943
Other non-current assets.............................................. 55,325
Total debt............................................................ (84,163)
Other current liabilities............................................. (142,349)
Other non-current liabilities......................................... (11,642)
In-process research and development................................... 203,300
----------
Purchase price...................................................... 388,145
Less: Cash acquired................................................... (10,599)
----------
Purchase price, net of cash acquired................................ $ 377,546
----------
----------
</TABLE>
F-25
<PAGE>
UNOVA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
3. Sales and service revenues and segment operating profit for the six months
ended June 30, 1997 (excluding the $203 million charge for acquired
in-process research and development described above) and 1996 were as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
<CAPTION>
(MILLIONS OF
DOLLARS)
<S> <C> <C>
SALES AND SERVICE REVENUES
Automated Data Systems................................................................. $ 282 $ 175
Industrial Automation Systems.......................................................... 450 329
--------- ---------
Total Sales and Service Revenues....................................................... $ 732 $ 504
--------- ---------
--------- ---------
SEGMENT OPERATING PROFIT
Automated Data Systems................................................................. $ 12 $ 13
Industrial Automation Systems.......................................................... 49 29
--------- ---------
Total Segment Operating Profit......................................................... $ 61 $ 42
--------- ---------
--------- ---------
</TABLE>
4. General and administrative costs include allocated charges from WAI of $9.1
million and $10.8 million for the six months ended June 30, 1997 and 1996,
respectively. Interest expense includes allocated charges from WAI of $6.3
million and $4.1 million for the six months ended June 30, 1997 and 1996,
respectively.
5. The components of inventory balances are summarized below:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------------- --------------
<S> <C> <C>
(THOUSANDS OF DOLLARS)
Raw materials and work in process............................................. $ 109,096 $ 100,078
Finished goods................................................................ 48,706 18,697
Less progress billings........................................................ (15,682) (24,323)
-------------- --------------
Net inventories............................................................... $ 142,120 $ 94,452
-------------- --------------
-------------- --------------
</TABLE>
6. Net interest expense is composed of the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------------
<S> <C> <C>
1997 1996
-------------- --------------
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Interest expense.............................................................. $ 9,264 $ 5,764
Interest income............................................................... (2,165) (2,689)
-------------- --------------
Net interest expense.......................................................... $ 7,099 $ 3,075
-------------- --------------
-------------- --------------
</TABLE>
F-26
<PAGE>
NORAND CORPORATION
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS OF NORAND CORPORATION
We have audited the accompanying consolidated balance sheet of Norand
Corporation (a Delaware corporation) and Subsidiaries as of August 31, 1996, and
the related consolidated statement of operations, stockholders' equity and cash
flows for the year ended August 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Norand Corporation and
Subsidiaries as of August 31, 1996, and the results of operations and cash flows
for the year ended August 31, 1996, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Chicago, Illinois
October 15, 1996 (except with respect to the matter discussed
in Note 7, as to which the date is November 20, 1996)
F-27
<PAGE>
NORAND CORPORATION
CONSOLIDATED BALANCE SHEET
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AUGUST 31, 1996
----------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................................... $ 3,604
Accounts receivable, net of allowances for doubtful accounts
and estimated sales returns of $9,278....................................................... 69,841
Inventories................................................................................... 33,565
Deferred tax assets........................................................................... 8,523
Prepaid expenses and other current assets..................................................... 8,011
----------------
Total current assets........................................................................ 123,544
Noncurrent assets:
Property, plant and equipment, net............................................................ 25,601
Deferred tax assets........................................................................... 9,318
Patents and intellectual properties, net...................................................... 6,157
Goodwill, net................................................................................. 3,112
Other noncurrent assets....................................................................... 4,333
----------------
Total assets................................................................................ $ 172,065
----------------
----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt............................................................................... $ 52,460
Accounts payable.............................................................................. 23,195
Accrued payroll and employee benefits......................................................... 9,809
Other accrued liabilities..................................................................... 33,449
Deferred income............................................................................... 10,418
----------------
Total current liabilities................................................................... 129,331
----------------
Stockholders' equity:
Common stock, $.01 par value: Authorized 15,000,000 shares;
issued and outstanding 7,664,535 shares..................................................... 77
Additional paid-in capital.................................................................... 75,237
Accumulated deficit........................................................................... (28,482)
Equity adjustment from foreign currency translation........................................... (4,098)
----------------
Total stockholders' equity.................................................................. 42,734
----------------
Total liabilities and stockholders' equity.................................................. $ 172,065
----------------
----------------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-28
<PAGE>
NORAND CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
AUGUST 31, 1996
------------------
<S> <C>
REVENUES:
Product sales revenue....................................................................... $ 193,249
Customer service revenue.................................................................... 42,251
----------
Total revenues............................................................................ 235,500
Cost of products and services................................................................. 141,744
----------
Gross profit.............................................................................. 93,756
OPERATING EXPENSES:
Product development and engineering expenses................................................ 22,898
Selling expenses............................................................................ 58,347
General and administrative expenses......................................................... 17,006
Restructuring charge........................................................................ 4,392
----------
Total operating expenses.................................................................. 102,643
----------
Loss from operations...................................................................... (8,887)
Interest and other expenses................................................................... 6,256
Litigation settlement......................................................................... 5,100
----------
Loss before income taxes.................................................................. (20,243)
Income tax benefit............................................................................ (6,073)
----------
Net loss.................................................................................. $ (14,170)
----------
----------
Net loss per common share..................................................................... $ (1.87)
----------
----------
Average number of common and common equivalent shares outstanding............................. 7,573,017
</TABLE>
See accompanying notes to the consolidated financial statements.
F-29
<PAGE>
NORAND CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
EQUITY
ADJUSTMENT
COMMON STOCK ADDITIONAL FROM FOREIGN
------------------------ PAID-IN ACCUMULATED CURRENCY
SHARES AMOUNT CAPITAL DEFICIT TRANSLATION
----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balances, August 31, 1995..................... 7,534,846 $ 75 $ 73,150 $ (14,312) $ (3,642)
Exercises of stock options.................... 129,689 2 2,087
Foreign currency translation.................. (456)
Net loss...................................... (14,170)
----------- --- ----------- ------------- -------------
Balances, August 31, 1996..................... 7,664,535 $ 77 $ 75,237 $ (28,482) $ (4,098)
----------- --- ----------- ------------- -------------
----------- --- ----------- ------------- -------------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-30
<PAGE>
NORAND CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
AUGUST 31, 1996
------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................................................... $ (14,170)
--------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation.............................................................................. 7,792
Amortization.............................................................................. 4,282
Amortization of deferred royalty income................................................... (1,877)
Deferred tax benefit...................................................................... (8,220)
Provision for doubtful accounts and sales returns......................................... 7,216
Changes in assets and liabilities:
Accounts receivable..................................................................... (8,171)
Inventories............................................................................. 3,323
Prepaid expenses and other assets....................................................... (3,101)
Deferred income......................................................................... 2,699
Accounts payable and accrued liabilities................................................ 8,018
Accrued restructuring, net.............................................................. 1,596
--------
Total adjustments..................................................................... 13,557
--------
Net cash used in operating activities................................................. (613)
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment.................................................. (10,183)
Additions to software, patents, and intellectual properties................................. (3,296)
--------
Net cash used in investing activities................................................. (13,479)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit agreement............................................... 12,565
Issuances of common stock................................................................... 2,089
Payments of refinancing expenses............................................................ (680)
--------
Net cash provided by financing activities............................................. 13,974
--------
Effect of exchange rate changes on cash....................................................... (87)
--------
Net decrease in cash and cash equivalents..................................................... (205)
--------
CASH AND CASH EQUIVALENTS:
Beginning of period......................................................................... 3,809
--------
End of period............................................................................... $ 3,604
--------
--------
Supplemental disclosures of cash flow information:
Interest paid on all debt obligations....................................................... $ 5,281
Net income taxes refunded................................................................... $ (1,591)
</TABLE>
See accompanying notes to the consolidated financial statements.
F-31
<PAGE>
NORAND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Norand designs, manufactures and markets mobile computing systems and wireless
data communications networks using radio frequency technology. Norand systems
allow businesses worldwide to apply information technology to industrial and
field automation settings. Typical applications include route accounting, field
sales automation, and inventory database management in manufacturing, warehouse
and retail settings. Norand provides hardware, application software, systems
integration and support to thousands of customers in dozens of industries to
improve accountability, productivity and management control.
2. ITALIAN SUBSIDIARY IRREGULARITIES
On September 25, 1995, the Company announced that it had discovered
irregularities during the course of the year-end audit at its Italian
subsidiary. At that time the managing director of the Italian subsidiary was
removed. The Company's investigation of the irregularities in its Italian
subsidiary continued following the initial announcement. The investigation
revealed a complex set of irregularities, which took place over a period of
time. The irregularities were facilitated by third parties, certain of which
were associated with the former managing director.
As a result of the investigation attributable to the Italian subsidiary, the
Company recorded in its 1995 and 1994 financial statements pretax charges and
costs related to sales returns, inventory losses, certain local taxes which may
not be recoverable, professional costs for the investigation, and the settlement
or anticipated settlement of numerous third party claims against the Italian
subsidiary. In total, after restatement for irregular sales and costs, pretax
charges and costs related to the irregularities included in the financial
statements amounted to $8.3 million in 1995 and $1.5 million in 1994.
The Company believes that a thorough investigation has been completed in order
to determine the aggregate losses due to the irregularities. The Company has
continued to pursue potential further recoveries from third parties and
insurance. Such potential recoveries have not been reflected in the accompanying
financial statements. During 1996, the Company settled numerous previously
identified third party claims for costs which approximated previous estimates.
No new claims have been presented that would have a material adverse financial
impact on the Company. Based upon the results of its investigation and the claim
settlements, the Company does not believe that the aggregate charges and
operating losses relating to these known facts and circumstances will materially
exceed the amount of recorded losses and costs already recorded. However, there
can be no assurances that additional third party claims will not be discovered
in future periods which will result in further losses related to this matter.
Such losses could be material to the consolidated results of operations in any
future period. Management does not believe that any such losses will be material
to the Company's consolidated financial position.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements have been prepared on a consolidated basis
to include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany amounts and transactions have been eliminated in
consolidation.
INVENTORIES
Inventories are stated at the lower of cost or market with cost determined on a
first-in, first-out basis.
F-32
<PAGE>
NORAND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation of plant and
equipment is provided over the estimated useful lives of the assets. Production
machinery and equipment (including molds and dies) is depreciated using the
units of production method. All other property, plant and equipment is
depreciated using the straight-line method. The ranges of the estimated useful
lives are as follows: buildings, ten to thirty years; machinery and equipment
and office furniture and equipment, three to ten years; computer equipment and
software purchased to support the Company's business processes, two to five
years; and leasehold improvements, the shorter of the useful lives of the assets
or the term of the leases. Costs of renewals and betterments are capitalized;
repairs and maintenance are expensed as incurred.
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes internal software development costs and qualifying
purchased product software, both of which are developed or acquired for sale to
the Company's customer. The Company capitalized internal software development
costs of $1.5 million in 1996. As of August 31, 1996, capitalized software
development costs, net of amortization were $3.7 million. The capitalization of
these costs begins when a product's economic and technological feasibility has
been established and ends when the product is available for general release to
customers. Amortization is computed on an individual product basis over a three
year period. Capitalized software development costs are included in other
noncurrent assets.
PATENTS AND INTELLECTUAL PROPERTIES
Patents include the direct costs of the patents and costs to maintain and
protect the patents. Patents are being amortized over the remaining lives of the
patents, a weighted average of approximately four years. Intellectual properties
include the direct costs of acquisition and are amortized over the useful lives
of the underlying technology, generally three to five years.
GOODWILL
Goodwill from the acquisition of Infolink Group Limited in August 1995, the
acquisition of the Company in October 1988, and other acquisitions, represents
the excess of cost over the fair value of net assets acquired and is being
amortized over 15 and 40 years, respectively, using the straight-line method.
The Company periodically reviews the value of its goodwill to determine if an
impairment has occurred. The Company bases its determination on the performance,
on an undiscounted basis, of the underlying businesses. Based on its review, the
Company does not believe that an impairment of its goodwill has occurred.
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of". The statement becomes effective in fiscal 1997. The
Company does not believe that the adoption of this statement will be material to
the Company's consolidated financial statements.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109. Deferred income taxes are recorded to reflect the
tax consequences on future years of
F-33
<PAGE>
NORAND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
differences between the basis of assets and liabilities for income tax and for
financial reporting purposes. In addition, the amount of any future tax benefits
are reduced by a valuation allowance until it is more likely than not that such
benefits will be realized.
Deferred income taxes have not been provided for any income tax liability which
could be incurred upon the repatriation of undistributed earnings of the
Company's consolidated foreign subsidiaries as the Company expects to
indefinitely reinvest these earnings outside the U.S. However, if the Company
were to repatriate the undistributed earnings of the consolidated foreign
subsidiaries, the potential income tax liability would not be material.
INCOME PER COMMON SHARE
The computation of primary and fully diluted earnings per share is based on the
weighted average number of common stock and common stock equivalent shares
outstanding during the period. Common stock equivalents consist primarily of
options outstanding under the Company's stock option plans and shares to be
purchased under the employee stock purchase plan.
FOREIGN CURRENCY TRANSLATION
The financial statements of foreign operations are translated into U.S. dollars
in accordance with Statement of Financial Accounting Standard No. 52.
Accordingly, all assets and liabilities are translated at year-end exchange
rates. The gains and losses that result from this process are shown in the
accumulated translation adjustment account in the shareholders' equity section
of the balance sheet. Operating transactions are translated at weighted average
rates during the year. Transaction gains and losses are reflected in net loss.
During 1996, the Company did not enter into foreign exchange forward contracts
or foreign exchange option contracts to hedge the effect of foreign currency
fluctuations on the financial statements.
REVENUE RECOGNITION
Revenues from product sales are generally recognized at the time of shipment of
the product. Revenues from customer service sales are recognized ratably over
the maintenance contract period or as the services are performed for repairs not
under warranty or maintenance contracts. Included in deferred income at August
31, 1996, is deferred maintenance revenue of $10.2 million.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RISKS AND UNCERTAINTIES
The Company is subject to various potential risks and uncertainties which
include, without limitation, continued pressures in the marketplace, the
Company's ability to realize the benefits of the implemented restructuring, the
future need for restructuring (see Note 11), the Company's ability to achieve
increased revenues from new products and achieve lower operating expenses as a
percent of revenues, the Company's ability to obtain debt financing, remain in
compliance with debt covenants and maintain
F-34
<PAGE>
NORAND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
liquidity (see Note 7). Additionally, the Company is subject to potential risks
and uncertainties related to foreign operations, the effect of technological
changes on the carrying value of inventories and specialized manufacturing
equipment, the estimated realization of deferred tax assets (see Note 8), the
potential for additional third party claims against the Company's Italian
subsidiary (see Note 2) and the possible adverse effects of certain pending
litigation (see Note 13). A summary discussion of risks and uncertainties is
included in Management's Discussion and Analysis of Financial Condition and
Results of Operations under the caption "Safe Harbor Statement."
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses included in the caption "Product development
and engineering expenses" in the consolidated statement of operations in the
fiscal year ended in 1996 are $18.5 million.
4. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market, and
consist of the following:
<TABLE>
<CAPTION>
AUGUST 31, 1996
----------------------
<S> <C>
(THOUSANDS OF DOLLARS)
Parts and materials................................................... $ 16,383
Work in process....................................................... 8,246
Finished goods........................................................ 5,382
Field service and sales supplies...................................... 3,554
--------
Total........................................................... $ 33,565
--------
--------
</TABLE>
F-35
<PAGE>
NORAND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NONCURRENT ASSETS
Noncurrent assets include the following:
<TABLE>
<CAPTION>
AUGUST 31, 1996
----------------------
<S> <C>
(THOUSANDS OF DOLLARS)
Property, plant and equipment:
Land................................................................ $ 225
Buildings........................................................... 3,394
Machinery and equipment............................................. 30,132
Office furniture and equipment...................................... 26,690
Leasehold improvements.............................................. 703
--------
Subtotal, at cost................................................... 61,144
Less accumulated depreciation....................................... 35,543
--------
Total, net........................................................ $ 25,601
--------
--------
Patents and intellectual properties................................... $ 10,786
Less accumulated depreciation and amortization........................ 4,629
--------
Total, net........................................................ $ 6,157
--------
--------
Goodwill.............................................................. $ 3,588
Less accumulated amortization......................................... 476
--------
Total, net........................................................ $ 3,112
--------
--------
</TABLE>
6. ACQUISITION
On August 8, 1995, the Company acquired all the outstanding stock of Infolink
Group Limited (Infolink), a distributor in Australia, for 9,817 shares of the
Company's common stock valued at $0.4 million. The acquisition was accounted for
using the purchase method. Accordingly, the purchase price was allocated to the
assets and liabilities acquired based on their estimated fair values. This
treatment resulted in approximately $1.3 million of estimated goodwill. The
goodwill is being amortized over fifteen years. The prior operations and
financial position of Infolink were not material.
7. SHORT-TERM DEBT
At August 31, 1995, the Company had $39.5 million of borrowings outstanding
under a credit facility (the "Agreement") with a group of lending banks. The
Agreement allowed for $60 million of maximum borrowings.
In October 1995, as a result of anticipated non-compliance with the Agreement,
the Company and the lending group amended and recollateralized the Agreement
resulting in an increase in the effective interest rate by 1.0 percent on LIBOR
borrowings and 0.5 percent on prime rate borrowings.
As a result of the losses for the year ended August 31, 1995 and losses for the
quarter ended December 2, 1995, the Company was not in compliance with certain
covenants under the amended Agreement. Borrowings under the amended Agreement to
fund operations and capital additions had increased to $57.4 million in early
December, 1995. Due to covenant violations, in December 1995, available
borrowings under the amended Agreement were frozen at $57.4 million.
F-36
<PAGE>
NORAND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SHORT-TERM DEBT (CONTINUED)
On January 25, 1996, the Company and the lending group amended and restated the
Agreement (the "Restated Agreement") wherein the lending group agreed to waive
any defaults under or violations of the Agreement occurring on or before January
25, 1996. The Restated Agreement provided for an amortizing term loan beginning
at $52.0 million and amortizing by $1.0 million per month beginning September
15, 1996 to $48.0 million on December 15, 1996, and up to $11.5 million in
borrowing base revolving loans. The Restated Agreement was limited to $63.5
million in aggregate borrowings. Obligations under the Restated Agreement were
to mature on December 31, 1996. The Company's obligations under the Restated
Agreement were secured by substantially all of the assets of the Company. The
effective interest rate, effective January 25, 1996, under the Restated
Agreement was the agent's alternate base rate (ABR) plus 1.75% for all
borrowings up to $57.4 million and ABR +2.75% for borrowings above $57.4
million. The Restated Agreement contained financial covenants, measured at
varying dates, including covenants relating to tangible net worth, capital
additions and cash flows. The Company paid a commitment fee at closing amounting
to 0.5% of the total facility.
At August 31, 1996, the Company had $52.0 million of borrowings outstanding
under the Restated Agreement. In November 1996, as a result of noncompliance
with certain covenants under the Restated Agreement due to losses incurred for
the year ended August 31, 1996, the Company and its lenders amended the Restated
Agreement (the "Amended and Restated Agreement") wherein the lending group has
agreed to waive any defaults under or violations of the Restated Agreement
occurring on or before August 31, 1996. The Amended and Restated Agreement
provides for maximum borrowings of $60.5 million. Maximum allowable borrowings
decline to $59.5 million on December 16, 1996 and then decline periodically over
the period to $48.25 million on September 15, 1997. Obligations under the
Amended and Restated Agreement will mature on September 30, 1997. Obligations
under the Amended and Restated Agreement will continue to be secured by
substantially all of the assets of the Company. No foreign currency borrowings
are permitted under the Amended and Restated Agreement. The effective interest
rate increases periodically September 15, 1996 to ABR plus 4% on December 31,
1996 for all borrowings. The Amended and Restated Agreement will continue to
contain financial covenants relating to tangible net worth, capital additions,
earnings and cash flows.
In addition to a fee amounting to $0.3 million which was paid on September 15,
1996 to maintain the aggregate borrowing capacity under the Restated Agreement,
the Company will be required to pay additional fees to maintain aggregate
borrowings under the Amended and Restated Agreement amounting to 0.1% of the
total facility due at closing, 0.1% of the total facility due monthly from
January 31, 1997 to April 30, 1997, and 0.25% of the total facility due June 30,
1997.
Concurrently with entering into the Amended and Restated Agreement, the Company
issued to its lending group Series A Warrants exercisable for an aggregate of
250,000 shares of the Company's common stock (the "Series A Warrants") and
Series B Warrants exercisable for an aggregate of 300,000 shares of the
Company's common stock (the "Series B Warrants"), in each case at an exercise
price of $21.15. The Series A Warrants and Series B Warrants are not exercisable
until May 31, 1997 and August 31, 1997, respectively, and may be repurchased by
the Company for an aggregate of one dollar ($1) for the Series A Warrants and an
aggregate of one dollar ($1) for the Series B Warrants in the event that, with
respect to each of the Class A Warrants and Class B Warrants, prior to such
dates, all indebtedness under the Amended and Restated Agreement has been repaid
in full. Additionally, with respect to the Series B Warrants, the Company may
repurchase such Warrants before August 31, 1997, for an aggregate of one dollar
($1) if it has received at least $20 million in net cash proceeds from
additional equity.
F-37
<PAGE>
NORAND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SHORT-TERM DEBT (CONTINUED)
The Company is currently seeking alternative sources of capital which will be
more advantageous to the Company. Management believes that they will be able to
replace the Amended and Restated Agreement with such sources during fiscal 1997.
As of August 31, 1996, the Company had borrowings outstanding at its Australian
subsidiary which amounted to $0.5 million.
The carrying amount for the short-term borrowing recorded in the financial
statements approximates fair value. The weighted average interest rate paid
under the above agreements was 11.57% in fiscal 1996. The average month-end
balance outstanding was $53.7 million in fiscal 1996. The maximum amount
outstanding in fiscal 1996 was $63.0 million.
8. INCOME TAXES
The components of loss before income taxes are:
<TABLE>
<CAPTION>
AUGUST 31, 1996
----------------------
<S> <C>
(THOUSANDS OF DOLLARS)
Domestic.............................................................. $ (19,748)
International......................................................... (495)
--------
$ (20,243)
--------
--------
</TABLE>
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
AUGUST 31, 1996
----------------------
<S> <C>
(THOUSANDS OF DOLLARS)
Current:
Federal............................................................. $ --
State............................................................... 87
Foreign............................................................. 2,060
--------
2,147
Deferred.............................................................. (8,220)
--------
Total............................................................... $ (6,073)
--------
--------
</TABLE>
F-38
<PAGE>
NORAND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
The income tax benefit differs from a benefit computed at the U.S. statutory
rate as follows:
<TABLE>
<CAPTION>
AUGUST 31, 1996
----------------------
<S> <C>
(THOUSANDS OF DOLLARS)
Statutory rate benefit................................................ $ (6,883)
State income taxes (net of federal benefit)........................... 57
Foreign income taxes.................................................. 688
Increase in valuation allowance....................................... 2,792
Research and development tax credit carryforwards..................... (2,615)
Refund from NOL carryback............................................. (2,323)
Additional reserves................................................... 1,213
Deemed dividend from subsidiary....................................... 820
Other................................................................. 178
--------
$ (6,073)
--------
--------
</TABLE>
The consolidated balance sheet includes the following:
<TABLE>
<CAPTION>
AUGUST 31, 1996
----------------------
<S> <C>
(THOUSANDS OF DOLLARS)
Current income tax payable:
Federal............................................................. $ 2,716
State and local..................................................... 86
Foreign............................................................. 5,201
--------
$ 8,003
--------
--------
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31, 1996
----------------------
<S> <C>
(THOUSANDS OF DOLLARS)
Net deferred tax assets (liabilities):
Capitalized software................................................ $ 2,874
Noncompete covenant................................................. 2,121
Domestic net operating loss......................................... 7,559
Foreign net operating losses........................................ 5,913
Depreciation and amortization....................................... (3,081)
Inventory obsolescence reserve and capitalization................... 1,832
Vacation accruals................................................... 1,154
Research and development tax credit carryforwards................... 3,827
AMT tax credit carryforwards........................................ 1,365
Deferred maintenance revenue........................................ 1,126
Other............................................................... 2,177
--------
Subtotal.............................................................. 26,867
Valuation allowance................................................... (9,026)
--------
Net deferred tax assets............................................... $ 17,841
--------
--------
</TABLE>
In March 1996, the Company effectively wrote off its investment in its Italian
subsidiary, for tax purposes, resulting in a net operating loss (NOL) which was
carried back to prior years. The NOL carryback
F-39
<PAGE>
NORAND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
generated a $2.3 million refund. The Company has determined that based on its
domestic profitability, that it is more likely than not (except for certain
foreign NOLs which expire in the years 2000 and 2001 and remaining research and
development tax credits) that recorded deferred tax assets will be realized in
future periods. In 1996, the Company increased the deferred tax asset valuation
allowance to offset the increase in certain foreign NOLs and research and
development tax credits. The Company also provided additional reserves for
income taxes related to fiscal years which remain subject to potential
examination of respective taxing jurisdictions. Income taxes payable are
included in other current liabilities.
9. EMPLOYEE BENEFIT PLANS
Employees of the Company who meet certain eligibility requirements can
participate in the Company's 401(k) Savings and Investment Plan. Under the Plan,
the Company may, at its discretion, match the employee contributions. The
Company recorded expenses related to its matching contributions for fiscal 1996
of $1.2 million.
In 1994, the Company established the Norand Employee Stock Purchase Plan (the
Plan) which enables eligible employees to purchase the Company's common stock at
85% of its fair market value. The fair market value of the common stock used to
determine the purchase price is based on the lower of the closing price of the
stock on the first or last business day of the Plan year which ends on December
31. Employee contributions, which are made through payroll deductions throughout
the Plan year, are limited to 10 percent of total compensation. In March 1996,
77,984 shares were purchased under the Plan. The Company has an additional
440,282 shares reserved for future issuance under its Employee Stock Purchase
Plan.
10. LEASE COMMITMENTS
The Company is obligated as lessee under certain noncancelable operating leases
for office space and its manufacturing facility, and is also obligated to pay
insurance, maintenance and other operating costs associated with the leases. The
leases have various renewable options and terms. Rent expense under these
operating leases was $2.9 million in 1996.
Future minimum annual lease payments as of August 31, 1996, under agreements
classified as operating leases with noncancelable terms in excess of one year
are as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
----------------------
<S> <C>
1997.................................................................. $ 2,503
1998.................................................................. 1,752
1999.................................................................. 1,083
2000.................................................................. 670
2001 and thereafter................................................... 510
--------
Total............................................................... $ 6,518
--------
--------
</TABLE>
11. RESTRUCTURING
During the second quarter of 1996, the Company recorded a charge of $5.2 million
($3.6 million after-tax) related to a company-wide restructuring of operations.
The restructuring charge was reduced by $0.8
F-40
<PAGE>
NORAND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. RESTRUCTURING (CONTINUED)
million in the fourth quarter as a result of favorable experience compared to
previous cost estimates. The restructuring charge included $3.7 million for
severance and other costs related to reductions in the Company's domestic and
international workforce and $0.7 million for lease exit costs associated with
the closing or consolidating of certain facilities. The Company believes that
annual cost savings resulting from the restructuring charge will be in excess of
these charges. However, no assurances can be given as to the actual extent of
any savings or improvements that might be realized or that additional actions
and additional charges against earnings might not occur in the future. As of
August 31, 1996, approximately $1.6 million of the charge has not yet been
expended. The Company expects to expend the remaining balance, comprised
primarily of amounts due in installments under severance and lease agreements,
in fiscal 1997.
12. STOCK OPTIONS
The Company has three stock option plans for its officers, directors and other
key employees. The options under the plans generally become exercisable in equal
installments over a three-to five-year period commencing on the first
anniversary date after the date of grant and quarterly thereafter. Options
canceled due to terminations or expiration of exercise period are returned to
the pool of options available to be granted. The exercise price is equal to the
market price for the Company's common stock on the date of grant and ranges from
$1.10 to $45.25.
The following is a summary of the activity in the Company's common stock option
plans for the year ended August 31, 1996 and the outstanding balance of options
issued:
<TABLE>
<CAPTION>
AVERAGE
PRICE PER
SHARES SHARE
----------- -----------
<S> <C> <C>
August 31, 1995.................................................... 723,457 $ 25.41
Granted.......................................................... 556,215 16.63
Exercised........................................................ (43,785) 16.34
Canceled......................................................... (171,447) 25.75
----------- -----------
August 31, 1996.................................................... 1,064,440 $ 21.19
----------- -----------
----------- -----------
</TABLE>
At August 31, 1996, there were 297,319 shares exercisable and 1,552,278 shares
reserved for issuance under the above option plans.
In October 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock Based Compensation." This statement becomes effective
in fiscal 1997 and will require the Company to change its disclosures relating
to stock options. The Company currently does not intend to change its accounting
for stock options.
13. LITIGATION
In October 1995, two class action complaints were filed against the Company and
certain of its officers in United States District Court in Cedar Rapids, Iowa,
seeking unspecified damages on behalf of a purported class of purchasers of
Norand stock on the ground that the defendants violated the federal
F-41
<PAGE>
NORAND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. LITIGATION (CONTINUED)
securities laws by allegedly making materially false and misleading statements
concerning the Company's results of operations and future prospects during the
period from March 20, 1995 until September 25, 1995. On November 24, 1995, a
third lawsuit was filed in the same court raising substantially the same claims
on behalf of a broader purported class of purchasers of Norand stock.
All three lawsuits were consolidated under the caption In re Norand Corporation
Securities Litigation (Master File No. C 95-323). On December 23, 1995, a single
amended and consolidated complaint was filed in the consolidated action,
superseding all previous pleadings. The complaint was filed on behalf of a
purported class consisting of purchasers of Norand stock from September 26, 1994
through November 17, 1995, and named as defendants the Company, five of its
present or former senior officers, and Arthur Andersen LLP, the Company's
independent public accountant. The consolidated complaint alleged, among other
things, that the Norand defendants materially overstated the Company's revenues
and earnings by improperly recording sales in its Italian subsidiary and misled
the market by failing to disclose alleged problems with certain of its products
that affected its revenues in the fourth quarter of fiscal 1995.
On August 28, 1996, the Company announced that it had signed an agreement to
settle the consolidated complaint and secure releases for all of the defendants
with the exception of Arthur Andersen. The Company believes its officers and
directors acted properly regarding this matter and denies any wrongdoing.
Nevertheless, the Company feels it is in the best interest of the Company and
its shareholders to settle the matter and devote management time and energy to
running the business.
The settlement, which calls for the payment of $4.5 million in cash and $4.5
million worth of Norand stock, is subject to approval by the District Court,
following notice to the class and a hearing on the fairness of the settlement.
That hearing is scheduled for December 19, 1996. The cash portion of the
settlement is covered by insurance. The Company has the option to pay $4.5
million in cash instead of issuing the stock.
The settlement resulted in a fourth quarter charge of $4.8 million including
additional legal costs related to the portion of the settlement not covered by
insurance. The Company had previously accrued $0.3 million in the first quarter
for related legal costs.
The Company is also subject to certain legal proceedings and claims which have
arisen in the ordinary course of its business and have not been finally
adjudicated. In management's opinion, the ultimate resolution of these matters
will not be material to the Company's consolidated financial position or results
of operations.
14. BUSINESS SEGMENT DATA
The Company's operations consist of a single business segment which designs,
develops, manufactures, markets and services hand-held data communication
computer systems. The Company does not believe it is dependent upon any one
customer or group of customers. Transfers between geographic
F-42
<PAGE>
NORAND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. BUSINESS SEGMENT DATA (CONTINUED)
areas were at cost plus a negotiated mark-up. Sales and selected financial
information by geographic area for the fiscal year ended August 31, 1996 were as
follows:
<TABLE>
<CAPTION>
UNITED STATES INTERNATIONAL ELIMINATIONS CONSOLIDATED
---------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
(THOUSANDS OF DOLLARS)
Revenues................................ $ 203,282 $ 57,397 $ (25,179) $ 235,500
Loss from operations.................... (8,008) (809) (70) (8,887)
Interest and other expenses............. (6,256)
Litigation settlement................... (5,100)
Loss before income taxes................ (20,243)
Identifiable assets..................... 138,058 34,007 172,065
</TABLE>
A substantial portion of the Company's international operations is in Europe.
Other geographic areas of operations include Canada, Mexico, Australia and
Japan. International operating income does not include the expenses of corporate
administration. International identifiable assets are principally trade
receivables and inventories. United States revenue includes export sales of
$8,217 in 1996, and also includes transfers between geographic areas which are
eliminated.
15. SELECTED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth unaudited quarterly financial information for the
year ended August 31, 1996:
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
----------------- -------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
(THOUSANDS OF DOLLARS)
Total revenues.................. $ 49,806 $ 56,032 $ 60,216 $ 69,446
Gross profit.................... 18,840 20,943 25,901 28,072
Income (loss) from operations... (5,507) (9,351) 2,823 3,148
Net income (loss)............... (4,843) (7,721) 789 (2,395)
Primary earnings per share...... (0.63) (1.02) 0.10 (0.32)
Fully diluted earnings per
share......................... (0.63) (1.02) 0.10 (0.32)
</TABLE>
16. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
The analysis of the allowance for doubtful accounts and estimated sales returns
is as follows:
<TABLE>
<CAPTION>
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR
--------------- --------------- ------------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Year ended August 31, 1996..... $ 6,423 $ 7,216 $ 0 $ 4,361 $ 9,278
</TABLE>
Deductions include doubtful accounts charged off, net of recoveries, including
recoverable cost of returned equipment.
F-43
<PAGE>
NORAND CORPORATION
CONSOLIDATED BALANCE SHEET
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 1, 1997
--------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................................................... $ 1,682
Accounts receivable, net........................................................................ 48,180
Inventories..................................................................................... 38,686
Deferred tax assets............................................................................. 12,754
Prepaid expenses and other current assets....................................................... 12,117
--------------
Total current assets........................................................................ 113,419
Noncurrent assets:
Property, plant and equipment, net.............................................................. 25,196
Deferred tax assets............................................................................. 9,318
Patents and intellectual properties, net........................................................ 5,685
Goodwill, net................................................................................... 3,036
Other noncurrent assets......................................................................... 4,399
--------------
Total assets................................................................................ $ 161,053
--------------
--------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt................................................................................. $ 45,238
Accounts payable................................................................................ 19,344
Accrued payroll and employee benefits........................................................... 11,599
Other accrued liabilities....................................................................... 31,026
Deferred income................................................................................. 11,146
--------------
Total current liabilities................................................................... 118,353
--------------
Stockholders' equity:
Common stock.................................................................................... 82
Additional paid-in capital...................................................................... 82,923
Accumulated deficit............................................................................. (35,726)
Equity adjustment from foreign currency translation............................................. (4,579)
--------------
Total stockholders' equity.................................................................. 42,700
--------------
Total liabilities and stockholders' equity.................................................. $ 161,053
--------------
--------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-44
<PAGE>
NORAND CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
<S> <C> <C>
MARCH 1, 1997 MARCH 2, 1996
-------------- --------------
REVENUES:
Product sales revenue.......................................................... $ 79,198 $ 84,364
Customer service revenue....................................................... 21,899 21,474
-------------- --------------
Total revenues............................................................... 101,097 105,838
Cost of products and services.................................................... 59,541 66,055
-------------- --------------
Gross profit................................................................... 41,556 39,783
OPERATING EXPENSES:
Product development and engineering expenses................................... 11,306 12,584
Selling expenses............................................................... 28,287 27,346
General and administrative expenses............................................ 8,921 15,011
-------------- --------------
Total operating expenses..................................................... 48,514 54,941
-------------- --------------
Loss from operations......................................................... (6,958) (15,158)
Interest and other expenses...................................................... 3,389 2,791
-------------- --------------
Loss before income taxes....................................................... (10,347) (17,949)
Income tax benefit............................................................... (3,104) (5,385)
-------------- --------------
Net loss....................................................................... $ (7,243) $ (12,564)
-------------- --------------
-------------- --------------
Net loss per common share........................................................ $ (0.91) $ (1.67)
-------------- --------------
-------------- --------------
Average number of common and common
equivalent shares outstanding.................................................. 7,916,538 7,543,628
</TABLE>
See accompanying notes to consolidated financial statements.
F-45
<PAGE>
NORAND CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
<S> <C> <C>
MARCH 1, 1997 MARCH 2, 1996
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................................... $ (7,243) $ (12,564)
------- --------------
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation................................................................. 3,532 3,286
Amortization................................................................. 2,001 1,949
Amortization of deferred royalty income...................................... (1,210)
Deferred tax benefit......................................................... (4,231) (5,385)
Provision for doubtful accounts and sales returns............................ 2,471 1,717
Changes in assets and liabilities:
Accounts receivable........................................................ 17,918 4,876
Inventories................................................................ (5,566) 3,623
Prepaid expenses and other assets.......................................... (4,162) (1,580)
Deferred income............................................................ 729 1,125
Accounts payable and accrued liabilities................................... (2,390) (7,971)
Accrued reorganization..................................................... (362) 4,844
------- --------------
Total adjustments........................................................ 9,940 5,274
------- --------------
Net cash provided by (used in) operating activities...................... 2,697 (7,290)
------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment..................................... (3,320) (6,293)
Additions to software, patents, and intellectual properties.................... (1,029) (1,905)
------- --------------
Net cash used in investing activities.................................... (4,349) (8,198)
------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit agreement.................................. (7,215) 14,612
Issuances of common stock...................................................... 7,691 1,264
Payments of refinancing expenses............................................... (595) (635)
------- --------------
Net cash (used in) provided by financing activities...................... (119) 15,241
------- --------------
Effect of exchange rate changes on cash.......................................... (151) (64)
------- --------------
Net decrease in cash and cash equivalents........................................ (1,922) (311)
------- --------------
CASH AND CASH EQUIVALENTS:
Beginning of period.......................................................... 3,604 3,809
------- --------------
End of period................................................................ $ 1,682 $ 3,498
------- --------------
------- --------------
Supplemental disclosures of cash flow information:
Interest paid on all debt obligations........................................ $ 2,917 $ 2,554
Net income taxes paid........................................................ -- $ 889
</TABLE>
See accompanying notes to the consolidated financial statements.
F-46
<PAGE>
NORAND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 1, 1997
(UNAUDITED)
1. The amounts included in these consolidated financial statements are
unaudited; however, in the opinion of management, all adjustments necessary for
a fair statement of results for the stated period have been included. These
adjustments are of a normal recurring nature. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted. It
is suggested that these condensed consolidated financial statements be read in
conjunction with the audited financial statements and notes thereto included in
this information statement. The results of operations for the six months ended
March 1, 1997 are not necessarily indicative of operating results for the entire
year.
2. The components of the inventory balance are summarized below:
<TABLE>
<CAPTION>
MARCH 1, 1997
----------------------
<S> <C>
(THOUSANDS OF DOLLARS)
Parts and materials................................................... $ 17,958
Work in progress...................................................... 2,727
Finished goods........................................................ 14,163
Field service and sales supplies...................................... 3,838
--------
Total................................................................. $ 38,686
--------
--------
</TABLE>
F-47
<PAGE>
ANNEX A
UNOVA, INC.
DIRECTOR STOCK OPTION AND FEE PLAN
1. PURPOSE. The UNOVA, Inc. Director Stock Option and Fee Plan (the "Plan") is
intended to provide an incentive to members of the board of directors of UNOVA,
Inc., a Delaware corporation (the "Company"), who are neither officers nor
employees of the Company, to remain in the service of the Company and increase
their efforts for the success of the Company and to encourage such directors to
own shares of the Company's stock, thereby aligning their interests more closely
with the interests of the Company's shareholders. The Plan is also intended to
assist the Company in attracting experienced and qualified candidates to become
members of the Board. The Plan is being adopted in connection with the
distribution (the "Distribution") of the shares of the common stock of the
Company to the shareholders of Western Atlas Inc.
2. DEFINITIONS.
(a) "Board" means the Board of Directors of the Company.
(b) "Cash Account" means the bookkeeping account established by the
Company for the deferrals of Fees by Directors which will be credited with
interest pursuant to Section 6(d) hereof.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Common Stock" means the common stock, par value $.01 per share, of
the Company.
(e) "Deferral Election" means an election pursuant to Section 6 hereof
to defer receipt of Fees into a Share Account or Cash Account.
(f) "Deferred Amounts" mean the amounts credited to a Director's Share
Account or Cash Account pursuant to a Deferral Election or otherwise
pursuant to Section 6(h).
(g) "Director" means a member of the Board who is neither an officer nor
an employee of the Company. A director of the Company shall not be deemed to
be an employee of the Company solely by reason of the existence of a
consulting contract between such director and the Company or any subsidiary
thereof pursuant to which the director agrees to provide consulting services
as an independent consultant to the Company or its subsidiaries on a regular
or occasional basis for a stated consideration. The term "Director" as used
in this Plan shall include any person who may hereafter become an advisory
director of the Company, as that term is used in the Company's By-laws.
(h) "Distribution" shall have the meaning set forth in Section 1 hereof.
(i) "Distribution Date" means the date on which the Distribution is
effected.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(k) "Fair Market Value" means, as of any given date, the mean between
the highest and lowest reported sales prices of the Common Stock on the New
York Stock Exchange Composite Tape or, if not listed on such exchange, on
any other national securities exchange on which the Common Stock is listed
or on NASDAQ. If there is no regular public trading market for such Common
Stock, the Fair Market Value of the Common Stock shall be determined by the
Board in good faith.
(l) "Fees" mean the annual retainer scheduled to be paid to a Director
for the calendar year, additional annual fees scheduled to be paid for
serving as chairman of a Board committee and fees scheduled to be paid for
attendance at Board or committee meetings.
(m) "Share Account" means the bookkeeping account established by the
Company for the deferrals of Fees by Directors which will be credited with
Share Units pursuant to Section 6(a) hereof.
A-1
<PAGE>
(n) "Share Election" means the election by a Director to receive shares
of Common Stock in lieu of Fees as set forth in Section 5(a) hereof.
(o) "Share Unit" means a share of Common Stock credited as a bookkeeping
entry to a Director's Share Account. Each Share Unit shall represent the
right to receive one share of Common Stock.
3. ADMINISTRATION OF THE PLAN. Subject to the express provisions of the Plan,
the Board will have complete authority to interpret the Plan; to prescribe,
amend, and rescind rules and regulations relating to the Plan; to determine the
terms and provisions of the respective option agreements (which need not be
identical); and to make all other determinations necessary or advisable for the
administration of the Plan. The Board's determination on the matters referred to
in this Section 3 shall be conclusive.
4. STOCK RESERVED FOR THE PLAN. The number of shares of Common Stock authorized
for issuance under the Plan is 500,000, subject to adjustment pursuant to
Section 10 hereof. Shares of Common Stock delivered hereunder may be either
authorized but unissued shares or previously issued shares reacquired and held
by the Company.
5. TERMS AND CONDITIONS OF SHARE ELECTIONS.
(a) SHARE ELECTION. Subject to Section 5(c) hereof, each Director may make
an annual election (the "Share Election") to receive in the form of Common Stock
(subject to a Deferral Election) any or all of his or her Fees earned in each
calendar year; PROVIDED, that such Share Election must be made with respect to
at least 50% of the Director's Fees, in multiples of 10%. The shares of Common
Stock (and cash in lieu of fractional shares) issuable pursuant to a Share
Election shall be transferred quarterly in accordance with Section 5(b) hereof.
The Share Election must be in writing and delivered to the Secretary of the
Company on or prior to January 1 of the calendar year in which the applicable
Fees are to be earned; PROVIDED, HOWEVER, that any Director who commences
service on the Board subsequent to January 1 of a calendar year may make a Share
Election during the thirty-day period immediately following the commencement of
his or her directorship. Notwithstanding the foregoing, Share Elections for 1997
shall be effective if made prior to the Distribution Date. A Share Election,
once made, shall be irrevocable for the calendar year with respect to which it
is made and shall remain in effect for future calendar years unless modified or
revoked by a subsequent Share Election in accordance with the provisions hereof.
(b) TRANSFER OF SHARES. Shares of Common Stock issuable to a Director with
respect to Share Elections shall be transferred to such Director on the first
business day following the end of each calendar quarter. The total number of
shares of Common Stock to be so transferred shall be determined by dividing (x)
the dollar amount of the Director's Fees for the preceding calendar quarter (for
1997, the portion of the final calendar quarter following the Distribution Date)
to which the Share Election applies, by (y) the average of the Fair Market Value
of Common Stock on each trading date of such calendar quarter. In no event shall
the Company be required to issue fractional shares. In the event that a
fractional share of Common Stock would otherwise be required to be issued, an
amount in lieu thereof shall be paid in cash based upon the Fair Market Value of
such fractional share on the last business day of the preceding calendar
quarter.
(c) TERMINATION OF SERVICES. If a Director ceases to be a Board member
before the end of a calendar quarter, the Director shall receive in cash the
Fees such Director would otherwise have been entitled to receive for such
quarter in the absence of this Plan.
6. TERMS AND CONDITIONS OF DEFERRAL ELECTIONS.
(a) IN GENERAL. Each Director may irrevocably elect annually to defer
receiving all or a portion of (i) the shares of Common Stock that would
otherwise be transferred upon a Share Election or (ii) such Director's Fees in
respect of a calendar year (for 1997, the portion of the calendar year following
the Distribution Date) that are not subject to a Share Election (a "Deferral
Election"). A Director who has made a Deferral Election with respect to shares
of Common Stock subject to a Share Election shall have the amount of shares of
Common Stock that are the subject of the Deferral Election credited to a Share
Account in the form of Share Units. A Director who has made a Deferral Election
with respect to Fees that are not subject to a Share Election shall have the
amount of Deferred Fees credited to a Cash Account.
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(b) TIMING OF DEFERRAL ELECTION. The Deferral Election shall be in writing
and delivered to the Secretary of the Company prior to January 1 of the calendar
year in which the applicable Fees are to be earned; PROVIDED, HOWEVER, that a
Director who commences service on the Board subsequent to January 1 of a
calendar year may make a Deferral Election during the thirty-day period
immediately following the commencement of his or her directorship.
Notwithstanding the foregoing, Deferral Elections for 1997 shall be effective if
made prior to the Distribution Date. A Deferral Election, once made, shall be
irrevocable for the calendar year with respect to which it is made and shall
remain in effect for future calendar years unless modified or revoked by a
subsequent Deferral Election in accordance with the provisions hereof.
(c) SHARE ACCOUNTS. Each Share Account shall be deemed to be invested in
shares of Common Stock. Whenever regular cash dividends are paid by the Company
on outstanding Common Stock, there shall be credited to the Director's Share
Account additional Share Units equal to (i) the aggregate dividend that would be
payable on outstanding shares of Common Stock equal to the number of Share Units
in such Share Account on the record date for the dividend, divided by (ii) the
Fair Market Value of the Common Stock on the payment date of the dividend.
(d) CASH ACCOUNTS. Each Director's Cash Account shall be credited with
interest on the last day of each calendar quarter calculated on the basis of the
average daily balance in the Cash Account during the calendar quarter. The
interest rate for any calendar quarter shall be the prime rate as reported by
Morgan Guaranty Trust Company of New York as its prime rate on the first
business day of the calendar quarter.
(e) COMMENCEMENT OF PAYMENTS. Except as otherwise provided in Sections 6(g)
hereof, a Director's Deferred Amounts shall become payable in the January
following the year in which the Director terminates service as a Director.
Payments from a Share Account shall be made by converting Share Units into
Common Stock on a one-for-one basis, with payment of fractional shares to be
made in cash based upon the Fair Market Value of such fractional share on the
last business day of the preceding calendar quarter.
(f) TIMING OF PAYMENTS. Each Director shall elect in his or her Deferral
Election to receive payment of his or her Deferred Amounts either in a lump sum
or in two to fifteen substantially equal annual installments. In the event of a
Director's death, payment of the remaining portion of the Director's Deferred
Amounts will be made to the Director's beneficiary (or, if no beneficiary has
been designated, to the Director's estate or other legal representative) in a
lump sum as soon as practicable following the Director's death.
(g) HARDSHIP DISTRIBUTION. Notwithstanding any Deferral Election, in the
event of severe financial hardship to a Director resulting from a sudden and
unexpected illness, accident or disability of the Director or other similar
extraordinary and unforeseeable circumstances arising as a result of events
beyond the control of the Director, all as determined by the Board, a Director
may withdraw any portion of the Share Units in his or her Share Account (in an
equivalent number of shares of Common Stock) or cash in his or her Cash Account
by providing written notice to the Secretary of the Company.
(h) NO ACCOUNT TRANSFERS. Except as provided in this Section 6(h), a
Director may not transfer or convert a Share Account to a Cash Account or vice
versa. Any current Director participating in the Western Atlas Inc. Deferred
Compensation Plan for Directors (the "Western Atlas Plan") as of the
Distribution Date or receiving a lump sum payment under the Western Atlas
retirement program for non-employee directors as a result of the Distribution (a
"Retirement Payout"), shall automatically have his or her account balance in the
Western Atlas Plan and Retirement Payout, as the case may be, converted into an
account balance in the Cash Account under the Plan. Any such Director may
convert all or a portion of his or her deferred fee account balance in the
Western Atlas Plan and Retirement Payout, as the case may be, to a Share Account
under the Plan, in lieu of a Cash Account, by giving written notice of an
irrevocable election to do so to the Secretary of the Company no later than the
Distribution Date. Such election shall be effective on the tenth business day
following the Distribution Date (the "Transfer Date"), and such Director's Share
Account shall be credited as of the Transfer Date with a number of Share Units
equal to (a) the portion of the deferred fee account and/or Retirement Payout
subject to the Share Account election divided by (b) the average of the Fair
Market Value of Common Stock on the sixth through tenth trading days, inclusive,
following the Distribution Date. To the extent such an election to transfer the
deferred fee account balance in the Western Atlas Plan or the Retirement Payout
into the
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Share Account is not made, the remaining balance of the Director's deferred fee
account in the Western Atlas Plan or Retirement Payout, to the extent
applicable, shall be transferred into the Cash Account under the Plan effective
as of the Distribution Date. Prior to the Distribution Date, any Director
subject to this Section 6(h) shall make an election (as described in Section
6(f)) with respect to the timing of the payouts of the Deferred Amounts under
this Section 6(h).
(i) STATUS OF ACCOUNTS. The Share and Cash Accounts shall not be funded,
and all Deferred Amounts shall be held in the general assets of the Company and
be subject to the general creditors of the Company.
7. STOCK OPTIONS.
(a) INITIAL GRANT. Effective as of the Distribution Date, each Director
shall be granted an option to purchase 25,000 shares of Common Stock (the
"Initial Grant"). The option price per share for the Initial Grant shall equal
the average of the Fair Market Value of Common Stock on the sixth through tenth
trading days, inclusive, following the Distribution Date.
(b) SUBSEQUENT GRANTS. Each person who first becomes a Director after the
Distribution Date, shall be granted an option to purchase 25,000 shares of
Common Stock as of the date such person is elected or is appointed as a
Director; PROVIDED, that no such grant shall be made to any Director who either
(i) received a stock option grant under the Company's 1997 Stock Incentive Plan
during the two-year period immediately preceding the date of such election or
appointment to the Board or (ii) was an employee of the Company or a subsidiary
of the Company at any time during the two-year period referred to in (i) above.
Grants under this Section 7(b) shall be in addition to any annual grants of
options under Section 7(c) hereof.
(c) ANNUAL GRANTS. Commencing in 1999, an option to purchase 2,500 shares of
Common Stock shall be granted to each Director automatically on the first
business day following the Company's Annual Meeting of Shareholders for such
year.
(d) OPTION PRICE PER SHARE. Options granted under Sections 6(b) and 6(c)
hereof shall be exercisable at a price per share equal to the Fair Market Value
of the Common Stock on the date of the grant of the option.
(e) PERIOD OF OPTION. Each option granted under the Plan shall become
exercisable on the first anniversary of the date upon which it is granted;
PROVIDED, HOWEVER, that all options granted pursuant to the Plan shall become
exercisable in full upon the first to occur of (i) the retirement of the
Director in accordance with the mandatory retirement policy for members of the
Board, (ii) the total and permanent disability of the Director, or (iii) the
death of the Director while a member of the Board. Each option granted pursuant
to the Plan shall remain exercisable until the expiration of three years
following the first to occur of the retirement or resignation of the optionee as
a director of the Company (or the failure of the optionee to be re-elected a
director of the Company), the total and permanent disability of the optionee, or
the death of the optionee.
(f) EXERCISE OF OPTIONS. Options may be exercised only by written notice to
the Company at its corporate office accompanied by payment of the full
consideration for the shares as to which they are exercised. The purchase price
is to be paid in full to the Company upon the exercise of the option (i) by
cash, including a personal check payable to the order of the Company, or (ii) by
delivering Common Stock already owned by the optionee for a period of at least
six months (valued at Fair Market Value as of the date of delivery), or (iii)
any combination of cash and Common Stock so valued.
(g) NONSTATUTORY OPTIONS. No option granted hereunder shall constitute an
"incentive stock option" as that term is defined in the Code.
8. MODIFICATION, EXTENSION, AND RENEWAL OF OPTIONS. The Board shall have the
power to modify, extend, or renew outstanding options and authorize the grant of
new options in substitution therefor, provided that such power may not be
exercised in a manner which would (i) alter or impair any rights or obligations
of any option previously granted without the written consent of the optionee or
(ii) adversely affect the qualification of the Plan or any other stock-related
plan of the Company under Rule 16b-3 under the Exchange Act, as amended.
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9. LIMITATION OF RIGHTS.
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor the granting
of an option or the making of a Share Election or Deferral Election, or any
other action taken pursuant to the Plan, shall constitute or be evidence of any
agreement or understanding, express or implied, that the Company will retain a
Director for any period of time, or at any particular rate of compensation.
(b) NO SHAREHOLDERS' RIGHTS. An optionee or a Director who has made a Share
Election or Deferral Election (or his or her representative) shall have no
rights as a shareholder with respect to the shares covered by his or her options
or Share Election or to any Share Units with respect to a Deferral Election
until the date of the actual issuance to him or her (or such representative) of
shares of Common Stock (either through the Company's Direct Registration System
or by certification) and, subject to Sections 6(c) and 10 hereof, no adjustment
will be made for dividends or other rights for which the record date is prior to
the date such shares are issued.
10. EFFECT OF CERTAIN CHANGES IN CAPITALIZATION. In the event of any change in
corporate capitalization (such as a stock split), any corporate transaction
(such as any merger, consolidation or separation (including a spin-off)), any
other distribution of stock or property of the Company, any reorganization
(whether or not such reorganization comes within the definition of such term in
Section 368 of the Code) or any partial or complete liquidation of the Company,
the Board shall equitably adjust the Share Account to reflect any such
transaction, and shall make such substitution or adjustments in the aggregate
number and kind of shares reserved for issuance under the Plan, in the number,
kind and option price of shares subject to outstanding options, in the number
and kind of shares subject to automatic option grants under Section 6 and/or
such other equitable substitution or adjustments in the terms of options as it
may determine to be appropriate in its sole discretion; PROVIDED, HOWEVER, that
the number of shares subject to any option shall always be a whole number.
11. CHANGE IN CONTROL. (a) For purposes of the Plan, a "Change in Control"
shall mean the occurrence of any of the following events:
(i) an acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 30% or more of either (1) the then outstanding shares of
common stock of the Company (the "Outstanding Company Common Stock") or (2)
the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); excluding, however, the following
acquisitions of Outstanding Company Common Stock and Outstanding Company
Securities: (1) any acquisition directly from the Company, other than an
acquisition by virtue of the exercise of a conversion privilege unless the
security being so converted was itself acquired directly from the Company,
(2) any acquisition by the Company, (3) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or
any Company controlled by the Company, or (4) any acquisition by any Person
pursuant to a transaction which complies with clauses (1), (2) and (3) of
subsection (iii) of this Section 11(a); or
(ii) individuals who, as of the effective date of the Plan, constitute
the Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; PROVIDED, HOWEVER, that any individual who
becomes a member of the Board subsequent to such effective date of the Plan,
whose election, or nomination for election by the Company's shareholders,
was approved by a vote of at least a majority of directors then comprising
the Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board; but, PROVIDED FURTHER, that any such
individual whose initial assumption of office occurs as a result of either
an actual or threatened election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual
or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board shall not be so considered as a member of the
Incumbent Board; or
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(iii) the approval by the shareholders of the Company of a
reorgani-zation, merger or consolidation or sale or other disposition of all
or substantially all of the assets of the Company ("Business Combination")
or if consummation of such Business Combination is subject, at the time of
such approval of shareholders, to the consent of any government or
governmental agency, obtaining of such consent (either explicitly or
implicitly by consummation); excluding, however, such a Business Combination
pursuant to which (1) all or substantially all of the individuals and
entities who are the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination will beneficially own, directly or
indirectly, more than 60% of, respectively, the outstanding shares of common
stock, and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in substantially
the same proportions as their ownership, immediately prior to such Business
Combination, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (2) no Person (other than any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the corporation or such company
resulting from such Business Combination) will beneficially own, directly or
indirectly, 30% or more of, respectively, the outstanding shares of common
stock of the Company resulting from such Business Combination or the
combined voting power of the outstanding voting securities of such
corporation entitled to vote generally in the election of directors except
to the extent that such ownership existed with respect to the Company prior
to the Business Combination and (3) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination will have been members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing
for such Business Combination; or
(iv) the approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
(b) Notwithstanding anything in the Plan to the contrary, upon the
occurrence of a Change in Control:
(i) all Share Units credited to a Share Account shall be converted into
Common Stock and together with all Deferred Amounts credited to a Cash
Account shall be transferred as soon as practicable to each Director;
(ii) Fees earned in respect of the calendar quarter in which the Change
in Control occurs, shall be paid in cash as soon as practicable; and
(iii) all options shall immediately vest and become exercisable in full.
12. TERM OF PLAN. This Plan shall become effective as of the date of approval
of the Plan by the sole stockholder of the Company. The Plan shall terminate on
December 15, 2007, unless earlier terminated by the Board. Notwithstanding the
Plan's termination, amounts shall be delivered pursuant to any Deferral Election
made prior to the Plan's termination in accordance with such election. Options
may be granted under the Plan at any time prior to the termination of the Plan.
Deferral Elections and Share Elections may not be made for any Fees which would
be paid following the date of the termination of the Plan.
13. AMENDMENT; TERMINATION. The Board may at any time and from time to time
alter, amend, suspend, or terminate the Plan in whole or in part; PROVIDED,
HOWEVER, that no amendment which is required by any regulation, law or stock
exchange rule to be approved by shareholders shall be effective unless it is
approved by the shareholders of the Company entitled to vote thereon.
Notwithstanding the foregoing, no amendment shall affect adversely any of the
rights of any Director, under any option or under any
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election theretofore in effect under the Plan, or with respect to Deferred
Amounts, without such Director's consent.
14. NONTRANSFERABILITY. No option, or right or interest of any Director in
Deferred Amounts, shall be transferable by a Director other than (i) by will or
by the laws of descent and distribution, (ii) pursuant to a qualified domestic
relations order (as defined in the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended), or (iii) in the case of an option, as
otherwise expressly permitted under the applicable option agreement including,
if so permitted, pursuant to a gift to such optionee's family, whether directly
or indirectly or by means of a trust or partnership or otherwise. All options or
rights with respect to Deferred Amounts shall be exercisable, during the
Director's lifetime, only by the Director or by the guardian or legal
representative of the Director or an alternate payee pursuant to a qualified
domestic relations order or, in the case of an option, by any person to whom
such option is transferred pursuant to the preceding sentence. Under the Plan,
it is understood that the term "optionee" includes the guardian and legal
representative of the Director named in the option agreement and any person to
whom an option is transferred by will or the laws of descent and distribution,
pursuant to a qualified domestic relations order or as otherwise described
above.
15. BENEFICIARIES. The Board shall establish such procedures as it deems
appropriate for a Director to designate a beneficiary to whom any amounts
payable in the event of a Director's death are to be paid or by whom any options
held by a Director may be exercised following his or her death. Directors shall
make a beneficiary election with respect to Deferred Amounts at the same time
that a Deferral Election is made.
16. COMPLIANCE WITH LAW, ETC. Notwithstanding any other provision of the Plan
or agreements made pursuant hereto, the Company shall not be required to issue
or deliver any certificate or certificates for shares of Common Stock under the
Plan prior to fulfillment of all of the following conditions:
(i) The listing, or approval for listing upon notice of issuance, of such
shares on the New York Stock Exchange, Inc., or such other securities
exchange or NASDAQ as may at the time be the principal market for Common
Stock;
(ii) Any registration or other qualification of such shares of the
Company under any state or federal law or regulation, or the maintaining in
effect of any such registration or other qualification which the Board
shall, in its absolute discretion upon the advice of counsel, deem necessary
or advisable; and
(iii) The obtaining of any other consent, approval, or permit from any
state or federal governmental agency, which the Board shall, in its absolute
discretion after receiving the advice of counsel, determine to be necessary
or advisable.
17. NOTICE. Any written notice to the Company required by any of the provisions
of the Plan shall be addressed to the Secretary of the Company and shall become
effective when it is received.
18. GOVERNING LAW. The Plan and all determinations made and actions taken
pursuant hereto shall be governed by the law of the State of Delaware, without
reference to principles of conflict of laws, and shall be construed accordingly.
19. HEADINGS. The headings of sections and subsections herein are included
solely for convenience of reference and shall not affect the meaning of any of
the provisions of the Plan.
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ANNEX B
UNOVA, INC.
1997 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS
The purpose of the Plan is to give the Company a competitive advantage in
attracting, retaining and motivating officers and employees and to provide the
Company and its subsidiaries with a stock plan providing incentives directly
linked to the profitability of the Company's businesses and increases in
shareholder value.
For purposes of the Plan, the following terms are defined as set forth below:
a. "AFFILIATE" means a corporation or other entity controlled by the
Company and designated by the Committee from time to time as such.
b. "AWARD" means a Stock Appreciation Right, Stock Option, or Restricted
Stock.
c. "BOARD" means the Board of Directors of the Company.
d. "CHANGE IN CONTROL" and "Change in Control Price" have the meanings
set forth in Sections 8(b) and (c), respectively.
e. "CODE" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
f. "COMMISSION" means the Securities and Exchange Commission or any
successor agency.
g. "COMMITTEE" means the Committee referred to in Section 2.
h. "COMPANY" means UNOVA, Inc., a Delaware corporation.
i. "COVERED EMPLOYEE" means a participant designated prior to the grant
of shares of Restricted Stock by the Committee who is or may be a "covered
employee" within the meaning of Section 162(m)(3) of the Code in the year in
which Restricted Stock is expected to be taxable to such participant.
j. "DISABILITY" means permanent and total disability as determined for
purposes of the Company's Long Term Disability Plan for the staff of the
Company's corporate headquarters.
k. "EARLY RETIREMENT" means retirement from active employment with the
Company, a subsidiary or an Affiliate pursuant to the early retirement
provisions of the applicable pension plan of such employer.
l. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
m. "FAIR MARKET VALUE" means, as of any given date, the mean between the
highest and lowest reported sales prices of the Stock on the New York Stock
Exchange Composite Tape or, if not listed on such exchange, on any other
national securities exchange on which the Stock is listed or on NASDAQ. If
there is no regular public trading market for such Stock, the Fair Market
Value of the Stock shall be determined by the Committee in good faith.
n. "INCENTIVE STOCK OPTION" means any Stock Option designated as, and
qualified as, an "incentive stock option" within the meaning of Section 422
of the Code.
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o. "NON-EMPLOYEE DIRECTOR" means a member of the Board who qualifies as
a Non-Employee Director as defined in Rule 16b-3(b)(3), as promulgated by
the Commission under the Exchange Act, or any successor definition adopted
by the Commission.
p. "NON-QUALIFIED STOCK OPTION" means any Stock Option that is not an
Incentive Stock Option.
q. "NORMAL RETIREMENT" means retirement from active employment with the
Company, a subsidiary or an Affiliate at or after age 65.
r. "QUALIFIED PERFORMANCE-BASED AWARD" means an Award of Restricted
Stock designated as such by the Committee at the time of grant, based upon a
determination that (i) the recipient is or may be a "covered employee"
within the meaning of Section 162(m)(3) of the Code in the year in which the
Company would expect to be able to claim a tax deduction with respect to
such Restricted Stock and (ii) the Committee wishes such Award to qualify
for the Section 162(m) Exemption.
s. "PERFORMANCE GOALS" means the performance goals established by the
Committee in connection with the grant of an Award. In the case of Qualified
Performance-Based Awards, (i) such Performance Goals shall be based on the
attainment of specified levels of one or more of the following measures:
return on capital utilized ("ROCU"), return on tangible equity ("ROTE"),
return on equity ("ROE"), return on assets ("ROA"), return on capital
("ROC"), cash flow ("CF"), revenue growth ("RG") or return on revenue
("ROR") of the Company or of any business unit thereof within which the
participant is primarily employed, or that are based on the attainment of
specified levels of Basic Earnings per Share ("BEPS") or Diluted Earnings
per Share ("DEPS") of the Company or that are based, in whole or in part, on
a level or levels of increase in the Fair Market Value of the Stock, and
that are intended to qualify under Section 162(m)(4)(c) of the Code, and
(ii) such Performance Goals shall be set by the Committee within the time
period prescribed by Section 162(m) of the Code and related regulations. For
purposes of the Plan, ROCU, ROTE, ROE, ROA, ROC, CF, RG, ROR, BEPS and DEPS
shall have the meanings set forth in Exhibit A hereto.
t. "PLAN" means the UNOVA, Inc. 1997 Stock Incentive Plan, as set forth
herein and as hereinafter amended from time to time.
u. "RESTRICTED STOCK" means an Award granted under Section 7.
v. "RETIREMENT" means Normal or Early Retirement.
w. "RULE 16B-3" means Rule 16b-3, as promulgated by the Commission under
Section 16(b) of the Exchange Act, as amended from time to time.
x. "SECTION 162(M) EXEMPTION" means the exemption from the limitation on
deductibility imposed by Section 162(m) of the Code that is set forth in
Section 162(m)(4)(C) of the Code.
y. "STOCK" means the common stock, par value $.01 per share, of the
Company.
z. "STOCK APPRECIATION RIGHT" means a right granted under Section 6.
aa. "STOCK OPTION" means an option granted under Section 5.
bb. "TERMINATION OF EMPLOYMENT" means the termination of the
participant's employment with the Company and any subsidiary or Affiliate. A
participant employed by a subsidiary or an Affiliate shall also be deemed to
incur a Termination of Employment if the subsidiary or Affiliate ceases to
be such a subsidiary or an Affiliate, as the case may be, and the
participant does not immediately thereafter become an employee of the
Company or another subsidiary or Affiliate. Temporary absences from
employment because of illness, vacation or leave of absence and transfers
among the Company and its subsidiaries and Affiliates shall not be
considered Terminations of Employment.
In addition, certain other terms used herein have definitions given to them in
the first place in which they are used.
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SECTION 2. ADMINISTRATION
The Plan shall be administered by the Compensation Committee or such other
committee of the Board as the Board may from time to time designate (the
"Committee"), which shall be composed of not less than two Non-Employee
Directors, each of whom shall be an "outside director" for purposes of Section
162(m)(4) of the Code and shall be appointed by and serve at the pleasure of the
Board.
The Committee shall have plenary authority to grant Awards pursuant to the terms
of the Plan to officers and employees of the Company and its subsidiaries and
Affiliates.
Among other things, the Committee shall have the authority, subject to the terms
of the Plan:
(a) To select the officers and employees to whom Awards may from time
to time be granted;
(b) To determine whether and to what extent Incentive Stock Options,
Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock or
any combination thereof are to be granted hereunder;
(c) To determine the number of shares of Stock to be covered by each
Award granted hereunder;
(d) To determine the terms and conditions of any Award granted
hereunder (including, but not limited to, the option price (subject to
Section 5(a)), any vesting condition, restriction or limitation (which may
be related to the performance of the participant, the Company or any
subsidiary or Affiliate) and any vesting acceleration or forfeiture waiver
regarding any Award and the shares of Stock relating thereto, based on such
factors as the Committee shall determine;
(e) To modify, amend or adjust the terms and conditions of any Award,
at any time or from time to time, including but not limited to Performance
Goals; provided, however, that the Committee may not adjust upwards the
amount payable with respect to a Qualified Performance-Based Award or waive
or alter the Performance Goals associated therewith;
(f) To determine to what extent and under what circumstances Stock and
other amounts payable with respect to an Award shall be deferred; and
(g) To determine under what circumstances an Award may be settled in
cash or Stock under Sections 5(j), 5(k) and 6(b)(ii), except as otherwise
therein provided.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall
from time to time deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any agreement relating thereto)
and to otherwise supervise the administration of the Plan.
Any determination made by the Committee pursuant to the provisions of the Plan
with respect to any Award shall be made in the sole discretion of the Committee
at the time of the grant of the Award or, unless in contravention of any express
term of the Plan, at any time thereafter. All decisions made by the Committee
pursuant to the provisions of the Plan shall be final and binding on all
persons, including the Company and Plan participants.
Any authority granted to the Committee may also be exercised by the full Board,
except to the extent that the grant or exercise of such authority would cause
any Award or transaction to become subject to (or lose an exemption under) the
short-swing profit recovery provisions of Section 16 of the Exchange Act. To the
extent that any permitted action taken by the Board conflicts with action taken
by the Committee, the Board action shall control.
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SECTION 3. STOCK SUBJECT TO PLAN
Subject to adjustment as provided herein, the total number of shares of Stock
available for grant under the Plan shall be five million five hundred thousand
(5,500,000) plus (i) a number of shares of Stock equal to one percent of the
total number of shares of Stock outstanding as of the first day of each calendar
year beginning after December 31, 1998 for which the Plan is in effect--provided
that any shares available for grant in a particular calendar year which are not,
in fact, granted in such year shall be added to the shares available for grant
in any subsequent calendar year. However, no more than five million (5,000,000)
shares of Stock shall be cumulatively available for grant of Incentive Stock
Options over the life of the Plan, and no more than 30 percent of the shares of
Stock available for grant under the Plan as of the first day of any calendar
year during which the Plan is in effect shall be utilized in that fiscal year
for the grant of Awards in the form of Restricted Stock. No participant may be
granted Awards covering more than one million (1,000,000) shares of Stock in any
calendar year during which the Plan is in existence. Shares subject to an Award
under the Plan may be authorized and unissued shares or may be treasury shares.
If any shares of Restricted Stock are forfeited, or if any Stock Option (and
related Stock Appreciation Right, if any) terminates without being exercised, or
if any Stock Appreciation Right is exercised for cash, shares subject to such
Awards shall again be available for distribution in connection with Awards under
the Plan.
In the event of any change in corporate capitalization, such as a stock split or
any corporate transaction (such as any merger, consolidation or separation
(including a spin-off)), any other distribution of stock or property of the
Company, any reorganization (whether or not such reorganization comes within the
definition of such term in Section 368 of the Code) or any partial or complete
liquidation of the Company, the Committee or Board may make such substitution or
adjustments in the aggregate number and kind of shares reserved for issuance
under the Plan, in the individual limits on Awards under the Plan, in the
number, kind and exercise price of shares subject to outstanding Stock Options
and Stock Appreciation Rights, in the number and kind of shares subject to
outstanding Awards in the form of Restricted Stock granted under the Plan and/or
such other equitable substitution or adjustments as it may determine to be
appropriate in its sole discretion; PROVIDED, HOWEVER, that the number of shares
subject to any Award shall always be a whole number. Such adjusted exercise
price shall also be used to determine the amount payable by the Company upon the
exercise of any Stock Appreciation Right associated with any Stock Option.
SECTION 4. ELIGIBILITY
Officers and employees of the Company, its subsidiaries and Affiliates who are
responsible for or contribute to the management, growth and profitability of the
business of the Company, its subsidiaries and Affiliates are eligible to be
granted Awards under the Plan. No grant shall be made under this Plan to a
director who is not an officer or a salaried employee of the Company, its
subsidiaries or Affiliates.
SECTION 5. STOCK OPTIONS
Stock Options may be granted alone or in addition to other Awards granted under
the Plan and may be of two types: Incentive Stock Options and Non-Qualified
Stock Options. Any Stock Option granted under the Plan shall be in such form as
the Committee may from time to time approve.
The Committee shall have the authority to grant any optionee Incentive Stock
Options, Non-Qualified Stock Options or both types of Stock Options (in each
case with or without Stock Appreciation Rights); PROVIDED, HOWEVER, that grants
hereunder are subject to the annual limit on grants to individual participants
set forth in Section 3. Incentive Stock Options may be granted only to employees
of the Company and its subsidiaries (within the meaning of Section 424(f) of the
Code). To the extent that any Stock Option is not designated as an Incentive
Stock Option or even if so designated does not qualify as an Incentive Stock
Option, it shall constitute a Non-Qualified Stock Option.
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Stock Options shall be evidenced by option agreements, the terms and provisions
of which may differ. An option agreement shall indicate on its face whether it
is intended to be an agreement for an Incentive Stock Option or a Non-Qualified
Stock Option. The grant of a Stock Option shall occur on the date the Committee
selects an individual to be a participant in any grant of a Stock Option,
determines the number of shares of Stock to be subject to such Stock Option to
be granted to such individual and specifies the terms and provisions of the
Stock Option. The Company shall notify a participant of any grant of a Stock
Option, and a written option agreement or agreements shall be duly executed and
delivered by the Company to the participant. Such agreement or agreements shall
become effective upon execution by the Company and the participant.
Anything in the Plan to the contrary notwithstanding, no term of the Plan
relating to Incentive Stock Options shall be interpreted, amended or altered nor
shall any discretion or authority granted under the Plan be exercised so as to
disqualify the Plan under Section 422 of the Code.
Stock Options granted under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions as the
Committee shall deem desirable:
(a) OPTION PRICE. The option price per share of Stock purchasable under a Stock
Option shall be determined by the Committee and set forth in the option
agreement, and shall not be less than the Fair Market Value of the Stock subject
to the Stock Option on the date of grant.
(b) OPTION TERM. The term of each Stock Option shall be fixed by the Committee,
but no Incentive Stock Option shall be exercisable more than 10 years after the
date the Stock Option is granted.
(c) EXERCISABILITY. Except as otherwise provided herein, Stock Options shall be
exercisable at such time or times and subject to such terms and conditions as
shall be determined by the Committee. The exercisability of a Stock Option may
be conditional upon the attainment of Performance Goals, which need not be the
same for all optionees. If the Committee provides that any Stock Option is
exercisable only in installments, the Committee may at any time waive such
installment exercise provisions, in whole or in part, based on such factors as
the Committee may determine. In addition, the Committee may at any time
accelerate the exercisability of any Stock Option.
(d) METHOD OF EXERCISE; ISSUANCE OF STOCK. Subject to the provisions of this
Section 5, Stock Options may be exercised, in whole or in part, at any time
during the option term by giving written notice of exercise to the Company
specifying the number of shares of Stock subject to the Stock Option to be
purchased.
Such notice shall be accompanied by payment in full of the purchase price by
certified or bank check or such other instrument as the Company may accept.
Payment, in full or in part, may also be made in the form of unrestricted Stock
already owned by the optionee for a period of at least six months prior to the
date of exercise (based on the Fair Market Value of the Stock on the date the
Stock Option is exercised).
In the discretion of the Committee, payment for any shares subject to a Stock
Option may also be made by delivering a properly executed exercise notice to the
Company, together with a copy of irrevocable instructions to a broker to deliver
promptly to the Company the amount of sale or loan proceeds necessary to pay the
purchase price, and, if requested, the amount of any federal, state, local or
foreign withholding taxes. To facilitate the foregoing, the Company may enter
into agreements for coordinated procedures with one or more brokerage firms.
No shares of Stock shall be issued until full payment therefor has been made.
Except as otherwise provided in Section 5(l) below, an optionee shall have all
of the rights of a shareholder of the Company holding the class or series of
Stock that is subject to such Stock Option (including, if applicable, the right
to vote the shares and the right to receive dividends), when the optionee has
given written notice of exercise, has paid in full for such shares and, if
requested, has given the representation described in
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Section 11(a). Upon exercise of a Stock Option, a participant shall be entitled
(unless the participant has given a broker the irrevocable instructions referred
to in the preceding paragraph) to receive a certificate representing the Stock
issuable upon exercise of the Stock Option or such other evidence of ownership
as the Company may then generally provide to its shareholders of record.
(e) NONTRANSFERABILITY OF STOCK OPTIONS. No Stock Option shall be transferable
by the optionee other than (i) by will or by the laws of descent and
distribution; or (ii) in the case of a Non-Qualified Stock Option, as otherwise
expressly permitted under the applicable option agreement including, if so
permitted, pursuant to a gift to such optionee's family, whether directly or
indirectly or by means of a trust or partnership or otherwise. All Stock Options
shall be exercisable, subject to the terms of this Plan, only by the optionee,
the guardian or legal representative of the optionee, or any person to whom such
option is transferred pursuant to the preceding sentence, it being understood
that the term "holder" and "optionee" include such guardian, legal
representative and other transferee.
(f) TERMINATION BY DEATH. Unless otherwise determined by the Committee, if an
optionee's employment terminates by reason of death, any Stock Option held by
such optionee may thereafter be exercised, to the extent then exercisable, or on
such accelerated basis as the Committee may determine, for a period of one year
(or such other period as the Committee may specify in the option agreement) from
the date of such death or until the expiration of the stated term of such Stock
Option, whichever period is the shorter.
(g) TERMINATION BY REASON OF DISABILITY. Unless otherwise determined by the
Committee, if an optionee's employment terminates by reason of Disability, any
Stock Option held by such optionee may thereafter be exercised by the optionee,
to the extent it was exercisable at the time of termination, or on such
accelerated basis as the Committee may determine, for a period of three years
(or such shorter period as the Committee may specify in the option agreement)
from the date of such termination of employment or until the expiration of the
stated term of such Stock Option, whichever period is the shorter; provided,
however, that if the optionee dies within such period, any unexercised Stock
Option held by such optionee shall, notwithstanding the expiration of such
period, continue to be exercisable to the extent to which it was exercisable at
the time of death for a period of 12 months from the date of such death or until
the expiration of the stated term of such Stock Option, whichever period is the
shorter. In the event of termination of employment by reason of Disability, if
an Incentive Stock Option is exercised after the expiration of the exercise
periods that apply for purposes of Section 422 of the Code, such Stock Option
will thereafter be treated as a Non-Qualified Stock Option.
(h) TERMINATION BY REASON OF RETIREMENT. Unless otherwise determined by the
Committee, if an optionee's employment terminates by reason of Retirement, any
Stock Option held by such optionee may thereafter be exercised by the optionee,
to the extent it was exercisable at the time of such Retirement, or on such
accelerated basis as the Committee may determine until the expiration of the
stated term of such Stock Option, PROVIDED, HOWEVER, that if the optionee dies
within such period any unexercised Stock Option held by such optionee shall,
notwithstanding the expiration of such period, continue to be exercisable to the
extent to which it was exercisable at the time of death for a period of 12
months from the date of such death or until the expiration of the stated term of
such Stock Option, whichever period is the shorter. In the event of termination
of employment by reason of Retirement, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for purposes of Section
422 of the Code, such Stock Option will thereafter be treated as a Non-Qualified
Stock Option.
(i) OTHER TERMINATION. Unless otherwise determined by the Committee, if an
optionee incurs a Termination of Employment for any reason other than death,
Disability or Retirement, any Stock Option held by such optionee, to the extent
then exercisable, or on such accelerated basis as the Committee may determine,
may be exercised for the lesser of three months from the date of such
Termination of Employment or the balance of the term of such Stock Option;
provided, however, that if the optionee dies within such three-month period, any
unexercised Stock Option held by such optionee shall, notwithstanding the
expiration of such three-month period, continue to be exercisable to the extent
to which it
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was exercisable at the time of death for a period of 12 months from the date of
such death or until the expiration of the stated term of such Stock Option,
whichever period is the shorter. In the event of Termination of Employment, if
an Incentive Stock Option is exercised after the expiration of the exercise
periods that apply for purposes of Section 422 of the Code, such Stock Option
will thereafter be treated as a Non-Qualified Stock Option.
(j) CASHING OUT OF STOCK OPTION. On receipt of written notice of exercise, the
Committee may elect to cash out all or part of the portion of the shares of
Stock for which a Stock Option is being exercised by paying the optionee an
amount, in cash or Stock, equal to the excess of the Fair Market Value of the
Stock over the option price times the number of shares of Stock for which the
Option is being exercised on the effective date of such cash-out.
(k) CHANGE IN CONTROL CASH-OUT. Notwithstanding any other provision of the Plan,
during the 60-day period from and after a Change in Control (the "Exercise
Period"), unless the Committee shall determine otherwise at the time of grant,
an optionee shall have the right, whether or not the Stock Option is fully
exercisable and in lieu of the payment of the exercise price for the shares of
Stock being purchased under the Stock Option and by giving notice to the
Company, to elect (within the Exercise Period) to surrender all or part of the
Stock Option to the Company and to receive cash, within 30 days of such notice,
in an amount equal to the amount by which the Change in Control Price per share
of Stock on the date of such election shall exceed the exercise price per share
of Stock under the Stock Option (the "Spread") multiplied by the number of
shares of Stock granted under the Stock Option as to which the right granted
under this Section 5(k) shall have been exercised. Notwithstanding the
foregoing, if any right granted pursuant to this Section 5(k) would make a
Change in Control transaction ineligible for pooling-of-interests accounting
under APB No. 16 that but for the nature of such grant would otherwise be
eligible for such accounting treatment, the Committee shall have the ability to
substitute for the cash payable pursuant to such right Stock with a Fair Market
Value equal to the cash that would otherwise be payable hereunder.
(l) DEFERRAL OF OPTION SHARES. The Committee may from time to time establish
procedures pursuant to which an optionee may elect to defer, until a time or
times later than the exercise of an Option, receipt of all or a portion of the
Shares subject to such Option and/or to receive cash at such later time or times
in lieu of such deferred Shares, all on such terms and conditions as the
Committee shall determine. If any such deferrals are permitted, then
notwithstanding Section 5(d) above, an optionee who elects such deferral shall
not have any rights as a stockholder with respect to such deferred Shares unless
and until Shares are actually delivered to the optionee with respect thereto,
except to the extent otherwise determined by the Committee.
SECTION 6. STOCK APPRECIATION RIGHTS
(a) GRANT AND EXERCISE. Stock Appreciation Rights may be granted in conjunction
with all or part of any Stock Option granted under the Plan. In the case of a
Non-Qualified Stock Option, such rights may be granted either at or after the
time of grant of such Stock Option. In the case of an Incentive Stock Option,
such rights may be granted only at the time of grant of such Stock Option. A
Stock Appreciation Right shall terminate and no longer be exercisable upon the
termination or exercise of the related Stock Option.
A Stock Appreciation Right may be exercised by an optionee in accordance with
Section 6(b) by surrendering the applicable portion of the related Stock Option
in accordance with procedures established by the Committee. Upon such exercise
and surrender, the optionee shall be entitled to receive an amount determined in
the manner prescribed in Section 6(b). Stock Options which have been so
surrendered shall no longer be exercisable to the extent the related Stock
Appreciation Rights have been exercised.
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(b) TERMS AND CONDITIONS. Stock Appreciation Rights shall be subject to such
terms and conditions as shall be determined by the Committee, including the
following:
(i) Stock Appreciation Rights shall be exercisable only at such time or
times and to the extent that the Stock Options to which they relate are
exercisable in accordance with the provisions of Section 5 and this Section
6.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee shall
be entitled to receive an amount in cash, shares of Stock or both, in value
equal to the excess of the Fair Market Value of one share of Stock over the
option price per share specified in the related Stock Option multiplied by
the number of shares in respect of which the Stock Appreciation Right shall
have been exercised, with the Committee having the right to determine the
form of payment.
(iii) Stock Appreciation Rights shall be transferable only to permitted
transferees of the underlying Stock Option in accordance with Section 5(e).
(iv) Upon the exercise of a Stock Appreciation Right, the Stock Option
or part thereof to which such Stock Appreciation Right is related shall be
deemed to have been exercised for the purpose of the limitation set forth in
Section 3 on the number of shares of Stock to be issued under the Plan, but
only to the extent of the number of shares covered by the Stock Appreciation
Right at the time of exercise based on the value of the Stock Appreciation
Right at such time.
SECTION 7. RESTRICTED STOCK
(a) ADMINISTRATION. Shares of Restricted Stock may be awarded either alone or in
addition to other Awards granted under the Plan. The Committee shall determine
the officers and employees to whom and the time or times at which grants of
Restricted Stock will be awarded, the number of shares to be awarded to any
participant (subject to the annual limit on grants to individual participants
set forth in Section 3), the conditions for vesting, the time or times within
which such Awards may be subject to forfeiture and any other terms and
conditions of the Awards, in addition to those contained in Section 7(c).
(b) AWARDS AND CERTIFICATES. Shares of Restricted Stock shall be evidenced in
such manner as the Committee may deem appropriate, including book-entry
registration or issuance of one or more stock certificates. Any certificate or
other evidence of ownership issued in respect of shares of Restricted Stock
shall be registered in the name of such participant and shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such Award, substantially in the following form:
"The transferability of the shares of stock represented hereby [referred
to herein] are subject to the terms and conditions (including forfeiture)
of the UNOVA, Inc. 1997 Stock Incentive Plan and a Restricted Stock
Agreement. Copies of such Plan and Agreement are on file at the offices
of UNOVA, Inc., 360 North Crescent Drive, Beverly Hills, California
90210."
The Committee may require that any certificates evidencing such shares be held
in custody by the Company until the restrictions thereon shall have lapsed and
that, as a condition of any Award of Restricted Stock, the participant shall
have delivered a stock power, endorsed in blank, relating to the Stock covered
by such Award.
(c) TERMS AND CONDITIONS. Shares of Restricted Stock shall be subject to the
following terms and conditions:
(i) The Committee may, prior to or at the time of grant, designate an
Award of Restricted Stock as a Qualified Performance-Based Award, in which
event it shall condition the grant or vesting, as applicable, of such
Restricted Stock upon the attainment of Performance Goals. If the Committee
does not designate an Award of Restricted Stock as a Qualified
Performance-Based Award, it may also condition the grant or vesting thereof
upon the attainment of Performance Goals. Regardless of
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whether an Award of Restricted Stock is a Qualified Performance-Based Award,
the Committee may also condition the grant or vesting thereof upon the
continued service of the participant. The conditions for grant or vesting
and the other provisions of Restricted Stock Awards (including without
limitation any applicable Performance Goals) need not be the same with
respect to each recipient. The Committee may at any time, in its sole
discretion, accelerate or waive, in whole or in part, any of the foregoing
restrictions; PROVIDED, HOWEVER, that in the case of Restricted Stock that
is a Qualified Performance-Based Award, the applicable Performance Goals
shall have been satisfied.
(ii) Subject to the provisions of the Plan and the Restricted Stock
Agreement referred to in Section 7(c)(vi), during the period, if any, set by
the Committee, commencing with the date of such Award for which such
participant's continued service is required (the "Restriction Period"), and
until the later of (i) the expiration of the Restriction Period and (ii) the
date the applicable Performance Goals (if any) are satisfied, the
participant shall not be permitted to sell, assign, transfer, pledge or
otherwise encumber shares of Restricted Stock; PROVIDED that the foregoing
shall not prevent a participant from pledging Restricted Stock as security
for a loan, the sole purpose of which is to provide funds to pay the option
price for Stock Options.
(iii) Except as provided in this paragraph (iii) and Sections 7(c)(i)
and 7(c)(ii) and the Restricted Stock Agreement, the participant shall have,
with respect to the shares of Restricted Stock, all of the rights of a
stockholder of the Company holding the class or series of Stock that is the
subject of the Restricted Stock, including, if applicable, the right to vote
the shares and the right to receive any cash dividends. If so determined by
the Committee in the applicable Restricted Stock Agreement and subject to
Section 11(e) of the Plan, (A) cash dividends on the class or series of
Stock that is the subject of the Restricted Stock Award shall be
automatically deferred and reinvested in additional Restricted Stock, held
subject to the vesting of the underlying Restricted Stock, or held subject
to meeting Performance Goals applicable only to dividends, and (B) dividends
payable in Stock shall be paid in the form of Restricted Stock of the same
class as the Stock with which such dividend was paid, held subject to the
vesting of the underlying Restricted Stock, or held subject to meeting
Performance Goals applicable only to dividends.
(iv) Except to the extent otherwise provided in the applicable
Restricted Stock Agreement and Sections 7(c)(i), 7(c)(ii), 7(c)(v) and
8(a)(ii), upon a participant's Termination of Employment for any reason
during the Restriction Period or before the applicable Performance Goals are
satisfied, all shares still subject to restriction shall be forfeited by the
participant.
(v) Except to the extent otherwise provided in Section 8(a)(ii), in the
event that a participant retires or such participant's employment is
involuntarily terminated, the Committee shall have the discretion to waive,
in whole or in part, any or all remaining restrictions (other than, in the
case of Restricted Stock with respect to which a participant is a Covered
Employee, satisfaction of the applicable Performance Goals unless the
participant's employment is terminated by reason of death or Disability)
with respect to any or all of such participant's shares of Restricted Stock.
(vi) If and when any applicable Performance Goals are satisfied and the
Restriction Period expires without a prior forfeiture of the Restricted
Stock, unlegended certificates or other evidence of ownership for such
shares shall be delivered to the participant upon surrender of the legended
certificates or other evidence of ownership.
(vii) Each Award shall be confirmed by, and be subject to, the terms of
a Restricted Stock Agreement.
(viii) Notwithstanding the foregoing, but subject to the provisions of
Section 8 hereof, no Award in the form of Restricted Stock, the vesting of
which is conditioned only upon the continued service of the participant,
shall vest earlier than the first, second and third anniversaries of the
date of grant thereof, on each of which dates a maximum of one-third of the
shares of Stock subject to the Award may vest, and no award in the form of
Restricted Stock, the vesting of which is conditioned
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upon the attainment of a specified Performance Goal or Goals, shall vest
earlier than the first anniversary of the date of grant thereof.
SECTION 8. CHANGE IN CONTROL PROVISIONS
(a) IMPACT OF EVENT. Notwithstanding any other provision of the Plan to the
contrary, in the event of a Change in Control:
(i) Any Stock Options and Stock Appreciation Rights outstanding as of
the date such Change in Control is determined to have occurred, and which
are not then exercisable and vested, shall become fully exercisable and
vested to the full extent of the original grant.
(ii) The restrictions and deferral limitations applicable to any
Restricted Stock shall lapse, and such Restricted Stock shall become free of
all restrictions and become fully vested and transferable to the full extent
of the original grant.
(b) DEFINITION OF CHANGE IN CONTROL. For purposes of the Plan, a "Change in
Control" shall mean the happening of any of the following events:
(i) An acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 30 percent or more of either (1) the then outstanding
shares of common stock of the Company (the "Outstanding Company Common
Stock") or (2) the combined voting power of the outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); excluding, however,
the following acquisitions of Outstanding Company Common Stock and
Outstanding Company Voting Securities: (1) any acquisition directly from the
Company, other than an acquisition by virtue of the exercise of a conversion
privilege unless the security being so converted was itself acquired
directly from the Company, (2) any acquisition by the Company, (3) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or
(4) any acquisition by any Person pursuant to a transaction which complies
with clauses (1), (2) and (3) of subsection (iii) of this Section 8(b); or
(ii) Individuals who, as of the effective date of the Plan, constitute
the Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; PROVIDED, HOWEVER, that any individual who
becomes a member of the Board subsequent to such effective date of the Plan,
whose election, or nomination for election by the Company's shareholders,
was approved by a vote of at least a majority of directors then comprising
the Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board; but, PROVIDED FURTHER, that any such
individual whose initial assumption of office occurs as a result of either
an actual or threatened election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual
or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board shall not be so considered as a member of the
Incumbent Board; or
(iii) The approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or other disposition of all
or substantially all of the assets of the Company ("Business Combination")
or if consummation of such Business Combination is subject, at the time of
such approval by shareholders, to the consent of any government or
governmental agency, obtaining of such consent (either explicitly or
implicitly by consummation); excluding, however, such a Business Combination
pursuant to which (1) all or substantially all of the individuals and
entities who are the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination will beneficially own, directly or
indirectly, more than 60 percent of, respectively, the outstanding shares of
common stock, and the combined voting power of the outstanding voting
securities entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Business
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Combination (including, without limitation, a corporation which as a result
of such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to
such Business Combination, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (2) no Person
(other than any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or
such corporation resulting from such Business Combination) will beneficially
own, directly or indirectly, 30 percent or more of, respectively, the
outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the outstanding voting
securities of such corporation entitled to vote generally in the election of
directors except to the extent that such ownership existed with respect to
the Company prior to the Business Combination and (3) at least a majority of
the members of the board of directors of the corporation resulting from such
Business Combination will have been members of the Incumbent Board at the
time of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
(iv) The approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
(c) CHANGE IN CONTROL PRICE. For purposes of the Plan, "Change in Control Price"
means the higher of (i) the highest reported sales price, regular way, of a
share of Common Stock in any transaction reported on the New York Stock Exchange
Composite Tape or other national exchange on which such shares are listed or on
NASDAQ during the 60-day period prior to and including the date of a Change in
Control or (ii) if the Change in Control is the result of a tender or exchange
offer or a Business Combination, the highest price of a share of Stock paid in
such tender or exchange offer or Business Combination; PROVIDED, HOWEVER, that
in the case of Incentive Stock Options and Stock Appreciation Rights relating to
Incentive Stock Options, the Change in Control Price shall be in all cases the
Fair Market Value of the Stock on the date such Incentive Stock Option or Stock
Appreciation Right is exercised. To the extent that the consideration paid in
any such transaction described above consists all or in part of securities or
other noncash consideration, the value of such securities or other noncash
consideration shall be determined in the sole discretion of the Board.
SECTION 9. TERM, AMENDMENT AND TERMINATION
The Plan will terminate 10 years after the effective date of the Plan. Under the
Plan, Awards outstanding as of such date shall not be affected or impaired by
the termination of the Plan.
The Board may amend, alter or discontinue the Plan, but no amendment, alteration
or discontinuation shall be made which would impair the rights of an optionee
under a Stock Option or a recipient of a Stock Appreciation Right, or Restricted
Stock Award theretofore granted without the optionee's or recipient's consent,
except such an amendment made to cause the Plan to qualify for any exemption
provided by Rule 16b-3. In addition, no such amendment shall be made without the
approval of the Company's shareholders to the extent such approval is required
by law or agreement.
The Committee may amend the terms of any Stock Option or other Award theretofore
granted, prospectively or retroactively, but no such amendment shall impair the
rights of any holder without the holder's consent except such an amendment made
to cause the Plan or Award to qualify for any exemption provided by Rule 16b-3 ;
provided, however, that such power of the Committee shall not extend to the
reduction of the exercise price of a previously granted Stock Option, except as
provided in Section 3 hereof, nor may the Committee substitute new Stock Options
for previously granted Stock Options having higher option prices.
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Subject to the above provisions, the Board shall have authority to amend the
Plan to take into account changes in law and tax and accounting rules as well as
other developments, and to grant Awards which qualify for beneficial treatment
under such rules without stockholder approval.
SECTION 10. UNFUNDED STATUS OF PLAN
It is presently intended that the Plan constitute an "unfunded" plan for
incentive and deferred compensation. The Committee may authorize the creation of
trusts or other arrangements to meet the obligations created under the Plan to
deliver Stock or make payments; PROVIDED, HOWEVER, that unless the Committee
otherwise determines, the existence of such trusts or other arrangements is
consistent with the "unfunded" status of the Plan.
SECTION 11. GENERAL PROVISIONS
(a) The Committee may require each person purchasing or receiving shares
pursuant to an Award to represent to and agree with the Company in writing that
such person is acquiring the shares without a view to the distribution thereof.
The certificates or evidence of ownership for such shares may include any legend
which the Committee deems appropriate to reflect any restrictions on transfer.
Notwithstanding any other provision of the Plan or agreements made pursuant
thereto, the Company shall not be required to issue or deliver any certificate
or certificates for shares of Stock under the Plan prior to fulfillment of all
of the following conditions:
(1) Listing or approval for listing upon notice of issuance, of such
shares on the New York Stock Exchange, Inc., or such other securities
exchange as may at the time be the principal market for the Stock;
(2) Any registration or other qualification of such shares of Stock
under any state or federal law or regulation, or the maintaining in effect
of any such registration or other qualification which the Committee shall,
in its absolute discretion upon the advice of counsel, deem necessary or
advisable; and
(3) Obtaining any other consent, approval or permit from any state or
federal governmental agency which the Committee shall, in its absolute
discretion after receiving the advice of counsel, determine to be necessary
or advisable.
(b) Nothing contained in the Plan shall prevent the Company or any subsidiary
or Affiliate from adopting other or additional compensation arrangements for its
employees.
(c) Adoption of the Plan shall not confer upon any employee any right to
continued employment, nor shall it interfere in any way with the right of the
Company or any subsidiary or Affiliate to terminate the employment of any
employee at any time.
(d) No later than the date as of which an amount first becomes includable in
the gross income of the participant for federal income tax purposes with respect
to any Award under the Plan, the participant shall pay to the Company, or make
arrangements satisfactory to the Company regarding the payment of, any federal,
state, local or foreign taxes of any kind required by law to be withheld with
respect to such amount. Unless otherwise determined by the Company, withholding
obligations may be settled with Stock, including Stock that is part of the Award
that gives rise to the withholding requirement. The obligations of the Company
under the Plan shall be conditional on such payment or arrangements, and the
Company and its Affiliates shall, to the extent permitted by law, have the right
to deduct any such taxes from any payment otherwise due to the participant. The
Committee may establish such procedures as it deems appropriate for the
settlement of withholding obligations with Stock.
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(e) Reinvestment of dividends in additional Restricted Stock at the time of any
dividend payment shall only be permissible if sufficient shares of Stock are
available under Section 3 for such reinvestment (taking into account then
outstanding Stock Options and other Awards).
(f) The Committee shall establish such procedures as it deems appropriate for a
participant to designate a beneficiary to whom any amounts payable in the event
of the participant's death are to be paid or by whom any rights of the
participant, after the participant's death, may be exercised.
(g) In the case of a grant of an Award to any employee of a subsidiary of the
Company, the Company may, if the Committee so directs, issue or transfer the
shares of Stock, if any, covered by the Award to the subsidiary, for such lawful
consideration as the Committee may specify, upon the condition or understanding
that the subsidiary will transfer the shares of Stock to the employee in
accordance with the terms of the Award specified by the Committee pursuant to
the provisions of the Plan.
(h) The Plan and all Awards made and actions taken thereunder shall be governed
by and construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws.
SECTION 12. EFFECTIVE DATE OF PLAN
The Plan shall be effective as of the date it is approved by the sole
stockholder of the Company.
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ANNEX C
CERTIFICATE OF INCORPORATION
OF
UNOVA, INC.
ARTICLE I
The name of the corporation (which is hereinafter referred to as the
"Corporation") is:
UNOVA, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of Delaware is
Corporation Service Company, 1013 Centre Road, in the City of Wilmington, County
of New Castle. The name of the Corporation's registered agent at such address is
Corporation Service Company.
ARTICLE III
The purpose of the Corporation shall be to engage in any lawful act or activity
for which corporations may be organized and incorporated under the General
Corporation Law of the State of Delaware.
ARTICLE IV
The total number of shares of stock which the Corporation shall have authority
to issue is 300,000,000, consisting of 50,000,000 shares of Preferred Stock, par
value $.01 per share (hereinafter referred to as "Preferred Stock"), and
250,000,000 shares of Common Stock, par value $.01 per share (hereinafter
referred to as "Common Stock").
A. PREFERRED STOCK. The Preferred Stock may be issued from time to time in
one or more series. In addition to a series of Preferred Stock designated as
"Series A Junior Participating Preferred Stock", the terms of which are set
forth herein, the Board of Directors is hereby authorized to provide for the
issuance of shares of Preferred Stock in series and, by filing a certificate
pursuant to the applicable law of the State of Delaware (hereinafter
referred to as a "Preferred Stock Designation"), to establish from time to
time the number of shares to be included in each such series, and to fix the
designation, power, preferences and rights of the shares of each such series
and the qualifications, limitations and restrictions thereof. The authority
of the Board of Directors with respect to each series shall include, but not
be limited to, determination of the following:
(i) The designation of the series, which may be by distinguishing
number, letter or title.
(ii) The number of shares of the series, which number the Board of
Directors may thereafter (except where otherwise provided in the Preferred
Stock Designation) increase or decrease (but not below the number of shares
thereof then outstanding).
(iii) Whether dividends, if any, shall be cumulative or noncumulative
and the dividend rate of the series.
(iv) The dates at which dividends, if any, shall be payable.
(v) The redemption rights and price or prices, if any, for shares of the
series.
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(vi) The terms and amount of any sinking fund provided for the purchase
or redemption of shares of the series.
(vii) The amounts payable on shares of the series in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation.
(viii) Whether the shares of the series shall be convertible into shares
of any other class or series, or any other security, of the Corporation or
any other corporation, and, if so, the specification of such other class or
series or such other security, the conversion price or prices or rate or
rates, any adjustments thereof, the date or dates as of which such shares
shall be convertible and all other terms and conditions upon which such
conversion may be made.
(ix) Restrictions on the issuance of shares of the same series or of any
other class or series.
(x) The voting rights, if any, of the holders of shares of the series.
B. SERIES A JUNIOR PARTICIPATING PREFERRED STOCK. The qualifications,
limitations or restrictions of the Series A Junior Participating Preferred
Stock shall be as follows:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 3,000,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; PROVIDED, that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any similar stock) ranking prior and superior to the Series
A Preferred Stock with respect to dividends, the holders of shares of Series A
Preferred Stock, in preference to the holders of Common Stock of the
Corporation, and of any other junior stock, shall be entitled to receive, when,
as and if declared by the Board of Directors out of funds legally available for
the purpose, quarterly dividends payable in cash on the first day of March,
June, September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a share of Series A Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $1 or (b) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per share amount of
all cash dividends, and 100 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions, other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock
since the immediately preceding Quarterly Dividend Payment Date or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock. In the event the
Corporation shall at any time declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
amount to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence shall
be adjusted by multiplying such amount by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the Series
A Preferred Stock as provided in paragraph (A) of this Section immediately after
it declares a dividend or distribution on the
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Common Stock (other than a dividend payable in shares of Common Stock); provided
that, in the event no dividend or distribution shall have been declared on the
Common Stock during the period between any Quarterly Dividend Payment Date and
the next subsequent Quarterly Dividend Payment Date, a dividend of $1 per share
on the Series A Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding shares
of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series A Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.
Section 3. VOTING RIGHTS. The holders of shares of Series A Preferred Stock
shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Preferred Stock shall entitle the holder thereof to 100 votes
on all matters submitted to a vote of the stockholders of the Corporation. In
the event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the number of votes per share to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock, or by
law, the holders of shares of Series A Preferred Stock and the holders of shares
of Common Stock and any other capital stock of the Corporation having general
voting rights shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by law, holders of
Series A Preferred Stock shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to vote with
holders of Common Stock as set forth herein) for taking any corporate action.
Section 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions payable
on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on any
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock;
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(ii) declare or pay dividends, or make any other distributions, on any
shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except dividends paid ratably on the Series A Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares of
any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock, provided that
the Corporation may at any time redeem, purchase or otherwise acquire shares
of any such junior stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any shares
of Series A Preferred Stock, or any shares of stock ranking on a parity with
the Series A Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of Directors)
to all holders of such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among
the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. REACQUIRED SHARES. Any shares of Series A Preferred Stock purchased
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred Stock subject to
the conditions and restrictions on issuance set forth herein or in any
Certificate of Designations creating a series of Preferred Stock or any similar
stock or as otherwise required by law.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made (1)
to the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock unless,
prior thereto, the holders of shares of Series A Preferred Stock shall have
received $100 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Series A Preferred Stock shall be
entitled to receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate amount to be
distributed per share to holders of shares of Common Stock, or (2) to the
holders of shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up. In the
event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event under the proviso in clause
(1) of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
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Section 7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter into
any consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case each share of Series A
Preferred Stock shall at the same time be similarly exchanged or changed into an
amount per share, subject to the provision for adjustment hereinafter set forth,
equal to 100 times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged. In the event the Corporation
shall at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the amount set forth in
the preceding sentence with respect to the exchange or change of shares of
Series A Preferred Stock shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 8. NO REDEMPTION. The shares of Series A Preferred Stock shall not be
redeemable.
Section 9. RANK. The Series A Preferred Stock shall rank, with respect to the
payment of dividends and the distribution of assets, junior to all other series
and classes of the Corporation's Preferred Stock.
Section 10. AMENDMENT. The Certificate of Incorporation of the Corporation
shall not be amended in any manner which would materially alter or change the
powers, preferences or special rights of the Series A Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
C. COMMON STOCK. The Common Stock shall be subject to the express terms of the
Preferred Stock and any series thereof. Each share of Common Stock shall be
equal to each other share of Common Stock. The holders of shares of Common Stock
shall be entitled to one vote for each such share upon all questions presented
to the stockholders.
Except as may be provided in this Certificate of Incorporation or in a Preferred
Stock Designation, the Common Stock shall have the exclusive right to vote for
the election of directors and for all other purposes, and holders of Preferred
Stock shall not be entitled to receive notice of any meeting of stockholders at
which they are not entitled to vote.
The Corporation shall be entitled to treat the person in whose name any share of
its stock is registered as the owner thereof for all purposes and shall not be
bound to recognize any equitable or other claim to, or interest in, such share
on the part of any other person, whether or not the Corporation shall have
notice thereof, except as expressly provided by applicable law.
ARTICLE V
The name and the mailing address of the incorporator is as follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Leonie S. Pan 360 North Crescent Drive
Beverly Hills, CA 90210
</TABLE>
ARTICLE VI
The Corporation is to have perpetual existence.
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ARTICLE VII
The Board of Directors is hereby authorized to create and issue, whether or not
in connection with the issuance and sale of any of its stock or other securities
or property, rights entitling the holders thereof to purchase from the
Corporation shares of stock or other securities of the Corporation or any other
corporation. The times at which and the terms upon which such rights are to be
issued will be determined by the Board of Directors and set forth in the
contracts or instruments that evidence such rights. The authority of the Board
of Directors with respect to such rights shall include, but not be limited to,
determination of the following:
(a) The initial purchase price per share or other unit of the stock or
other securities or property to be purchased upon exercise of such rights.
(b) Provisions relating to the times at which and the circumstances
under which such rights may be exercised or sold or otherwise transferred,
either together with or separately from, any other stock or other securities
of the Corporation.
(c) Provisions which adjust the number or exercise price of such rights
or amount or nature of the stock or other securities or property receivable
upon exercise of such rights in the event of a combination, split or
recapitalization of any stock of the Corporation, a change in ownership of
the Corporation's stock or other securities or a reorganization, merger,
consolidation, sale of assets or other occurrence relating to the
Corporation or any stock of the Corporation, and provisions restricting the
ability of the Corporation to enter into any such transaction absent an
assumption by the other party or parties thereto of the obligations of the
Corporation under such rights.
(d) Provisions which deny the holder of a specified percentage of the
outstanding stock or other securities of the Corporation the right to
exercise such rights and/or cause the rights held by such holder to become
void.
(e) Provisions which permit the Corporation to redeem such rights.
(f) The appointment of a rights agent with respect to such rights.
ARTICLE VIII
In furtherance of, and not in limitation of, the powers conferred by law, the
Board of Directors is expressly authorized and empowered:
(a) to adopt, amend or repeal the By-Laws of the Corporation; provided,
however, that the By-Laws adopted by the Board of Directors under the powers
hereby conferred may be amended or repealed by the Board of Directors or by
the stockholders having voting power with respect thereto; provided further
that in the case of amendments by stockholders, the affirmative vote of the
holders of at least 80 percent of the voting power of the then outstanding
Voting Stock, voting together as a single class, shall be required to alter,
amend or repeal any provision of the By-Laws; and
(b) from time to time to determine whether and to what extent, and at
what times and places, and under what conditions and regulations, the
accounts and books of the Corporation, or any of them, shall be open to
inspection of stockholders; and, except as so determined or as so provided
in any Preferred Stock Designation, no stockholder shall have any right to
inspect any account, book or document of the Corporation other than such
rights as may be conferred by applicable law.
The Corporation may in its By-Laws confer powers upon the Board of Directors in
addition to the foregoing and in addition to the powers and authorities
expressly conferred upon the Board of Directors by applicable law.
Notwithstanding anything contained in this Certificate of Incorporation to the
contrary, the affirmative vote of the holders of at least 80 percent of the then
outstanding Voting Stock, voting
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together as a single class, shall be required to amend, repeal or adopt any
provision inconsistent with paragraph (a) of this Article VIII. For the purposes
of this Certificate of Incorporation, "Voting Stock" shall mean the outstanding
shares of capital stock of the Corporation entitled to vote generally in the
election of directors.
ARTICLE IX
Subject to the rights of the holders of any series of Preferred Stock as set
forth in a Preferred Stock Designation to elect additional directors under
specific circumstances, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may not be effected by
any consent in writing of such stockholders. Notwithstanding anything contained
in this Certificate of Incorporation to the contrary, the affirmative vote of at
least 80 percent of the then outstanding Voting Stock, voting together as a
single class, shall be required to amend, repeal, or adopt any provision
inconsistent with this Article IX.
ARTICLE X
Section 1. NUMBER, ELECTION AND TERMS OF DIRECTORS. Subject to the rights of
any series of Preferred Stock as set forth in a Preferred Stock Designation to
elect additional directors under specified circumstances, the number of
directors of the Corporation shall be fixed by the By-Laws of the Corporation
and may be increased or decreased from time to time in such a manner as may be
prescribed by the By-Laws.
Unless and except to the extent that the By-Laws of the Corporation shall so
require, the election of directors of the Corporation need not be by written
ballot.
The directors, other than those who may be elected by the holders of any series
of Preferred Stock, shall be divided into three classes, as nearly equal in
number as possible. One class of directors shall be initially elected for a term
expiring at the annual meeting of stockholders to be held in 1999, another class
shall be initially elected for a term expiring at the annual meeting of
stockholders to be held in 2000, and another class shall be initially elected
for a term expiring at the annual meeting of stockholders to be held in 2001.
Members of each class shall hold office until their successors are elected and
qualified. At each succeeding annual meeting of the stockholders of the
Corporation, the successors of the class of directors whose term expires at that
meeting shall be elected by a majority vote of all votes cast at such meeting to
hold office for a term expiring at the annual meeting of stockholders held in
the third year following the year of their election.
Section 2. REMOVAL OF DIRECTORS; VACANCIES. Subject to the rights of the
holders of any series of Preferred Stock to elect additional directors under
specified circumstances, any director may be removed from office at any time,
but only for cause and only by the affirmative vote of the holders of at least
80 percent of the then outstanding Voting Stock, voting together as a single
class.
Section 3. AMENDMENT. Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
80 percent of the then outstanding Voting Stock, voting together as a single
class, shall be required to amend, repeal or adopt any provision inconsistent
with this Article X.
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ARTICLE XI
A. (1) In addition to any affirmative vote required by law, by this Certificate
of Incorporation or by any Preferred Stock Designation, and except as otherwise
expressly provided in Section B of this Article XI:
(i) any merger or consolidation of the Corporation or any Subsidiary
(as hereinafter defined) with (a) any Interested Stockholder (as hereinafter
defined) or (b) any other corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation would be, an
Affiliate (as hereinafter defined) of an Interested Stockholder; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Stockholder or any Affiliate of any Interested Stockholder of any
assets of the Corporation or any Subsidiary having an aggregate Fair Market
Value (as hereinafter defined) of $10 million or more; or
(iii) the issuance or transfer by the Corporation or any Subsidiary (in
one transaction or a series of transactions) of any securities of the
Corporation or any Subsidiary to any Interested Stockholder or any Affiliate
of any Interested Stockholder in exchange for cash, securities or other
property (or a combination thereof) having an aggregate Fair Market Value of
$10 million or more; or
(iv) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of any Interested
Stockholder or any Affiliate of any Interested Stockholder; or
(v) any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving any
Interested Stockholder) which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any class of
equity or convertible securities of the Corporation or any Subsidiary which
is Beneficially Owned (as hereinafter defined) by any Interested Stockholder
or any Affiliate of any Interested Stockholder;
shall require the affirmative vote of the holders of at least 80 percent of the
voting power of all of the then outstanding shares of the Voting Stock, voting
together as a single class. Such affirmative vote shall be required
notwithstanding any other provisions of this Certificate of Incorporation or any
provision of law or of any agreement with any national securities exchange or
otherwise which might otherwise permit a lesser vote or no vote.
(2) The term "Business Combination" as used in this Article XI shall
mean any transaction which is referred to in any one or more of
subparagraphs (i) through (v) of paragraph (1) of this Section A.
B. The provisions of Section A of this Article XI shall not be applicable to any
particular Business Combination, and such Business Combination shall require
only such affirmative vote as is required by law, any other provision of this
Certificate of Incorporation and any Preferred Stock Designation, if, in the
case of a Business Combination that does not involve any cash or other
consideration being received by the stockholders of the Corporation, solely in
their respective capacities as stockholders of the Corporation, the condition
specified in the following paragraph (1) is met or, in the case of any other
Business Combination, the conditions specified in either of the following
paragraph (1) or paragraph (2) are met:
(1) The Business Combination shall have been approved by a majority of
the Continuing Directors (as hereinafter defined); provided however, that
this condition shall not be capable of satisfaction unless there are at
least three Continuing Directors.
(2) All of the following conditions shall have been met:
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(i) The consideration to be received by holders of shares of a
particular class (or series) of outstanding capital stock (including Common
Stock and other than Excluded Preferred Stock (as hereinafter defined))
shall be in cash or in the same form as the Interested Stockholder or any of
its Affiliates has previously paid for shares of such class (or series) of
capital stock. If the Interested Stockholder or any of its Affiliates have
paid for shares of any class (or series) of capital stock with varying forms
of consideration, the form of consideration to be received per share by
holders of shares of such class (or series) of capital stock shall be either
cash or the form used to acquire the largest number of shares of such class
(or series) of capital stock previously acquired by the Interested
Stockholder or any of its Affiliates.
(ii) The aggregate amount of (x) the cash and (y) the Fair Market Value,
as of the date (the "Consummation Date") of the consummation of the Business
Combination, of the consideration other than cash to be received per share
by holders of Common Stock in such Business Combination shall be at least
equal to the higher of the following (in each case appropriately adjusted in
the event of any stock dividend, stock split, combination of shares or
similar event):
(a) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid
by the Interested Stockholder or any of its Affiliates for any shares of
Common Stock acquired by them within the two-year period immediately
prior to the date of the first public announcement of the proposal of the
Business Combination (the "Announcement Date") or in any transaction in
which the Interested Stockholder became an Interested Stockholder,
whichever is higher, plus interest compounded annually from the first
date on which the Interested Stockholder became an Interested Stockholder
(the "Determination Date") through the Consummation Date at the publicly
announced base rate of interest of Morgan Guaranty Trust Company of New
York (or such other major bank headquartered in New York, New York as may
be selected by the Continuing Directors) from time to time in effect in
New York, New York, less the aggregate amount of any cash dividends paid
or declared (if ultimately paid), and the Fair Market Value of any
dividends paid in other than cash, on each share of Common Stock from the
Determination Date through the Consummation Date in an amount up to but
not exceeding the amount of interest so payable per share of Common
Stock; and
(b) the Fair Market Value per share of Common Stock on the
Announcement Date or the Determination Date, whichever is higher.
(iii) The aggregate amount of (x) the cash and (y) the Fair Market
Value, as of the Consummation Date, of the consideration other than cash to
be received per share by holders of shares of any class (or series), other
than Common Stock or Excluded Preferred Stock, of outstanding capital stock
shall be at least equal to the highest of the following (in each case
appropriately adjusted in the event of any stock dividend, stock split,
combination of shares or similar event), it being intended that the
requirements of this paragraph (2)(iii) shall be required to be met with
respect to every such class (or series) of outstanding capital stock whether
or not the Interested Stockholder or any of its Affiliates has previously
acquired any shares of a particular class (or series) of capital stock:
(a) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid
by the Interested Stockholder or any of its Affiliates for any shares of
such class (or series) of capital stock acquired by them within the
two-year period immediately prior to the Announcement Date or in any
transaction in which it became an Interested Stockholder, whichever is
higher, plus interest compounded annually from the Determination Date
through the Consummation Date at the publicly announced base rate of
interest of Morgan Guaranty Trust Company of New York (or such other
major bank headquartered in New York, New York as may be selected by the
Continuing Directors) from time to time in effect in New York, New York
less the aggregate amount of any cash dividends paid, and the Fair Market
Value of any dividends paid in other than cash, on each share of such
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class (or series) of capital stock from the Determination Date through
the Consummation Date in an amount up to but not exceeding the amount of
interest so payable per share of such class (or series) of capital stock;
(b) the Fair Market Value per share of such class (or series) of
capital stock on the Announcement Date or on the Determination Date,
whichever is higher; and
(c) the highest preferential amount per share, if any, to which the
holders of shares of such class (or series) of capital stock would be
entitled in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation.
(iv) After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business Combination: (a)
except as approved by a majority of the Continuing Directors, there shall
have been no failure to declare and pay at the regular date therefor any
full quarterly dividends (whether or not cumulative) on any outstanding
Preferred Stock; (b) there shall have been (I) no reduction in the annual
rate of dividends paid on the Common Stock (except as necessary to reflect
any subdivision of the Common Stock), except as approved by a majority of
the Continuing Directors, and (II) an increase in such annual rate of
dividends as is necessary to reflect any reclassification (including any
reverse stock split), recapitalization, reorganization or any similar
transaction which has the effect of reducing the number of outstanding
shares of the Common Stock, except as approved by a majority of the
Continuing Directors; and (c) neither such Interested Stockholder nor any of
its Affiliates shall have become the beneficial owner of any additional
shares of Voting Stock except as part of the transaction which results in
such Interested Stockholder becoming an Interested Stockholder; provided,
however, that no approval by Continuing Directors shall satisfy the
requirements of this subparagraph (iv) unless at the time of such approval
there are at least three Continuing Directors.
(v) After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder and any of its Affiliates shall not
have received the benefit, directly or indirectly (except proportionately,
solely in such Interested Stockholder's or Affiliate's capacity as a
stockholder of the Corporation), of any loans, advances, guarantees, pledges
or other financial assistance or any tax credits or other tax advantages
provided by the Corporation, whether in anticipation of or in connection
with such Business Combination or otherwise.
(vi) A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder (or any
subsequent provisions replacing such Act, rules or regulations) shall be
mailed to all stockholders of the Corporation at least 30 days prior to the
consummation of such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to such Act or
subsequent provisions).
(vii) Such Interested Stockholder shall have supplied the Corporation
with such information as shall have been requested pursuant to Section E of
this Article XI within the time period set forth therein.
C. For the purposes of this Article XI:
(1) A "person" means any individual, limited partnership, general
partnership, corporation or other firm or entity.
(2) "Interested Stockholder" means any person (other than the
Corporation or any Subsidiary) who or which:
(i) is the beneficial owner (as hereinafter defined), directly or
indirectly, of ten percent or more of the voting power of the outstanding
Voting Stock; or
(ii) is an Affiliate or an Associate (as hereinafter defined) of the
Corporation and at any time within the two-year period immediately prior
to the date in question was the beneficial
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owner, directly or indirectly, of ten percent or more of the voting power
of the then-outstanding Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to any shares of
Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by any
Interested Stockholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not
involving a public offering within the meaning of the Securities Act of
1933, as amended.
Notwithstanding the foregoing, neither Unitrin, Inc., a Delaware corporation,
nor any of its subsidiaries shall be an Interested Stockholder as long as such
entities in the aggregate Beneficially Own less than 12,658,000 shares of Common
Stock.
(3) A person shall be a "beneficial owner" of or shall "Beneficially
Own", any Voting Stock:
(i) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934, as in effect on August
13, 1997; or
(ii) which such person or any of its Affiliates or Associates has
(a) the right to acquire (whether such right is exercisable immediately
or only after the passage of time) pursuant to any agreement, arrangement
or understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (b) the right to vote
pursuant to any agreement, arrangement or understanding (but neither such
person nor any such Affiliate or Associate shall be deemed to be the
beneficial owner of any shares of Voting Stock solely by reason of having
a revocable proxy granted for a particular meeting of stockholders,
pursuant to a public solicitation of proxies for such meeting, and with
respect to which shares neither such person nor any such Affiliate or
Associate is otherwise deemed the beneficial owner); or
(iii) which are beneficially owned, directly or indirectly, within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as
in effect on August 13, 1997, by any other person with whom such person
or any of its Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting (other than
solely by reason of a revocable proxy as described in subparagraph (ii)
of this paragraph (3)) or disposing of any shares of Voting Stock;
PROVIDED, HOWEVER, that in the case of any employee stock ownership or similar
plan of the Corporation or of any Subsidiary in which the beneficiaries thereof
possess the right to vote any shares of Voting Stock held by such plan, no such
plan nor any trustee with respect thereto (nor any Affiliate of such trustee),
solely by reason of such capacity of such trustee, shall be deemed, for any
purposes hereof to beneficially own any shares of Voting Stock held under any
such plan.
(4) For the purposes of determining whether a person is an Interested
Stockholder pursuant to paragraph (2) of this Section C, the number of
shares of Voting Stock deemed to be outstanding shall include shares deemed
owned through application of paragraph (3) of this Section C but shall not
include any other unissued shares of Voting Stock which may be issuable
pursuant to any agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
(5) "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on August 13, 1997.
(6) "Subsidiary" means any corporation of which a majority of any class
of equity security is owned, directly or indirectly, by the Corporation;
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in paragraph (2) of this Section C, the term
"Subsidiary" shall mean only a corporation of which a majority of each class
of equity security is owned, directly or indirectly, by the Corporation.
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(7) "Continuing Director" means any member of the Board of Directors of
the Corporation who is unaffiliated with the Interested Stockholder and was
a member of the Board prior to the time that the Interested Stockholder
became an Interested Stockholder, and any director who is thereafter chosen
to fill any vacancy on the Board of Directors or who is elected and who, in
either event, is unaffiliated with the Interested Stockholder and in
connection with his or her initial assumption of office is recommended for
appointment or election by a majority of Continuing Directors then on the
Board.
(8) "Fair Market Value" means: (i) in the case of stock, the highest
closing sale price during the 30-day period immediately preceding the date
in question of a share of such stock on the Composite Tape for New York
Stock Exchange Listed Stocks, or, if such stock is not listed on the
Composite Tape, on the New York Stock Exchange, or, if such stock is not
listed on such Exchange, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934 on which such stock is
listed, or, if such stock is not listed on any such exchange, the highest
closing bid quotation with respect to a share of such stock during the
30-day period preceding the date in question on the National Association of
Securities Dealers, Inc. Automated Quotations System or any system then in
use, or if no such quotations are available, the fair market value on the
date in question of a share of such stock as determined by the Board in
accordance with Section D of this Article XI; and (ii) in the case of
property other than cash or stock, the fair market value of such property on
the date in question as determined by the Board in accordance with Section D
of this Article XI.
(9) In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as used
in paragraphs (2)(ii) and (2)(iii) of Section B of this Article XI shall
include the shares of Common Stock and/or the shares of any other class (or
series) of outstanding capital stock retained by the holders of such shares.
(10) "Whole Board" means the total number of directors which the
Corporation would have if there were no vacancies.
(11) "Excluded Preferred Stock" means any series of Preferred Stock with
respect to which the Preferred Stock Designation creating such series
expressly provides that the provisions of this Article XI shall not apply.
(12) "Voting Stock" means capital stock of the Corporation entitled to
vote generally in the election of directors.
D. A majority of the Whole Board, but only if a majority of the Whole Board
shall then consist of Continuing Directors or, if a majority of the Whole Board
shall not then consist of Continuing Directors, a majority of the then
Continuing Directors, shall have the power and duty to determine, on the basis
of information known to them after reasonable inquiry, all facts necessary to
determine compliance with this Article XI, including, without limitation, (i)
whether a person is an Interested Stockholder, (ii) the number of shares of
Voting Stock beneficially owned by any person, (iii) whether a person is an
Affiliate or Associate of another, (iv) whether the applicable conditions set
forth in paragraph (2) of Section B have been met with respect to any Business
Combination, (v) the Fair Market Value of stock or other property in accordance
with paragraph (8) of Section C of this Article XI, and (vi) whether the assets
which are the subject of any Business Combination referred to in paragraph
(1)(ii) of Section A have, or the consideration to be received for the issuance
or transfer of securities by the Corporation or any Subsidiary in any Business
Combination referred to in paragraph (1)(iii) of Section A has, an aggregate
Fair Market Value of $10 million or more.
E. A majority of the Whole Board shall have the right to demand, but only if a
majority of the Whole Board shall then consist of Continuing Directors, or, if a
majority of the Whole Board shall not then consist of Continuing Directors a
majority or the then Continuing Directors shall have the right to demand, that
any person who it is reasonably believed is an Interested Stockholder (or holds
of record shares of Voting
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Stock Beneficially Owned by any Interested Stockholder) supply the Corporation
with complete information as to (i) the record owner(s) of all shares
Beneficially Owned by such person who it is reasonably believed is an Interested
Stockholder, (ii) the number of and class or series of shares Beneficially Owned
by such person who it is reasonably believed is an Interested Stockholder and
held of record by each such record owner and the number(s) of the stock
certificate(s) evidencing such shares, and (iii) any other factual matter
relating to the applicability or effect of this Article XI, as may be reasonably
requested of such person, and such person shall furnish such information within
10 days after receipt of such demand.
F. Nothing contained in this Article XI shall be construed to relieve any
Interested Stockholder from any fiduciary obligation imposed by law.
G. Notwithstanding any other provisions of this Restated Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least 80 percent of the voting power of all of the
then-outstanding shares of the Voting Stock, voting together as a single class,
shall be required to alter, amend, repeal or adopt any provision inconsistent
with this Article XI.
ARTICLE XII
Each person who is or was or had agreed to become a director or officer of the
Corporation, or each such person who is or was serving or who had agreed to
serve at the request of the Board of Directors or an officer of the Corporation
as a director, officer or employee of another corporation, partnership, joint
venture, trust or other enterprise (including the heirs, executor,
administrators or estate of such person), shall be indemnified by the
Corporation, in accordance with the By-Laws of the Corporation, to the full
extent permitted from time to time by the General Corporation Law of the State
of Delaware as the same exists or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment) or any other applicable laws
as presently or hereafter in effect. Without limiting the generality or the
effect of the foregoing, the Corporation may indemnify other persons as provided
in the By-Laws, and the Corporation may enter into one or more agreements with
any person which provide for indemnification greater or different than that
provided in this Article XII. Any amendment or repeal of this Article XII shall
not adversely affect any right or protection existing hereunder immediately
prior to such amendment or repeal.
ARTICLE XIII
A director of the Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to either the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit. Any amendment or repeal of this Article XIII shall
not adversely affect any right or protection of a director of the Corporation
existing immediately prior to such amendment or repeal.
ARTICLE XIV
The Corporation reserves the right at any time and from time to time to amend,
alter, change or repeal any provision contained in this Certificate of
Incorporation or a Preferred Stock Designation, and any other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted, in the manner now or hereafter prescribed herein or by
applicable law, and all rights, preferences and privileges of whatsoever nature
conferred upon stockholders, directors or any other persons
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whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the right reserved in this
Article XIV; PROVIDED, HOWEVER, that any amendment or repeal of Article XII or
Article XIII of this Certificate of Incorporation shall not adversely affect any
right or protection existing hereunder immediately prior to such amendment or
repeal; and provided further that no Preferred Stock Designation shall be
amended after the issuance of any shares of the series of Preferred Stock
created thereby, except in accordance with the terms of such Preferred Stock
Designation and the requirements of applicable law.
Executed on August 13, 1997
By:______________________________________
/s/ Leonie S. Pan
Incorporator
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ANNEX D
BY-LAWS
OF
UNOVA, INC.
ARTICLE I
OFFICES AND RECORDS
SECTION 1.1. DELAWARE OFFICE.
The principal office of the Corporation in the State of Delaware shall be
located in the City of Wilmington, County of New Castle, and the name and
address of its registered agent is Corporation Service Company, 1013 Centre
Road, Wilmington, Delaware.
SECTION 1.2. OTHER OFFICES.
The Corporation may have such other offices, either within or without the State
of Delaware, as the Board of Directors may designate or as the business of the
Corporation may from time to time require.
SECTION 1.3. BOOKS AND RECORDS.
The books and records of the Corporation may be kept outside the State of
Delaware at such place or places as may from time to time be designated by the
Board of Directors.
ARTICLE II
STOCKHOLDERS
SECTION 2.1. ANNUAL MEETING.
The annual meeting of the stockholders of the Corporation shall be held on
such date commencing in the year 1999 and at such place and time as may be fixed
by resolution of the Board of Directors.
SECTION 2.2. SPECIAL MEETING.
Subject to the rights of the holders of any series of stock having a preference
over the Common Stock of the Corporation as to dividends or upon liquidation
("Preferred Stock") with respect to such series of Preferred Stock, special
meetings of the stockholders may be called only by the Chairman of the Board or
by the Board of Directors pursuant to a resolution adopted by a majority of the
total number of directors which the Corporation would have if there were no
vacancies (the "Whole Board").
SECTION 2.3. PLACE OF MEETING.
The Board of Directors or the Chairman of the Board, as the case may be, may
designate the place of meeting for any annual meeting or for any special meeting
of the stockholders called by the Board of Directors or the Chairman of the
Board. If no designation is so made, the place of meeting shall be the principal
office of the Corporation.
SECTION 2.4. NOTICE OF MEETING.
Written or printed notice, stating the place, day, and hour of the meeting and
the purpose or purposes for which the meeting is called, shall be delivered by
the Corporation not less than ten (10) days nor more than sixty (60) days before
the date of the meeting, either personally or by mail, to each stockholder of
record entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail with postage thereon
prepaid, addressed to the stockholder at his,
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her, or its address as it appears on the stock transfer books of the
Corporation. Such further notice shall be given as may be required by law. Only
such business shall be conducted at a special meeting of stockholders as shall
have been brought before the meeting pursuant to the Corporation's notice of
meeting. Meetings may be held without notice if all stockholders entitled to
vote are present, or if notice is waived by those not present in accordance with
Section 7.4 of these By-Laws. Any previously scheduled meeting of the
stockholders may be postponed, and (unless the Certificate of Incorporation
otherwise provides) any special meeting of the stockholders may be canceled, by
resolution of the Board of Directors upon public notice given prior to the date
previously scheduled for such meeting of stockholders.
SECTION 2.5. QUORUM AND ADJOURNMENT.
Except as otherwise provided by law or by the Certificate of Incorporation, the
holders of a majority of the outstanding shares of the Corporation entitled to
vote generally in the election of directors (the "Voting Stock"), represented in
person or by proxy, shall constitute a quorum at a meeting of stockholders,
except that when specified business is to be voted on by a class or series of
stock voting as a class, the holders of a majority of the shares of such class
or series shall constitute a quorum of such class or series for the transaction
of such business. The Chairman of the meeting or a majority of the shares so
represented may adjourn the meeting from time to time, whether or not there is
such a quorum. No notice of the time and place of adjourned meetings need be
given except as required by law. The stockholders present at a duly called
meeting at which a quorum is present may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum.
SECTION 2.6. PROXIES.
At all meetings of stockholders, a stockholder may vote by proxy executed in
writing (or in such other manner prescribed by the General Corporation Law of
the State of Delaware) by the stockholder, or by his duly authorized attorney in
fact.
SECTION 2.7. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
A. ANNUAL MEETINGS OF STOCKHOLDERS.
(1) Nominations of persons for election to the Board of Directors of the
Corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (a) pursuant
to the Corporation's notice of meeting, (b) by or at the direction of the
Board of Directors, or (c) by any stockholder of the Corporation who was a
stockholder of record at the time of giving of notice provided for in this
By-Law, who is entitled to vote at the meeting, and who complies with the
notice procedures set forth in this By-Law.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph A.(1) of
this By-Law, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on
the 60th day nor earlier than the close of business on the 90th day prior to
the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is more than
30 days before or more than 60 days after such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the close
of business on the 90th day prior to such annual meeting and not later than
the close of business on the later of the 60th day prior to such annual
meeting or the 10th day following the day on which public announcement of
the date of such meeting is first made by the Corporation. In no event shall
the public announcement of an adjournment of an annual meeting commence a
new
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time period for the giving of a stockholder's notice as described above.
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director,
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule
14a-11 thereunder (including such person's written consent to being named in
the proxy statement as a nominee and to serving as a director if elected);
(b) as to any other business that the stockholder proposes to bring before
the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting,
and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as
to the stockholder giving the notice and the beneficial owner, if any, on
whose behalf the nomination or proposal is made, (i) the name and address of
such stockholder, as they appear on the Corporation's books, and of such
beneficial owner and (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph A.(2)
of this By-Law to the contrary, in the event that the number of directors to
be elected to the Board of Directors of the Corporation is increased and
there is no public announcement by the Corporation naming all of the
nominees for director or specifying the size of the increased Board of
Directors at least 70 days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this By-Law shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the
Secretary at the principal executive offices of the Corporation not later
than the close of business on the 10th day following the day on which such
public announcement is first made by the Corporation.
B. SPECIAL MEETINGS OF STOCKHOLDERS.
Only such business shall be conducted at a special meeting of stockholders as
shall have been brought before the meeting pursuant to the Corporation's notice
of meeting. Nominations of persons for election to the Board of Directors may be
made at a special meeting of stockholders at which directors are to be elected
pursuant to the Corporation's notice of meeting (a) by or at the direction of
the Board of Directors or (b) provided that the Board of Directors has
determined that directors shall be elected at such meeting, by any stockholder
of the Corporation who is a stockholder of record at the time of giving of
notice provided for in this By-Law, who shall be entitled to vote at the meeting
and who complies with the notice procedures set forth in this By-Law. In the
event the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by paragraph A.(2) of this By-Law shall be
delivered to the Secretary at the principal executive offices of the Corporation
not earlier than the close of business on the 90th day prior to such special
meeting and not later than the close of business on the later of the 60th day
prior to such special meeting or the 10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting. In no
event shall the public announcement of an adjournment of a special meeting
commence a new time period for the giving of a stockholder's notice as described
above.
C. GENERAL.
(1) Only such persons who are nominated in accordance with the
procedures set forth in this By-Law shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as
shall have been brought before the meeting in accordance with the procedures
set forth in this By-Law. Except as otherwise provided by law, the Chairman
of the meeting shall have the power and duty to determine whether a
nomination or any business
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proposed to be brought before the meeting was made or proposed, as the case
may be, in accordance with the procedures set forth in this By-Law and, if
any proposed nomination or business is not in compliance with this By-Law,
to declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this By-Law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press, or comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14, or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-Law, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this By-Law. Nothing in this By-Law shall be deemed to
affect any rights (a) of stockholders to request inclusion of proposals in
the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange
Act or (b) of the holders of any series of Preferred Stock to elect
directors under specified circumstances.
SECTION 2.8. PROCEDURE FOR ELECTION OF DIRECTORS; REQUIRED VOTE.
Election of directors at all meetings of the stockholders at which directors are
to be elected shall be by ballot, and, subject to the rights of the holders of
any series of Preferred Stock to elect directors under specified circumstances,
a plurality of the votes cast thereat shall elect directors. Except as otherwise
provided by law, the Certificate of Incorporation, or these By-Laws, in all
matters other than the election of directors, the affirmative vote of a majority
of the shares present in person or represented by proxy at the meeting and
entitled to vote on the matter shall be the act of the stockholders.
SECTION 2.9. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS.
The Board of Directors by resolution shall appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the Corporation in
other capacities, including, without limitation, as officers, employees, agents
or representatives, to act at the meetings of stockholders and make a written
report thereof. One or more persons may be designated as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate has been
appointed to act or is able to act at a meeting of stockholders, the Chairman of
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before discharging his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspector(s) shall have the
duties prescribed by law.
The Chairman or the Secretary of the meeting shall fix and announce at the
meeting the date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting.
SECTION 2.10. NO STOCKHOLDER ACTION BY WRITTEN CONSENT.
Subject to the rights of the holders of any series of Preferred Stock with
respect to such series of Preferred Stock, any action required or permitted to
be taken by the stockholders of the Corporation must be effected at an annual or
special meeting of stockholders of the Corporation and may not be effected by
any consent in writing by such stockholders.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1. GENERAL POWERS.
The business and affairs of the Corporation shall be managed under the
direction of the Board of Directors. In addition to the powers and authorities
by these By-Laws expressly conferred upon them,
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the Board of Directors may exercise all such powers of the Corporation and do
all such lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these By-Laws required to be exercised or done by the
stockholders.
SECTION 3.2. NUMBER, TENURE, AND QUALIFICATIONS.
Subject to the rights of the holders of any series of Preferred Stock to elect
directors under specified circumstances, the number of directors shall be fixed
from time to time exclusively pursuant to a resolution adopted by a majority of
the Whole Board. The directors, other than those who may be elected by the
holders of any series of Preferred Stock under specified circumstances, shall be
divided, with respect to the time for which they severally hold office, into
three classes, as nearly equal in number as is reasonably possible, with the
term of office of the first class to expire at the 1999 annual meeting of
stockholders, the term of office of the second class to expire at the 2000
annual meeting of stockholders and the term of office of the third class to
expire at the 2001 annual meeting of stockholders, with each director to hold
office until his or her successor shall have been duly elected and qualified. At
each annual meeting of stockholders, commencing with the 1999 annual meeting,
(i) directors elected to succeed those directors whose terms then expire shall
be elected for a term of office to expire at the third succeeding annual meeting
of stockholders after their election, with each director to hold office until
his or her successor shall have been duly elected and qualified, and (ii) if
authorized by a resolution of the Board of Directors, directors may be elected
to fill any vacancy on the Board of Directors, regardless of how such vacancy
shall have been created.
SECTION 3.3. REGULAR MEETINGS.
A regular meeting of the Board of Directors shall be held immediately after the
annual meeting of stockholders without other notice than this By-Law. Regular
meetings of the directors may be held without notice at such place and times as
shall be determined from time to time by the Board of Directors.
SECTION 3.4. SPECIAL MEETINGS.
Special meetings of the Board of Directors shall be called at the request of the
Chairman of the Board, the President, or a majority of the Board of Directors
then in office. The person or persons authorized to call special meetings of the
Board of Directors may fix the place and time of the meetings.
SECTION 3.5. NOTICE.
Notice of any special meeting of directors shall be given to each director at
his or her business or residence in writing by hand delivery, first-class or
overnight mail or courier service, telegram or facsimile transmission,
electronic mail, or orally by telephone. If mailed by first-class mail, such
notice shall be deemed adequately delivered when deposited in the United States
mails so addressed, with postage thereon prepaid, at least five (5) days before
such meeting. If by telegram, overnight mail, or courier service, such notice
shall be deemed adequately delivered when the telegram is delivered to the
telegraph corporation or the notice is delivered to the overnight mail or
courier service corporation at least twenty-four (24) hours before such meeting.
If by facsimile transmission or electronic mail, such notice shall be deemed
adequately delivered when the notice is transmitted at least twelve (12) hours
before such meeting. If by telephone or by hand delivery, the notice shall be
given at least twelve (12) hours prior to the time set for the meeting. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the Board of Directors need be specified in the notice of such
meeting, except for amendments to these By-Laws, as provided under Section 8.1.
A meeting may be held at any time without notice if all the directors are
present or if those not present waive notice of the meeting in accordance with
Section 7.4 of these By-Laws.
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SECTION 3.6. ACTION BY CONSENT OF BOARD OF DIRECTORS.
Any action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or committee.
SECTION 3.7. CONFERENCE TELEPHONE MEETINGS.
Members of the Board of Directors, or any committee thereof, may participate in
a meeting of the Board of Directors or such committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at such meeting.
SECTION 3.8. QUORUM.
Subject to Section 3.9, a whole number of directors equal to at least a majority
of the Whole Board shall constitute a quorum for the transaction of business,
but if at any meeting of the Board of Directors there shall be less than a
quorum present, a majority of the directors present may adjourn the meeting from
time to time without further notice. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors. The directors present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
directors to leave less than a quorum.
SECTION 3.9. VACANCIES.
Subject to applicable law and the rights of the holders of any series of
Preferred Stock with respect to such series of Preferred Stock, and unless the
Board of Directors otherwise determines, vacancies resulting from death,
resignation, retirement, disqualification, removal from office or other cause,
and newly created directorships resulting from any increase in the authorized
number of directors, may be filled only by the affirmative vote of a majority of
the remaining directors, though less than a quorum of the Board of Directors,
and directors so chosen shall hold office for a term expiring at the annual
meeting of stockholders at which the term of office of the class to which they
have been elected expires and until any such director's successor shall have
been duly elected and qualified. No decrease in the number of authorized
directors constituting the Whole Board shall shorten the term of any incumbent
director.
SECTION 3.10. EXECUTIVE AND OTHER COMMITTEES.
The Board of Directors may, by resolution adopted by a majority of the Whole
Board, designate an Executive Committee to exercise, subject to applicable
provisions of law, all the powers of the Board in the management of the business
and affairs of the Corporation when the Board is not in session, including
without limitation the power to declare dividends, to authorize the issuance of
the Corporation's capital stock and to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law of the State of
Delaware, and may, by resolution similarly adopted, designate one or more other
committees. The Executive Committee and each such other committee shall consist
of two or more directors of the Corporation. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. Any such committee, other
than the Executive Committee (the powers of which are expressly provided for
herein), may to the extent permitted by law exercise such powers and shall have
such responsibilities as shall be specified in the designating resolution. In
the absence or disqualification of any member of such committee or committees,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not constituting a quorum, may unanimously appoint another
member of the Board to act at the meeting in the place of any such absent or
disqualified
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member. Each committee shall keep written minutes of its proceedings and shall
report such proceedings to the Board when required.
A majority of any committee may determine its action and fix the time and place
of its meetings, unless the Board shall otherwise provide. Notice of such
meetings shall be given to each member of the committee in the manner provided
for in Section 3.5 of these By-Laws. The Board shall have power at any time to
fill vacancies in, to change the membership of, or to dissolve any such
committee. Nothing herein shall be deemed to prevent the Board from appointing
one or more committees consisting in whole or in part of persons who are not
directors of the Corporation; provided, however, that no such committee shall
have or may exercise any authority of the Board.
SECTION 3.11. REMOVAL.
Subject to the rights of the holders of any series of Preferred Stock with
respect to such series of Preferred Stock, any director, or the entire Board of
Directors, may be removed from office at any time, but only for cause and only
by the affirmative vote of the holders of at least 80 percent of the voting
power of all of the then outstanding shares of Voting Stock, voting together as
a single class.
SECTION 3.12. RECORDS.
The Board of Directors shall cause to be kept a record containing the minutes of
the proceedings of the meetings of the Board and of the stockholders,
appropriate stock books and registers and such books of records and accounts as
may be necessary for the proper conduct of the business of the Corporation.
SECTION 3.13. ADVISORY DIRECTORS.
The Board of Directors may elect one or more advisory directors who shall have
such powers and shall perform such duties as the directors shall assign to them.
Advisory directors shall, upon election, serve until the next annual meeting of
stockholders. Advisory directors shall receive notices of all meetings of the
Board of Directors in the same manner and at the same time as the directors.
They shall attend said meetings referred to in said notices in an advisory
capacity, but will not cast a vote or be counted to determine a quorum. Any
advisory directors may be removed either with or without cause, by a majority of
the directors at the time in office, at any regular or special meeting of the
Board of Directors.
Nothing herein contained shall be construed to preclude any advisory director
from serving the Corporation in any other capacity as an officer, agent, or
otherwise.
ARTICLE IV
OFFICERS
SECTION 4.1. OFFICERS.
The officers of the Corporation shall consist of a Chairman of the Board, a
Chief Executive Officer, a Secretary, a Treasurer, and, if deemed necessary,
expedient, or desirable by the Board of Directors, a President, a Vice Chairman
of the Board, one or more Chief Operating Officers, one or more Vice Presidents
(one or more of whom may be designated Executive or Senior Vice President), one
or more Assistant Secretaries, and one or more Assistant Treasurers. Except as
may otherwise be provided in the resolution of the Board of Directors choosing
him or her, no officer other than the Chairman or Vice Chairman of the Board, if
any, need be a director. Except as may be limited by law, any number of offices
may be held by the same person, as the directors may determine.
Unless otherwise provided for in the resolution choosing him or her, each
officer shall be chosen for a term that shall continue until the meeting of the
Board of Directors following the next annual meeting of stockholders and until
his or her successor shall have been chosen and qualified.
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All officers of the Corporation shall have such authority and perform such
duties as shall be prescribed in the By-Laws or in the resolutions of the Board
of Directors designating and choosing such officers and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions may be inconsistent therewith. Any officer may be
removed, with or without cause, by the Board of Directors. Any vacancy in any
office may be filled by the Board of Directors.
SECTION 4.2. OTHER OFFICERS AND AGENTS.
The Board of Directors may appoint such other officers and agents as it may deem
advisable, who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors. The Chief Executive Officer may appoint key executives to
the position of staff vice president. Such staff vice presidents shall not be
corporate officers and shall exercise such powers and perform such duties as are
assigned to them by the Chief Executive Officer or the President, if any, or by
any other officer of the Corporation designated for such purpose by the Chief
Executive Officer or President, if any.
ARTICLE V
CAPITAL STOCK
SECTION 5.1. SHARES.
The shares of the capital stock of the Corporation shall be represented by
certificates or shall be uncertificated. Each registered holder of shares of
capital stock, upon request to the Corporation, shall be provided with a stock
certificate, representing the number of shares owned by such holder. Absent
specific request for such a certificate by the registered owner or transferee
thereof, all shares shall be uncertificated upon the original issuance thereof
by the Corporation or upon the surrender for transfer of the certificate
representing such shares to the Corporation or its transfer agent.
SECTION 5.2. CERTIFICATES FOR SHARES OF STOCK.
The certificates for shares of stock of the Corporation shall be in such form,
not inconsistent with the Certificate of Incorporation, as shall be approved by
the Board of Directors. All certificates shall be signed, countersigned, and
registered in such manner as the Board of Directors may by resolution prescribe,
which resolution may permit any of all of the signatures on such certificates to
be in facsimile.
In case any officer, transfer agent, or registrar who shall have signed or whose
facsimile signature has been placed upon any such certificate or certificates
shall cease to be such officer, transfer agent, or registrar of the Corporation,
whether because of death, resignation, or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be issued and delivered as though the person or
persons who signed such certificate or certificates had not ceased to be such
officer, transfer agent, or registrar of the Corporation.
All certificates for shares of stock shall be consecutively numbered as the same
are issued. The name of the person owning the shares represented thereby with
the number of such shares and the date of issue thereof shall be entered on the
books of the corporation.
Except as hereinafter provided, all certificates surrendered to the Corporation
for transfer shall be canceled and no new certificates or uncertificated shares
shall be issued until former certificates for the same number of shares have
been surrendered and canceled.
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SECTION 5.3. LOST, STOLEN, OR DESTROYED CERTIFICATES.
No certificate for shares of stock in the Corporation shall be issued in place
of any certificate alleged to have been lost, destroyed, or stolen, except on
production of such evidence of such loss, destruction, or theft and on delivery
to the Corporation of a bond of indemnity in such amount, upon such terms, and
secured by such surety, as the Board of Directors or the Secretary of the
Corporation may in its, his, or her discretion require.
SECTION 5.4. TRANSFER OF SHARES.
Upon surrender to the Corporation or to the transfer agent of the Corporation of
a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation, or authority to transfer, the Corporation shall issue
or cause to be issued uncertificated shares or, if requested by the appropriate
person, a new certificate to the person entitled thereto, cancel the surrendered
certificate, and record the transaction upon its books. Upon receipt of proper
transfer instructions from the registered owner of uncertificated shares, such
uncertificated shares shall be canceled and issuance of new equivalent
uncertificated shares shall be made to the person entitled thereto and the
transaction shall be recorded upon the books of the Corporation.
SECTION 5.5. REGULATIONS.
The Board of Directors shall have power and authority to make such rules and
regulations as it may deem expedient concerning the issue, transfer, and
registration of uncertificated shares or certificates for shares of stock of the
Corporation.
SECTION 5.6. STATEMENTS RELATING TO UNCERTIFICATED SECURITIES.
Within two business days after an issuance, transfer, pledge, or release from a
pledge of uncertificated shares has been registered, the Corporation shall send
to the registered owner thereof and, if shares are or were subject to a
registered pledge, to the registered pledgee, a written notice, signed in the
same manner as a certificate for shares may be signed in accordance with Section
5.2 of this Article V, stating (a) that the Corporation shall furnish to such
person(s) upon request and without charge a full statement of the designation,
relative rights, preferences and limitations of the shares of each class of the
Corporation's stock authorized to be issued and the designation, relative
rights, preferences and limitations of each series of preferred stock so far as
the same has been fixed and the authority of the Board of Directors to designate
and fix the relative rights, preferences and limitations of other series; (b)
that the Corporation is formed under the laws of the State of Delaware; (c) the
number of shares and a description of the issue of which such shares are a part
including the class of shares, and the designation of the series, if any, which
have been issued, transferred, pledged or released from a pledge, as the case
may be; (d) the name, address, and taxpayer identification number, if any, of
the person or persons to which such shares have been issued or transferred, and,
in the case of registration of a pledge or a release from a pledge, of the
registered owner and the registered pledgee whose interest is being granted or
released, (e) any liens or restrictions of the Corporation, and any adverse
claims (i) which are embodied in a restraining order, injunction, or other legal
process served upon the Corporation at a time and in a manner which afforded it
a reasonable opportunity to act on it in accordance with applicable law, (ii) of
which the Corporation has received written notification from the registered
owner or the registered pledgee at a time and in a manner which afforded it a
reasonable opportunity to act on it in accordance with applicable law, (iii) to
which the registration of transfer to the present registered owner was subject
and so noted in a statement sent to such person under this paragraph including
restrictions on transfer not imposed by the Corporation, and (iv) of which the
Corporation is charged with notice from a controlling instrument which the
Corporation has elected to require as assurance that a necessary endorsement or
instruction is genuine and effective, to which the shares are subject or a
statement that there are no such liens, restrictions, or adverse claims; and (f)
the date the issuance, transfer, pledge, or release from a pledge, as the case
may be, was registered. The Corporation shall maintain a printed
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copy of the most recent statement sent to a person with respect to
uncertificated shares pursuant to this paragraph.
Within two business days after a transfer of uncertificated shares has been
registered, the Corporation shall send to the former registered owner and the
former registered pledgee, if any, a written notice stating (a) the number of
shares and a description of the issue of which such shares are a part, including
the class of shares, and the designation of the series, if any, which have been
transferred; (b) the name, address and taxpayer identification number, if any;
of the former registered owner and of the former registered pledgee, if any; and
(c) the date the transfer was registered.
The Corporation shall send to each registered holder and registered pledgee of
uncertificated shares, no less frequently than annually, and at any time upon
the written request of any such person, a dated written notice stating (a) if
such notice is to the registered owner, the number of shares and a description
of the issue of which such shares are a part, including the class of shares, and
the designation of the series, if any, registered in the name of such registered
owner on the date of the statement; (b) the name, address, and taxpayer
identification number, if any, of the registered owner; (c) the name, address
and taxpayer identification number, if any, of any registered pledgee and the
number of shares subject to the pledge; and (d) any liens or restrictions of the
Corporation and any adverse claims (i) which are embodied in a restraining
order, injunction, or other legal process served upon the Corporation at a time
and in a manner which afforded it a reasonable opportunity to act on it in
accordance with applicable law, (ii) of which the Corporation has received
written notification from the registered owner or the registered pledgee at a
time and in a manner which afforded it a reasonable opportunity to act on it in
accordance with applicable law, (iii) to which the registration of transfer to
the present registered owner was subject and so noted in a statement sent to
such person under this paragraph, including restrictions on transfer not imposed
by the Corporation, and (iv) of which the Corporation is charged with notice
from a controlling instrument which the Corporation has elected to require as
assurance that a necessary endorsement or instruction is genuine and effective,
to which the shares are subject or a statement that there are no such liens,
restrictions or adverse claims.
Each notice sent pursuant to this Section 5.6 shall bear a conspicuous legend
reading substantially as follows: "This statement is merely a record of the
rights of the addressee as of the time of its issuance. Delivery of the
statement, of itself, confers no rights upon the recipient. This statement is
neither a negotiable instrument nor a security."
ARTICLE VI
INDEMNIFICATION; ADVANCE OF EXPENSES
SECTION 6.1. RIGHT TO INDEMNIFICATION.
A. Each person who was or is made a party or is threatened to be made a party to
or is involved in any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (hereinafter a "proceeding") by reason of the
fact that he or she or a person of whom he or she is the legal representative is
or was a director or officer of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee, or agent of another
corporation or of a partnership, joint venture, trust, or other enterprise,
including service with respect to employee benefit plans maintained or sponsored
by the Corporation, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee, or agent or in any other
capacity while serving as a director, officer, employee, or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the General Corporation Law of the State of Delaware as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), against all expense, liability, and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties, and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such person
in connection therewith and such indemnification shall continue as to a person
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who has ceased to be a director, officer, employee, or agent and shall inure to
the benefit of his or her heirs, executors, and administrators; PROVIDED,
HOWEVER, that except as provided in Section 6.2.B. of this Article VI, the
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of Directors.
B. Each person referred to in Section 6.1.A. of this Article VI shall be paid by
the Corporation the expenses incurred in connection with any proceeding in
advance of its final disposition, such advances to be paid by the Corporation
within 20 days after the receipt by the Corporation of a statement or statements
from the claimant requesting such advance or advances from time to time;
PROVIDED, HOWEVER, that if the General Corporation Law of the State of Delaware
requires, the advancement of such expenses incurred by a director or officer in
his or her capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) prior to the
final disposition of a proceeding, shall be made only upon delivery to the
Corporation of an undertaking by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Article VI or
otherwise.
C. The right to indemnification conferred in this Article VI and the right to be
paid by the Corporation the expenses incurred in connection with any such
proceeding in advance of its final disposition conferred in this Article VI each
shall be a contract right.
SECTION 6.2. PROCEDURE TO OBTAIN INDEMNIFICATION.
A. To obtain indemnification under this Article VI, a claimant shall submit to
the Corporation a written request, including therein or therewith such
documentation and information as is reasonably available to the claimant and is
reasonably necessary to determine whether and to what extent the claimant is
entitled to indemnification. Upon written request by a claimant for
indemnification pursuant to the first sentence of this Section 6.2.A., a
determination, if required by applicable law, with respect to the claimant's
entitlement thereto shall be made as follows: (1) if requested by the claimant,
by Independent Counsel (as hereinafter defined) or (2) if no request is made by
the claimant for a determination by Independent Counsel, (a) by the Board of
Directors by a majority vote of a quorum consisting of Disinterested Directors
(as hereinafter defined) or (b) if a quorum of the Board of Directors consisting
of Disinterested Directors is not obtainable or, even if obtainable, such quorum
of Disinterested Directors so directs, by Independent Counsel in a written
opinion to the Board of Directors, a copy of which shall be delivered to the
claimant, or (c) if a quorum of Disinterested Directors so directs, by the
stockholders of the Corporation. In the event the determination of entitlement
to indemnification is to be made by Independent Counsel at the request of the
claimant, the Independent Counsel shall be selected by the Board of Directors
unless there shall have occurred within six years prior to the date of the
commencement of the action, suit, or proceeding for which indemnification is
claimed a "Change of Control" as defined in the Corporation's 1997 Stock
Incentive Plan, in which case the Independent Counsel shall be selected by the
claimant unless the claimant shall request that such selection be made by the
Board of Directors. If it is so determined that the claimant is entitled to
indemnification, payment to the claimant shall be made within 10 days after such
determination.
B. If a claim under Section 6.1 of this Article VI is not paid in full by the
Corporation within 30 days after a written claim pursuant to Section 6.2.A. of
this Article VI has been received by the Corporation or, in the case of a claim
pursuant to Section 6.1.B., within the 20-day period provided therein, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has not met the standard of
conduct which makes it permissible under the General Corporation Law of the
State of
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Delaware for the Corporation to indemnify the claimant for the amount of the
claims, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors,
Independent Counsel, or stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the General Corporation Law of the State of Delaware, nor an actual
determination by the Corporation (including its Board of Directors, Independent
Counsel, or stockholders) that the claimant has not met such applicable standard
of conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
C. If a determination shall have been made pursuant to Section 6.2.A. of this
Article VI that the claimant is entitled to indemnification, the Corporation
shall be bound by such determination in any judicial proceeding commenced
pursuant to Section 6.2.B. of this Article VI.
D. The Corporation shall be precluded from asserting in any judicial proceeding
commenced pursuant to Section 6.2.B. of this Article VI that the procedures and
presumptions of this Article VI are not valid, binding, and enforceable and
shall stipulate in such proceeding that the Corporation is bound by all the
provisions of this Article VI.
SECTION 6.3. NO DIMINUTION OF RIGHTS.
The right to indemnification and the payment of expenses incurred in defending a
proceeding in advance of its final disposition conferred in this Article VI
shall not be exclusive of any other right which any person may have or hereafter
acquire under any statute, provision of the Certificate of Incorporation,
By-Laws, agreement, vote of stockholders or Disinterested Directors, or
otherwise. No repeal or modification of this Article VI shall in any way
diminish or adversely affect the rights of any director, officer, employee, or
agent of the Corporation hereunder in respect of any occurrence of matter
arising prior to any such repeal or modification.
SECTION 6.4. INSURANCE.
The Corporation may maintain insurance, at its expense, to protect itself and
any director, officer, employee, or agent of the Corporation or any person
serving at the request of the Corporation as a director, officer, employee, or
agent of another corporation, partnership, joint venture, trust, or other
enterprise against any expense, liability, or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability, or loss under the General Corporation Law of the State of Delaware.
To the extent that the Corporation maintains any policy or policies providing
such insurance, each such director or officer, and each such agent or employee
to which rights to indemnification have been granted as provided in Section 6.5
of this Article VI, shall be covered by such policy or policies in accordance
with its or their terms to the maximum extent of the coverage thereunder for any
such director, officer, employee, or agent.
SECTION 6.5. DISCRETIONARY INDEMNIFICATION.
The Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification, and rights to be paid by the
Corporation and the expenses incurred in defending any proceeding in advance of
its final disposition, to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article VI with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
SECTION 6.6. ENFORCEABILITY.
If any provision or provisions of this Article VI shall be held to be invalid,
illegal, or unenforceable for any reason whatsoever: (a) the validity, legality,
and enforceability of the remaining provisions of this Article VI (including,
without limitation, each portion of any section of this Article VI containing
any such
D-12
<PAGE>
provision held to be invalid, illegal, or unenforceable, that is not itself held
to be invalid, illegal, or unenforceable) shall not in any way be affected or
impaired thereby; and (b) to the fullest extent possible, the provisions of this
Article VI (including, without limitation, each such portion of any section of
this Article VI containing any such provision held to be invalid, illegal, or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal, or unenforceable.
SECTION 6.7. CERTAIN DEFINITIONS.
For purposes of this Article VI:
(a) "Disinterested Director" means a director of the Corporation who is not and
was not a party to the matter in respect of which indemnification is sought by
the claimant.
(b) "Independent Counsel" means a law firm that is nationally recognized for its
experience in matters of Delaware corporation law and shall not include any
person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the
Corporation or the claimant in an action to determine the claimant's rights
under this Article VI.
SECTION 6.8. NOTICES.
Any notice, request, or other communication required or permitted to be given to
the Corporation under this Article VI shall be in writing and either delivered
in person or sent by telecopy, telex, telegram, electronic mail, overnight mail
or courier service, or certified or registered mail, postage prepaid, return
receipt requested, to the Secretary of the Corporation.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 7.1. FISCAL YEAR.
The fiscal year of the Corporation shall begin on the first day of January and
end on the thirty-first day of December of each year.
SECTION 7.2. DIVIDENDS.
The Board of Directors may from time to time declare, and the Corporation may
pay, dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law and the Certificate of Incorporation.
SECTION 7.3. SEAL.
The corporate seal shall have inscribed thereon the words "Corporate Seal," the
year of incorporation and around the margin thereof the words "UNOVA,
Inc.--Delaware."
SECTION 7.4. WAIVER OF NOTICE.
Whenever any notice is required to be given to any stockholder or director of
the Corporation under the provisions of the General Corporation Law of the State
of Delaware or these By-Laws, a waiver thereof in writing, signed by the person
or persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Neither the
business to be transacted at, nor the purpose of, any annual or special meeting
of the stockholders or the Board of Directors or committee thereof need be
specified in any waiver of notice of such meeting.
D-13
<PAGE>
SECTION 7.5. AUDITS.
The accounts, books, and records of the Corporation shall be audited upon the
conclusion of each fiscal year by an independent certified public accountant
selected by the Board of Directors, and it shall be the duty of the Board of
Directors to cause such audit to be done annually.
SECTION 7.6. RESIGNATIONS.
Any director of any officer, whether elected or appointed, may resign at any
time by giving written notice of such resignation to the Chairman of the Board,
the President, if any, or the Secretary, and such resignation shall be deemed to
be effective as of the close of business on the date said notice is received by
the Chairman of the Board, the President, if any, or the Secretary, or at such
later time as is specified therein. No formal action shall be required of the
Board of Directors or the stockholders to make any such resignation effective.
SECTION 7.7. PROXIES.
Unless otherwise provided by resolution adopted by the Board of Directors, the
Chairman of the Board, the President, if any, or any Vice President may from
time to time appoint an attorney or attorneys or agent or agents of the
Corporation, in the name and on behalf of the Corporation, to cast the votes
which the Corporation may be entitled to cast as the holder of stock or other
securities in any other corporation, any of whose stock or other securities may
be held by the Corporation, at meetings of the holders of the stock or other
securities of such other corporation, or to consent in writing, in the name of
the Corporation as such holder, to any action by such other corporation, and may
instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent, and may execute or cause to be executed in the
name and on behalf of the Corporation and under its corporate seal or otherwise,
all such written proxies or other instruments as he or she may deem necessary or
proper in the premises.
ARTICLE VIII
AMENDMENTS
SECTION 8.1. AMENDMENTS.
These By-Laws may be altered, amended, or repealed at any meeting of the Board
of Directors or of the stockholders, provided notice of the proposed change was
given in the notice of the meeting and, in the case of a meeting of the Board of
Directors, in a notice given not less than two days prior to the meeting;
provided, however, that, in the case of amendments by stockholders,
notwithstanding any other provisions of these By-Laws or any provision of law
which might otherwise permit a lesser vote or no vote, but in addition to any
affirmative vote of the holders of any particular class or series of the capital
stock of the Corporation required by law, the Certificate of Incorporation or
these By-Laws, the affirmative vote of the holders of at least 80 percent of the
voting power of all the then outstanding shares of the Voting Stock, voting
together as a single class, shall be required to alter, amend, or repeal any
provision of these By-Laws.
D-14
<PAGE>
EXHIBIT A
DEFINITIONS
RETURN ON CAPITAL UTILIZED (ROCU)
Business Operating Profit (BOP) divided by average Capital Utilized
(computed on a monthly basis).
CAPITAL UTILIZED
Total equity, plus Notes Payable, plus Current Portion of Long-Term Debt
plus Long-Term Debt, plus Advances from Corporate (less if net Advances are
to Corporate), less Investments in Consolidated Subsidiaries.
BUSINESS OPERATING PROFIT (BOP)
Total Sales less Total Cost of Sales less Marketing expense less General and
Administrative Expenses plus Other Income or minus Other Expense.
RETURN ON TANGIBLE EQUITY (ROTE)
Net Income divided by beginning tangible equity.
CONSOLIDATED PRE-TAX INCOME
Net income of the Company and its Consolidated Subsidiaries before taxes and
before giving effect to extraordinary items.
CASH FLOW (CF)
The sum of net income plus depreciation and amortization.
REVENUE
Revenue as reported on the Company's annual financial statements.
REVENUE GROWTH (RG)
The increase in revenue for the current fiscal year, expressed as a percent,
above a specified base line period.
RETURN ON ASSETS (ROA)
BOP divided by average assets (computed on a monthly basis).
CAPITAL
The sum of all interest-bearing debt, including debt with imputed interest,
and total equity.
RETURN ON CAPITAL (ROC)
Income before interest and taxes divided by average annual capital (computed
on a monthly basis).
1
<PAGE>
RETURN ON EQUITY (ROE)
Net income divided by beginning equity.
RETURN ON REVENUE (ROR)
BOP divided by total Net Revenue expressed as a percent.
NET REVENUE
Total net sales and service revenue after adjustments for all discounts,
returns, and allowances.
BASIC EARNINGS PER SHARE (BEPS)
Income available to common stockholders of the Company divided by the
weighted-average number of common shares of the Company outstanding during
the applicable period. Shares issued during the applicable period and shares
reacquired during the applicable period shall be weighted for the portion of
the period that they were outstanding.
DILUTED EARNINGS PER SHARE (DEPS)
DEPS is computed in the same manner as BEPS; however, the weighted-average
number of common shares of the Company outstanding during the applicable
period is increased to include the number of additional common shares that
would have been outstanding if the dilutive potential common shares
resulting from stock options or other common stock equivalents had been
issued.
2
<PAGE>
<TABLE>
<S> <C>
Item 15. Financial Statements and Exhibits.
(b) Exhibits:
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -------------------------------------------------------------------------------------
<S> <C>
2 Form of Distribution and Indemnity Agreement
3A Certificate of Incorporation of UNOVA, Inc. (attached to Information Statement as
Annex C)
3B By-laws of UNOVA, Inc. (attached to Information Statement as Annex D)
3C* Form of Rights Agreement
10A Form of 1997 Stock Incentive Plan (attached to Information Statement as Annex B)
10B Form of Tax Sharing Agreement
10C Form of Distribution and Indemnity Agreement (filed as Exhibit 2)
10D Form of Benefits Agreement
10E Form of Intellectual Property Agreement
10F* Form of Change of Control Employment Agreement with certain executive officers of
UNOVA, Inc.
10G Form of Director Stock Option and Fee Plan (attached to Information Statement as
Annex A)
10H UNOVA, Inc. Supplemental Executive Retirement Plan
10I* UNOVA, Inc. Restoration Plan
10J* Employment Agreement between Intermec Corporation and Michael Ohanian, dated May 18,
1995, as amended
10K Employment Agreement between UNOVA Inc. and Clayton A. Williams dated August, 1997
10L Supplemental Executive Retirement Agreement between UNOVA, Inc. and Alton J. Brann
10M Credit Agreement dated as of September 24, 1997 among UNOVA, Inc., and the banks
listed therein and Morgan Guaranty Trust Company of New York, as Agent
21 Subsidiaries of UNOVA, Inc.
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- --------- -------------------------------------------------------------------------------------------------- ---------
<S> <C> <C>
2 Form of Distribution and Indemnity Agreement......................................................
3A Certificate of Incorporation of UNOVA, Inc. (attached to Information
Statement as Annex C)
3B By-laws of UNOVA, Inc. (attached to Information Statement as
Annex D)
3C* Form of Rights Agreement..........................................................................
10A Form of 1997 Stock Incentive Plan (attached to Information Statement
as Annex B)
10B Form of Tax Sharing Agreement.....................................................................
10C Form of Distribution and Indemnity Agreement (filed as Exhibit 2)
10D Form of Benefits Agreement........................................................................
10E Form of Intellectual Property Agreement...........................................................
10F* Form of Change of Control Employment Agreement with certain
executive officers of UNOVA, Inc. ................................................................
10G Form of Director Stock Option and Fee Plan (attached to Information
Statement as Annex A)
10H UNOVA, Inc. Supplemental Executive Retirement Plan................................................
10I* UNOVA, Inc. Restoration Plan......................................................................
10J* Employment Agreement between Intermec Corporation and Michael
Ohanian, dated May 18, 1995, as amended...........................................................
10K Employment Agreement between UNOVA, Inc. and Clayton A. Williams dated August, 1997...............
10L Supplemental Executive Retirement Agreement between UNOVA, Inc. and Alton J. Brann................
10M Credit Agreement dated as of September 24, 1997 among UNOVA, Inc., the banks listed therein and
Morgan Guaranty Trust Company of New York, as Agent...............................................
21 Subsidiaries of UNOVA, Inc. ......................................................................
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
EXHIBIT 2
DISTRIBUTION AND INDEMNITY AGREEMENT
BETWEEN
WESTERN ATLAS INC.
AND
UNOVA, INC.
<PAGE>
DISTRIBUTION AND INDEMNITY AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
ARTICLE I. DEFINITIONS............................................................................ 1
Section 1.1 General................................................................................ 1
ARTICLE II. THE DISTRIBUTION....................................................................... 2
Section 2.1 The Distribution....................................................................... 2
Section 2.2 Cooperation Prior to the Distribution.................................................. 3
Section 2.3 Conditions to Distribution............................................................. 3
ARTICLE III. TRANSACTIONS RELATING TO THE DISTRIBUTION.............................................. 4
Section 3.1 Intercorporate Reorganization.......................................................... 4
Section 3.2 Dividend; Cancellation of Intercompany Indebtedness.................................... 4
Section 3.3 Other Agreements....................................................................... 4
Section 3.4 The UNOVA Board........................................................................ 4
Section 3.5 UNOVA Charter and By-laws.............................................................. 4
Section 3.6 Insurance.............................................................................. 4
Section 3.7 Western Atlas Employees Good Government Fund........................................... 6
Section 3.8 Western Atlas Foundation............................................................... 6
ARTICLE IV. INDEMNIFICATION........................................................................ 6
Section 4.1 Indemnification by Western Atlas....................................................... 6
Section 4.2 Indemnification by UNOVA............................................................... 7
Section 4.3 Limitations on Indemnification Obligations............................................. 7
Section 4.4 Procedures for Indemnification of Third-Party Claims................................... 7
Section 4.5 Remedies Cumulative.................................................................... 9
Section 4.6 Survival of Indemnities................................................................ 9
ARTICLE V. ACCESS TO INFORMATION; SERVICES........................................................ 10
Section 5.1 Access to Information.................................................................. 10
Section 5.2 Production of Witnesses................................................................ 10
Section 5.3 Retention of Records................................................................... 10
Section 5.4 Confidentiality........................................................................ 10
Section 5.5 Provision of Services.................................................................. 11
Section 5.6 Costs.................................................................................. 11
ARTICLE VI. MISCELLANEOUS.......................................................................... 11
Section 6.1 Complete Agreement; Construction....................................................... 11
Section 6.2 Survival of Agreements................................................................. 12
Section 6.3 Expenses............................................................................... 12
Section 6.4 Governing Law.......................................................................... 12
Section 6.5 Notices................................................................................ 12
Section 6.6 Amendments............................................................................. 12
Section 6.7 Successors and Assigns................................................................. 12
Section 6.8 Termination............................................................................ 13
Section 6.9 No Third-Party Beneficiaries........................................................... 13
Section 6.10 Titles and Headings.................................................................... 13
Section 6.11 Legal Enforceability................................................................... 13
Section 6.12 Arbitration............................................................................ 13
</TABLE>
i
<PAGE>
DISTRIBUTION AND INDEMNITY AGREEMENT
DISTRIBUTION AND INDEMNITY AGREEMENT (this "Agreement"), dated as of
, 1997, between WESTERN ATLAS INC., a Delaware corporation ("Western
Atlas"), and UNOVA, INC., a Delaware corporation and, as of the date hereof, a
wholly owned subsidiary of Western Atlas ("UNOVA").
WHEREAS, the Western Atlas Board has determined that it is appropriate and
desirable to spin off its holdings of UNOVA by distributing all outstanding
shares of UNOVA Common Stock on a pro rata basis to holders of Western Atlas
Common Stock; and
WHEREAS, Western Atlas and UNOVA have determined that it is appropriate and
desirable to set forth the principal corporate transactions required to effect
such distribution and certain other agreements that will govern certain matters
relating to such distribution and the relationships thereafter between Western
Atlas and UNOVA; and
WHEREAS, Western Atlas and UNOVA are entering into this Agreement in the
spirit of mutual benefit and good faith.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, and the benefits to be derived from the
distribution by Western Atlas and UNOVA, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 GENERAL. As used in this Agreement, the following terms shall
have the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
ACTION: any action, suit, arbitration, inquiry, proceeding or investigation
by or before any court, any governmental or other regulatory or administrative
agency or commission or any arbitration tribunal.
AFFILIATE: as defined in Rule 12b-2 under the Exchange Act, including, with
respect to Western Atlas, any Western Atlas Subsidiary and, with respect to
UNOVA, any UNOVA Subsidiary.
AGENT: ChaseMellon Shareholder Services, L.L.C., as distribution agent.
BENEFITS AGREEMENT: the Benefits Agreement between UNOVA and Western Atlas,
the form of which is attached hereto as Annex A.
CODE: the Internal Revenue Code of 1986, as amended.
COMMISSION: the Securities and Exchange Commission.
DISTRIBUTION: the distribution to holders of Western Atlas Common Stock of
the shares of UNOVA Common Stock owned by Western Atlas on the Distribution
Date.
DISTRIBUTION DATE: the date determined by the Western Atlas Board on which
the Distribution shall be effected.
EXCHANGE ACT: the Securities Exchange Act of 1934, as amended.
FORM 10: the registration statement on Form 10 filed by UNOVA with the
Commission to effect the registration of the UNOVA Common Stock pursuant to the
Exchange Act.
INFORMATION STATEMENT: the information statement to be sent to the holders
of Western Atlas Common Stock in connection with the Distribution.
INSURANCE PROCEEDS: those monies (i) received by an insured from an
insurance carrier on an insurance claim or (ii) paid by an insurance carrier on
behalf of the insured on an insurance claim, in either case net of any
applicable deductibles, retentions, or costs paid by such insured, but such term
does not refer to proceeds received from an insurer on an employee benefits
group insurance policy.
<PAGE>
INTELLECTUAL PROPERTY AGREEMENT: the Intellectual Property Agreement between
UNOVA and Western Atlas, the form of which is attached hereto as Annex B.
IRS: the Internal Revenue Service.
LIABILITIES: any and all debts, liabilities and obligations, absolute or
contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising and whether or not the same would
be reflected on a balance sheet (unless otherwise specified in this Agreement),
including all costs and expenses relating thereto, and including, without
limitation, those debts, liabilities and obligations arising under any law,
rule, regulation, Action, threatened Action, order or consent decree of any
governmental entity or any award of any arbitrator of any kind, and those
arising under any contract, commitment or undertaking.
LOSSES: any and all losses, Liabilities, claims, damages, obligations,
fines, penalties, payments, costs and expenses, matured or unmatured, absolute
or contingent, accrued or unaccrued, liquidated or unliquidated, known or
unknown (including, without limitation, the costs and expenses of any and all
Actions, threatened Actions, demands, assessments, judgments, settlements and
compromises relating thereto and attorneys' fees and any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any such Actions or threatened Actions).
RECORD DATE: the close of business on the date to be determined by the
Western Atlas Board as the record date for the Distribution.
SUBSIDIARIES: the term "subsidiaries" as used herein with respect to any
entity shall be deemed to refer to other entities in which such entity owns or
controls a majority of the voting power and shall, unless otherwise indicated,
be deemed to refer to both direct and indirect subsidiaries of such entity.
TAX SHARING AGREEMENT: the Tax Sharing Agreement between UNOVA and Western
Atlas, the form of which is attached hereto as Annex C.
UNOVA COMMON STOCK: the Common Stock, par value $.01 per share, of UNOVA.
UNOVA SUBSIDIARY: any direct or indirect subsidiary of UNOVA that will
remain a direct or indirect subsidiary of UNOVA immediately following the
Distribution Date, and any other direct or indirect subsidiary of UNOVA that
thereafter may be organized or acquired.
WAI INSURANCE PROGRAM: the insurance policies and self-insurance program of
Western Atlas referred to in Section 3.6 hereof.
WESTERN ATLAS BOARD: the Board of Directors of Western Atlas.
WESTERN ATLAS COMMON STOCK: the Common Stock, $1.00 par value, of Western
Atlas.
WESTERN ATLAS SUBSIDIARY: any direct or indirect subsidiary of Western Atlas
other than UNOVA or any UNOVA Subsidiary.
ARTICLE II
THE DISTRIBUTION
Section 2.1 THE DISTRIBUTION. Subject to Section 2.3 hereof, on the
Distribution Date, Western Atlas will deliver to the Agent, for the benefit of
holders of record of Western Atlas Common Stock on the Record Date, a single
stock certificate, endorsed by Western Atlas in blank, representing all of the
then outstanding shares of UNOVA Common Stock owned by Western Atlas, and shall
instruct the Agent to distribute on the Distribution Date (or as soon as
practicable thereafter) the appropriate number of such shares of UNOVA Common
Stock to each such holder or designated transferee or transferees of such
holder. The Distribution shall be effective on the Distribution Date. UNOVA will
provide to the Agent all information or documents necessary to effect direct
registration, and Western Atlas will provide to the
2
<PAGE>
Agent any information required in order to complete the Distribution on the
basis of one share of UNOVA Common Stock for each share of Western Atlas Common
Stock outstanding on the Record Date.
Section 2.2 COOPERATION PRIOR TO THE DISTRIBUTION.
(a) Western Atlas and UNOVA have prepared, and Western Atlas shall mail,
prior to the Distribution Date, to the holders of Western Atlas Common Stock,
the Information Statement, which shall set forth appropriate disclosure
concerning UNOVA, the Distribution and other matters. Western Atlas and UNOVA
have prepared, and UNOVA has filed with the Commission, the Form 10, which
includes or incorporates by reference the Information Statement. Western Atlas
and UNOVA shall use reasonable efforts to cause the Form 10 to become effective
under the Exchange Act as soon as practicable.
(b) Western Atlas and UNOVA shall cooperate in preparing, filing with the
Commission and causing to become effective any registration statements or
amendments thereof which are required to reflect the establishment of, or
amendments to, any employee benefit and other plans contemplated by the Benefits
Agreement.
(c) Western Atlas and UNOVA shall take all such action as may be necessary
or appropriate under the securities or blue sky laws of states or other
political subdivisions of the United States, in connection with the transactions
contemplated by this Agreement.
(d) Western Atlas and UNOVA have prepared, and UNOVA has filed in
preliminary form and shall seek to make effective, applications to list the
UNOVA Common Stock on the New York Stock Exchange (the "NYSE").
Section 2.3 CONDITIONS TO DISTRIBUTION. This Agreement and the consummation
of each of the transactions provided for herein shall be subject to approval of
the Western Atlas Board. The Western Atlas Board shall in its discretion
establish the Record Date and the Distribution Date and all appropriate
procedures in connection with the Distribution, but in no event shall the
Distribution Date occur prior to such time as each of the following have
occurred or have been waived by the Western Atlas Board in its sole discretion:
(i) the Western Atlas Board shall have formally approved the Distribution; (ii)
the Form 10 shall have been declared effective by the Commission; (iii) Western
Atlas shall have received a statement from the Staff of the Commission that the
Distribution may be effected without registration of the UNOVA Common Stock
under the Securities Act of 1933; (iv) the Western Atlas Board shall have
received opinions of counsel satisfactory to it that the Distribution will be a
tax-free "spin-off" under Sections 355 and/or 368(a)(1)(D) of the Code; (v) the
Board of Directors of UNOVA, constituted as contemplated by Section 3.4, shall
have been duly elected, and the Certificate of Incorporation and the By-laws of
UNOVA, as described in Section 3.5, shall have been adopted and be in effect;
(vi) the UNOVA Common Stock shall have been authorized for listing on the NYSE;
(vii) the transactions contemplated by Sections 3.1, 3.2 and 3.3 shall have been
consummated in all material respects; (viii) UNOVA shall have arranged for a
bank credit facility or comparable source of funding for its capital needs; and
(ix) no preliminary or permanent injunction or other order, decree or ruling
issued by a court of competent jurisdiction or by a government, regulatory or
administrative agency or commission, and no statute, rule, regulation or
executive order promulgated or enacted by any governmental authority, shall be
in effect preventing the payment of the Distribution; PROVIDED that the
satisfaction of such conditions shall not create any obligation on the part of
Western Atlas or any other party hereto to effect the Distribution or in any way
limit Western Atlas' power of termination set forth in Section 6.8 or alter the
consequences of any such termination from those specified in such Section.
3
<PAGE>
ARTICLE III
TRANSACTIONS RELATING TO THE DISTRIBUTION
Section 3.1 INTERCORPORATE REORGANIZATION.
(a) At or prior to the Distribution, there shall have been transferred to
UNOVA Automation Systems, Inc. all of the assets and liabilities of Western
Atlas Landis USA Division (MIS # M02610), including all the assets and
liabilities of Gardner Division; all the assets and liabilities of Western Atlas
Lamb Technicon Body & Assembly Systems Division (MIS # M02415), including all
outstanding shares of Grand Design and J.S. McNamara; all the assets and
liabilities of Western Atlas Lamb Technicon Machining Systems Division (MIS #
M02410); and all the outstanding shares of M M & E, Inc. At or prior to the
Distribution, there shall have been transferred to UNOVA all of the outstanding
shares of UNOVA Automation Systems, Inc., Standard Components Corp., Limited
Partner I Corporation, General Partner I Corporation, Energy Equity Ventures
Inc., Stanko Western Atlas Corporation; Western Atlas Industries Inc.; Canadian
Western Atlas Inc., Western Atlas U.K. Limited, and Intermec Corporation. At or
prior to the Distribution, there shall have been transferred to Lamb-Unima
Maschinenbau GmbH the stock of Honsberg Lamb Sonderwerkzeugmachinen GmbH, and
Western Atlas' 80% interest in the stock of Lamb-Unima Maschinbau GmbH shall
have been transferred to UNOVA. At or prior to the Distribution, there shall
have been transferred to UNOVA certain assets and liabilities of Western Atlas
Corporate Division (MIS # Z00050), certain assets and liabilities of Western
Atlas Reserves (MIS # Z00900), and all the assets and liabilities of Western
Atlas IAS Administration Division (MIS # M09010). The transfer of real property
shall be effected by grant deed, limited or special warranty deed or the
equivalent statutorily approved form which conveys the property without
encumbrances or conveyances to another party by the grantor or a person claiming
under the grantor. The transfer of capital stock shall be effected by means of
delivery of stock certificates duly endorsed or accompanied by duly executed
stock powers and notation on the stock record books of the corporations or other
legal entities involved. Following the Distribution Date, Western Atlas and
UNOVA shall cooperate and, if requested, assist each other in perfecting title
to various properties referred to in this paragraph, at the expense of the party
requesting such assistance.
(b) Prior to the Distribution Date, Western Atlas and UNOVA shall take all
steps necessary to increase the outstanding shares of UNOVA Common Stock so that
immediately prior to the Distribution, Western Atlas will hold a number of
shares of UNOVA Common Stock equal to the number of shares of Western Atlas
Common Stock outstanding on the Record Date.
Section 3.2 DIVIDEND; CANCELLATION OF INTERCOMPANY INDEBTEDNESS.
Immediately prior to the Distribution, UNOVA shall pay a dividend to Western
Atlas in the amount of $230 million, which amount shall be utilized by
Western Atlas to repay short-term debt. Any intercompany indebtedness owed by
UNOVA and the UNOVA Subsidiaries to Western Atlas and the Western Atlas
Subsidiaries shall be canceled as a contribution to the capital of UNOVA.
Section 3.3 OTHER AGREEMENTS. On or prior to the date of the Distribution,
Western Atlas and UNOVA will execute and deliver agreements substantially in the
form of Annexes A through C.
Section 3.4 THE UNOVA BOARD. Western Atlas and UNOVA shall take all actions
that may be required to elect or otherwise appoint as directors of UNOVA, on or
prior to the Distribution Date, the persons named in the Form 10 to constitute
the Board of Directors of UNOVA on the Distribution Date.
Section 3.5 UNOVA CHARTER AND BY-LAWS. Prior to the Distribution Date, (a)
Western Atlas shall cause the Certificate of Incorporation of UNOVA,
substantially in the form of Annex B to the Form 10, to be filed with the
Secretary of State of Delaware and to be in effect on the Distribution Date, and
(b) the Board of Directors of UNOVA shall adopt the By-laws of UNOVA
substantially in the form of Annex C to the Form 10.
Section 3.6 INSURANCE.
4
<PAGE>
(a) Western Atlas will continue to provide coverage for workers'
compensation, general liability, automobile liability, other liability, property
and other insurable business risks and exposures to UNOVA and the UNOVA
Subsidiaries in the same manner and to the same extent as in effect on the date
of this Agreement (the "WAI Insurance Program") for incidents, acts, omissions
or occurrences occurring from the date such coverage first commenced until 12:00
midnight on the Distribution Date or such later date as may be agreed to in
writing by Western Atlas and UNOVA, and UNOVA and the UNOVA Subsidiaries shall
pay Western Atlas the costs, fees and expenses for such coverage in accordance
with the past and current practices established between Western Atlas, UNOVA and
the UNOVA Subsidiaries. Such costs include, but are not limited to, premiums,
deductibles, retrospective rating adjustments, assessments paid and audit
adjustments completed.
(b) Western Atlas shall cooperate and, if requested, shall assist UNOVA and
the UNOVA Subsidiaries in obtaining their own separate insurance coverage and
self-insurance coverage for UNOVA and the UNOVA Subsidiaries, effective with
respect to incidents, acts, omissions or occurrences occurring from and after
the Distribution Date. Following the Distribution Date, each of the parties
shall cooperate with and assist the other party in the prevention of conflicts
or gaps in insurance coverage and/or collection of Insurance Proceeds.
(c) Western Atlas and UNOVA agree that UNOVA and the UNOVA Subsidiaries
shall have the right to present claims directly to Western Atlas' insurers under
the WAI Insurance Program for insured and self-insured incidents, acts,
omissions or occurrences occurring from the date said coverage first commenced
until the Distribution Date. Any such claims shall be subject to the terms and
conditions of the WAI Insurance Program which for this purpose shall include the
so-called "tail" coverage referred to below in this subsection (c). All such
claims by UNOVA or the UNOVA Subsidiaries against Western Atlas' insurers shall
be presented when known by UNOVA and in any event by the reporting requirements
specified under an insurance policy with respect to a specific claim. The
parties acknowledge that any such policies written on a "claims made" rather
than "occurrence" basis may not, in their present form, provide coverage to
UNOVA and the UNOVA Subsidiaries for incidents, acts, omissions or occurrences
occurring prior to the Distribution Date but which are first reported after the
Distribution Date and, accordingly, the parties have agreed that Western Atlas
shall cooperate and, if requested, assist UNOVA and the UNOVA Subsidiaries in
acquiring "tail" insurance coverage, effective upon the Distribution Date.
(d) With respect to any insured Losses or retrospective premium adjustments
relating to assets and/or operations of UNOVA and/or the UNOVA Subsidiaries
prior to the Distribution Date: (i) Western Atlas shall pay over to UNOVA within
60 days of receipt any Insurance Proceeds it receives on account of such Losses
and any such retrospective premium reductions (all subject to support
documentation); and (ii) UNOVA and the UNOVA Subsidiaries shall reimburse
Western Atlas within 60 days of Western Atlas' request for all costs, expenses
or payments (all subject to support documentation) made by Western Atlas after
the Distribution Date to insurers or incurred by Western Atlas with respect to
self-insurance on account of such Losses and any such retrospective premium
increases, except that self-insured Losses shall be funded directly by UNOVA
through a Western Atlas bank account maintained to fund such Losses. The defense
of and the responsibility for any litigation or claims pending at the
Distribution Date, or commenced after the Distribution Date (as respects Losses
which occurred prior to the Distribution Date), relating to UNOVA or the UNOVA
Subsidiaries and covered by the WAI Insurance Program shall continue to be
managed by UNOVA and the UNOVA Subsidiaries. UNOVA shall advise Western Atlas
when there is a reasonable expectation that any such litigation will exceed the
policy limits of the current WAI Insurance Program or result in a loss not
covered by such program.
(e) Western Atlas shall maintain as part of the WAI Insurance Program the
Directors and Officers insurance program with the same insurance carriers,
limits of liability, terms and conditions through May 31, 1999. UNOVA shall
obtain and maintain a similar Directors and Officers insurance program at least
through May 31, 1999. Material modification to either party's Directors and
Officers insurance program prior to May 31, 1999 shall require the prior
approval of the other party, which shall not be
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unreasonably withheld. Material modifications include adverse changes in terms
and conditions, decreased limits of liability and the substitution of insurance
carriers.
(f) Western Atlas maintains various bonding facilities on behalf of itself
and its various subsidiaries, including UNOVA and the UNOVA Subsidiaries. UNOVA
and the UNOVA Subsidiaries shall have the right to continue to have the benefit
of such bonding facilities after the Distribution Date until UNOVA is able to
arrange its own bonding facilities; provided, however, that UNOVA shall
reimburse Western Atlas for the amount of any Losses on Western Atlas bonds
covering UNOVA and the UNOVA Subsidiaries and shall also reimburse Western Atlas
for all fees and out-of-pocket costs incurred by Western Atlas with respect to
Western Atlas bonds covering UNOVA and the UNOVA Subsidiaries.
(g) In recognition that premiums, premium adjustments, retrospective rating
adjustments, assessments and audit adjustments have been paid or charged to
UNOVA and the UNOVA Subsidiaries prior to the Distribution Date, and that
similar such payments and charges will be made by and to UNOVA and the UNOVA
Subsidiaries after the Distribution Date, Western Atlas agrees to cooperate with
UNOVA and the UNOVA Subsidiaries in insured litigation. Furthermore, in insured
litigation in which the reasonable expectation is that UNOVA and/or UNOVA
Subsidiaries will be financially responsible for the entire result in the
litigation (a "UNOVA Responsibility Case"), UNOVA shall have the right to
participate and control at its cost the defense of such litigation, to the
extent that Western Atlas would be able to do so. In such event, Western Atlas
shall cooperate with UNOVA in all reasonable respects in the defense and
resolution of such UNOVA Responsibility Case.
(h) For purposes of this Section 3.6, the term Distribution Date means 12:00
midnight on the later of the date determined by the Western Atlas Board on which
the Distribution shall be effected or the later date agreed upon pursuant to
subsection 3.6(a).
(i) For purposes of this Section 3.6, the terms "self-insured" and
"self-insurance" refer only to those incidents, omissions or occurrences related
to the self-insured portion of the State of Washington Workers' Compensation
exposures.
Section 3.7 WESTERN ATLAS EMPLOYEES GOOD GOVERNMENT FUND. Prior to the
Distribution Date, (i) UNOVA shall undertake to sponsor a political committee by
establishing a nonprofit, unincorporated association in the State of California
(the "UNOVA Fund"), and (ii) the parties shall cause all moneys in the Western
Atlas Inc. Employees Good Government Fund that relate to the employees of UNOVA
or any UNOVA Subsidiary to be transferred to the UNOVA Fund.
Section 3.8 WESTERN ATLAS FOUNDATION. Prior to the Distribution Date, the
parties shall cause The Western Atlas Foundation, a private foundation under the
Code and a nonprofit public benefit corporation organized under the laws of the
State of California, to change its name to "The UNOVA Foundation," and UNOVA
will be substituted for Western Atlas as the sponsor of The UNOVA Foundation
from and after such name change.
ARTICLE IV
INDEMNIFICATION
Section 4.1 INDEMNIFICATION BY WESTERN ATLAS. Except with respect to
employee benefits or other Liabilities to employees, which shall be governed by
the Benefits Agreement, and except with respect to insurance and self-insurance
claims, which shall be governed by Sections 3.6 and 4.3 hereof, Western Atlas
shall indemnify, defend and hold harmless UNOVA, each Affiliate of UNOVA and
each of their respective directors, officers, employees and agents (in their
capacities as directors, officers, employees and agents of UNOVA and its
Affiliates) and each of the heirs, executors, successors and assigns of any of
the foregoing (the "UNOVA Indemnitees") from and against any and all Losses of
the UNOVA Indemnitees arising out of or due to the failure of Western Atlas or
any of its Affiliates to pay, perform or otherwise discharge in due course any
item set forth on Schedule A. Anything in this Section 4.1 to the contrary
notwithstanding,
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neither Western Atlas nor any Western Atlas Subsidiary shall have any liability
whatsoever to either UNOVA or any UNOVA Subsidiary in respect of any Tax (as
such term is defined in the Tax Sharing Agreement), except as otherwise provided
in Schedule A hereto or in the Tax Sharing Agreement.
Section 4.2 INDEMNIFICATION BY UNOVA. Except with respect to employee
benefits or other Liabilities to employees, which shall be governed by the
Benefits Agreement, and except with respect to insurance and self-insurance
claims, which shall be governed by Sections 3.6 and 4.3 hereof, UNOVA shall
indemnify, defend and hold harmless Western Atlas, each Affiliate of Western
Atlas and each of their respective directors, officers, employees and agents (in
their capacities as directors, officers, employees and agents of Western Atlas
and its Affiliates) and each of the heirs, executors, successors and assigns of
any of the foregoing (the "Western Atlas Indemnitees") from and against any and
all Losses of the Western Atlas Indemnitees arising out of or due to the failure
of UNOVA or any of its Affiliates to pay, perform or otherwise discharge in due
course any item set forth on Schedule B. Anything in this Section 4.2 to the
contrary notwithstanding, neither UNOVA nor any UNOVA Subsidiary shall have any
liability whatsoever to either Western Atlas or any Western Atlas Subsidiary in
respect of any Tax, except as otherwise provided in Schedule B hereto or in the
Tax Sharing Agreement.
Section 4.3 LIMITATIONS ON INDEMNIFICATION OBLIGATIONS. The amount that any
party (an "Indemnifying Party") is or may be required to pay to any other party
(an "Indemnitee") pursuant to Section 4.1 or Section 4.2 shall be reduced
(including, without limitation, retroactively) by any Insurance Proceeds or
other amounts actually recovered by or on behalf of such Indemnitee, in
reduction of the related Loss. If an Indemnitee shall have received the payment
required by this Agreement from an Indemnifying Party in respect of any Loss and
the Indemnitee shall subsequently actually receive Insurance Proceeds or other
amounts in respect of such Loss, then such Indemnitee shall pay to such
Indemnifying Party a sum equal to the amount of such Insurance Proceeds or other
amounts actually received (up to but not in excess of the amount of any
indemnity payment made hereunder). 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 indemnification provisions hereof, have any
subrogation rights with respect thereto, it being expressly understood and
agreed that no insurer or any other third party shall be entitled to a
"windfall" (i.e., a benefit they would not be entitled to receive in the absence
of the indemnification provisions hereof) by virtue of the indemnification
provisions hereof.
Section 4.4 PROCEDURES FOR INDEMNIFICATION OF THIRD-PARTY CLAIMS. Procedures
for Indemnification of Third-Party Claims shall be as follows:
(a) If an Indemnitee shall receive notice or otherwise learn of the
assertion or probable assertion by a person (including, without limitation, any
governmental entity) who is not a party to this Agreement or to any of the
agreements in the form of Annexes A through C hereto (hereinafter referred to as
the "Other Agreements") of any claim or of the commencement by any such person
of any Action (a "Third-Party Claim") with respect to which an Indemnifying
Party may be obligated to provide indemnification pursuant to Section 4.1, 4.2
or any other Section of this Agreement or pursuant to the Other Agreements, such
Indemnitee shall give such Indemnifying Party written notice thereof promptly
after becoming aware of such Third-Party Claim; PROVIDED that the failure of any
Indemnitee to give notice as provided in this Section 4.4(a) shall not relieve
the related Indemnifying Party of its obligations under this Article IV, unless
the notice was intentionally withheld and such Indemnifying Party is prejudiced
by such failure to give notice. Such notice shall describe the Third-Party Claim
in reasonable detail and, if reasonably ascertainable, shall indicate the amount
(estimated if necessary) of the Loss that has been or may be sustained by such
Indemnitee.
(b) An Indemnifying Party may elect to defend or to seek to settle or
compromise, at such Indemnifying Party's own expense and by such Indemnifying
Party's own counsel, any Third-Party Claim. Within 30 days of the receipt of
notice from an Indemnitee in accordance with Section 4.4(a) (or sooner, if the
nature of such Third-Party Claim so requires), the Indemnifying Party shall
notify the Indemnitee of its
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election whether the Indemnifying Party will assume responsibility for defending
such Third-Party Claim, which election shall specify any reservations or
exceptions. 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 Article IV for any legal or
other expenses (except expenses approved in advance by the Indemnifying Party)
subsequently incurred by such Indemnitee in connection with the defense thereof;
PROVIDED that if the defendants in any such claim include both the Indemnifying
Party and one or more Indemnitees and in any Indemnitee's reasonable judgment a
conflict of interest between one or more of such Indemnitees and such
Indemnifying Party exists in respect of such claim or if the Indemnifying Party
shall have assumed responsibility for such claim with any reservations or
exceptions, such Indemnitees shall have the right to employ separate counsel to
represent such Indemnitees and in that event the reasonable fees and expenses of
such separate counsel (but not more than one separate counsel reasonably
satisfactory to the Indemnifying Party) shall be paid by such Indemnifying
Party; provided, however, if and to the extent that there is a conflict of
defenses or positions among the Indemnitees, the Indemnitees shall have the
right to retain such number of additional separate counsel, reasonably
satisfactory to the Indemnifying Party, as is reasonably necessary to avoid such
conflicts, and the Indemnifying Party shall be responsible for the reasonable
fees and expenses of such additional separate counsel. If an Indemnifying Party
elects not to assume responsibility for defending a Third-Party Claim, or fails
to notify an Indemnitee of its election as provided in this Section 4.4(b), such
Indemnitee may defend or (subject to the remainder of this Section 4.4(b)) seek
to compromise or settle such Third-Party Claim. Notwithstanding the foregoing,
neither an Indemnifying Party nor an Indemnitee may settle or compromise any
claim over the objection of the other; PROVIDED, HOWEVER, that consent to
settlement or compromise shall not be unreasonably withheld or delayed; and
PROVIDED FURTHER, HOWEVER, if the Indemnifying Party has not affirmatively
elected by written notice to the Indemnitee within 30 days of notice from the
Indemnitee to assume the defense of, or to seek to settle or compromise the
Third-Party Claim, and the Indemnifying Party has not similarly acknowledged,
within such 30-day period, its responsibility to indemnify the Indemnitee
against the Third-Party Claim, the Indemnitee may settle or compromise the
Third-Party Claim over the objections of the Indemnifying Party without
prejudice to the Indemnitee's claim against the Indemnifying Party. Neither an
Indemnifying Party nor an Indemnitee shall consent to entry of any judgment or
enter into any settlement of any Third-Party Claim which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnitee, in the case of a consent or settlement by an Indemnifying Party, or
the Indemnifying Party, in the case of a consent or settlement by the
Indemnitee, of a written release from all liability in respect to such
Third-Party Claim.
(c) If an Indemnifying Party chooses to defend or to seek to compromise or
settle any Third-Party Claim, the related Indemnitee shall make available to
such Indemnifying Party any personnel or any books, records or other documents
within its control or which it otherwise has the ability to make available that
are necessary or appropriate for such defense, settlement or compromise, and
shall otherwise cooperate in the defense, settlement or compromise of such
Third-Party Claims. The Indemnifying Party shall promptly reimburse the
Indemnitee its out-of-pocket costs incurred in providing assistance pursuant to
the foregoing sentence and for the Indemnitee's personnel costs on any occasion
on which personnel of the Indemnitee spend one full day or more in providing
such assistance.
(d) Notwithstanding anything else in this Section 4.4 to the contrary, if an
Indemnifying Party notifies the related Indemnitee in writing of such
Indemnifying Party's desire to settle or compromise a Third-Party Claim on the
basis set forth in such notice (provided that such settlement or compromise
includes as an unconditional term thereof the giving by the claimant or
plaintiff of a written release of the Indemnitee from all liability in respect
thereof) and the Indemnitee shall notify the Indemnifying Party in writing that
such Indemnitee declines to accept any such settlement or compromise, such
Indemnitee may continue to contest such Third-Party Claim, free of any
participation by such Indemnifying Party, at such Indemnitee's sole expense. In
such event, the obligation of such Indemnifying Party to such Indemnitee with
respect to such Third-Party Claim shall be equal to (i) the costs and expenses
of such Indemnitee prior to the date such Indemnifying Party notifies such
Indemnitee of the offer to settle or compromise (to the extent such
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costs and expenses are otherwise indemnifiable hereunder) plus (ii) the lesser
of (A) the amount of any offer of settlement or compromise that such Indemnitee
declined to accept and (B) the actual out-of-pocket amount such Indemnitee is
obligated to pay subsequent to such date as a result of such Indemnitee's
continuing to pursue such Third-Party Claim.
(e) Any claim on account of a Loss that does not result from a Third-Party
Claim shall be asserted by written notice given by the Indemnitee to the related
Indemnifying Party. Such Indemnifying Party shall have a period of 30 days after
the receipt of such notice within which to respond thereto. If such Indemnifying
Party does not respond within such 30-day period, such Indemnifying Party shall
be deemed to have refused to accept responsibility to make payment. If such
Indemnifying Party does not respond within such 30-day period or rejects such
claim in whole or in part, such Indemnitee shall be free to pursue such remedies
as may be available to such party under this Agreement or under applicable law
except as otherwise required by Section 6.12.
(f) In addition to any adjustments required pursuant to Section 4.3, if the
amount of any Loss shall, at any time subsequent to the payment required by this
Agreement, be reduced by recovery, settlement or otherwise, the amount of such
reduction that has been received by the Indemnitee, less any expenses incurred
in connection therewith, shall promptly be repaid by the Indemnitee to the
Indemnifying Party.
(g) In the event of payment by an Indemnifying Party to any Indemnitee in
connection with any Third-Party Claim, such Indemnifying Party shall be
subrogated to and shall stand in the place of such Indemnitee as to any events
or circumstances in respect of which such Indemnitee may have any right or claim
relating to such Third-Party Claim against any claimant or plaintiff asserting
such Third-Party Claim or against any other person. Such Indemnitee shall
cooperate with such Indemnifying Party in a reasonable manner, and at the cost
and expense of such Indemnifying Party, in prosecuting any subrogated right or
claim.
Section 4.5 REMEDIES CUMULATIVE. The remedies provided in this Article IV
shall be cumulative and shall not preclude assertion by any Indemnitee of any
other rights or the seeking of any and all other remedies against any
Indemnifying Party under Article IV of this Agreement or under Western Atlas'
directors and officers liability insurance policy.
Section 4.6 SURVIVAL OF INDEMNITIES. The obligations of each of Western
Atlas and UNOVA under this Article IV shall survive the sale or other
transfer by it of any assets, businesses or Liabilities.
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ARTICLE V
ACCESS TO INFORMATION; SERVICES
Section 5.1 ACCESS TO INFORMATION. From and after the Distribution
Date, Western Atlas shall afford to UNOVA and its authorized accountants,
counsel and other designated representatives (collectively,
"Representatives") reasonable access (including using reasonable efforts to
give access to persons or firms possessing information) and duplicating
rights during normal business hours to all records, books, contracts,
instruments, computer data and other data and information (collectively,
"Information") within Western Atlas' possession relating to UNOVA or any
UNOVA Subsidiary, insofar as such access is reasonably required by UNOVA or
any UNOVA Subsidiary, without cost to UNOVA. Similarly, UNOVA shall afford
to Western Atlas and its Representatives reasonable access (including using
reasonable efforts to give access to persons or firms possessing
information) and duplicating rights during normal business hours to
Information within UNOVA's possession or in the possession of the UNOVA
Subsidiaries relating to Western Atlas or any Western Atlas Subsidiary and
insofar as such access is reasonably required by Western Atlas or any
Western Atlas Subsidiary, without cost to Western Atlas. For purposes of
this Section 5.1 only, Information is limited to information relating to
periods ending on or preceding the Distribution Date. Information may be
requested under this Article V for, without limitation, audit, accounting,
claims, litigation and tax purposes, as well as for purposes of fulfilling
disclosure and reporting obligations and for performing this Agreement and
the transactions contemplated hereby. After the Distribution Date, (i) to
the extent that Western Atlas has in its possession Information relating
solely to UNOVA or any UNOVA Subsidiary, Western Atlas shall deliver the
originals of such Information to UNOVA within a reasonable time following
the Distribution Date, and (ii) to the extent that UNOVA or any UNOVA
Subsidiary has in its possession Information relating solely to Western
Atlas, UNOVA or such UNOVA Subsidiary shall deliver the originals of such
Information to Western Atlas within a reasonable time following the
Distribution Date.
Section 5.2 PRODUCTION OF WITNESSES. After the Distribution Date, each
of Western Atlas and UNOVA and its respective subsidiaries shall use
reasonable efforts to make available to the other party and its
subsidiaries, upon written request, its directors, officers, employees and
agents as witnesses to the extent that any such person may reasonably be
required (giving consideration to business demands of such Representatives)
in connection with any legal, administrative or other proceedings in which
the requesting party may from time to time be involved, without cost to the
requesting party.
Section 5.3 RETENTION OF RECORDS. Except as otherwise required by law
or agreed to in writing, each of Western Atlas and UNOVA shall retain, and
shall cause its subsidiaries to retain following the Distribution Date, for
a period consistent with the document retention policies in effect at
Western Atlas and UNOVA, respectively, all significant Information relating
to the business of the other and the other's subsidiaries, but not less than
the three-year period following the Distribution Date. In addition, such
Information shall not be destroyed or otherwise disposed of if during such
period a party shall request in writing that any of the Information be
retained for additional specific and reasonable periods of time at the
expense of the party so requesting.
Section 5.4 CONFIDENTIALITY. Each of UNOVA and the UNOVA Subsidiaries
on the one hand, and Western Atlas and the Western Atlas Subsidiaries on the
other hand, shall hold, and shall cause its Representatives to hold, in
strict confidence, all Information concerning the other in its possession or
furnished by the other or the other's Representatives pursuant to this
Agreement or any of the Other Agreements (except to the extent that such
Information has been (a) in the public domain through no fault of such party
or (b) later lawfully acquired from other sources by such party or
subsequently developed by such party), and each party shall not release or
disclose such Information to any other person, except to its auditors,
attorneys, financial advisors, bankers and other consultants and
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advisors, and on terms and conditions substantially the same as the terms
and conditions on which such party releases its own Information, unless
compelled to disclose by judicial or administrative process or, as advised
by its counsel, by other requirements of law.
Section 5.5 PROVISION OF SERVICES.
(a) Western Atlas shall make available to UNOVA, during normal business
hours and in a manner that will not unreasonably interfere with Western Atlas'
business, its tax, internal audit, accounting, treasury, legal, risk management
and similar staff services (collectively "Services") whenever and to the extent
that they may be reasonably required in connection with the preparation of tax
returns, audits, claims or litigation, and otherwise to assist in effecting an
orderly transition following the Distribution. Western Atlas shall be entitled
to receive from UNOVA, upon the presentation of invoices therefor, reimbursement
for all direct costs of providing the Services, including such amounts relating
to supplies, disbursements and other out-of-pocket expenses.
(b) UNOVA shall make available to Western Atlas, during normal business
hours and in a manner that will not unreasonably interfere with UNOVA's
business, Services whenever and to the extent that they may be reasonably
required in connection with the preparation of tax returns, audits, claims or
litigation, and otherwise to assist in effecting an orderly transition following
the Distribution. UNOVA shall be entitled to receive from Western Atlas, upon
the presentation of invoices therefor, reimbursement for all direct costs of
providing the Services, including such amounts relating to supplies,
disbursements and other out-of-pocket expenses.
(c) UNOVA shall make available to Western Atlas, during normal business
hours and in a manner that will not interfere with UNOVA's business, risk
management Services, similar to the Services currently being provided to the
Oilfield Services group to the extent that they may be reasonably required in
connection with the WAI Insurance Program, and otherwise to assist in effecting
an orderly transition following the Distribution. UNOVA shall be entitled to
receive from Western Atlas, upon presentation of invoices therefor,
reimbursement for all direct costs of providing such Services, including such
amounts relating to supplies, disbursements and other out-of-pocket expenses.
(d) For a period of not less than one year following the Distribution, UNOVA
shall provide to Western Atlas, during normal business hours and in a manner
that will not interfere with UNOVA's business, stock option administration
services, similar to the services currently being provided to the executives of
Western Atlas and its subsidiaries who participate in the WAI Stock Option
Program, and otherwise to assist in the administration of such program following
the Distribution. UNOVA shall be entitled to receive from Western Atlas, upon
presentation of invoices therefor, reimbursement for all direct costs of
providing such services, including such amounts relating to personnel, supplies,
disbursements and other out-of-pocket expenses.
Section 5.6 COSTS. Unless otherwise provided in this Agreement, each party
shall bear all costs and expenses of that party in its performance of its
obligations under this Agreement.
ARTICLE VI
MISCELLANEOUS
Section 6.1 COMPLETE AGREEMENT; CONSTRUCTION. This Agreement, the Benefits
Agreement and the Tax Sharing Agreement, including any schedules and exhibits
hereto or thereto, and other agreements and documents referred to herein, shall
constitute the entire agreement between the parties with respect to the subject
matter hereof and shall supersede all previous negotiations, commitments and
writings with respect to such subject matter. Notwithstanding any other
provisions in this Agreement to the contrary, in the event and to the extent
that there shall be a conflict between the provisions of this Agreement and the
provisions of any of the Other Agreements, the provisions of the Other
Agreements shall control.
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Section 6.2 SURVIVAL OF AGREEMENTS. Except as otherwise contemplated by this
Agreement, all covenants and agreements of the parties contained in this
Agreement shall survive the Distribution Date.
Section 6.3 EXPENSES. Except as otherwise set forth in this Agreement or any
of the Other Agreements, all costs and expenses arising on or prior to the
Distribution Date (whether or not then payable) in connection with the
Distribution (other than the costs incurred in printing the stock certificates
of UNOVA) shall be paid by Western Atlas to the extent that appropriate
documentation concerning such costs and expenses shall be provided to Western
Atlas.
Section 6.4 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without regard to the
principles of conflicts of laws thereof.
Section 6.5 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be delivered by hand,
mailed by registered or certified mail (return receipt requested), or sent by
cable, telegram, telex or telecopy (confirmed by regular, first-class mail), to
the parties at the following addresses (or at such other addresses for a party
as shall be specified by like notice) and shall be deemed given on the date on
which such notice is received:
if to Western Atlas:
Western Atlas Inc.
10205 Westheimer Road
Houston, Texas 77042
Attention: General Counsel
Fax No.: (713) 266-1717
or to such other person or place as Western Atlas shall have specified to UNOVA
in a notice in accordance with this Section 6.5,
if to UNOVA:
UNOVA, Inc.
360 North Crescent Drive
Beverly Hills, California 90210
Attention: General Counsel
Fax No.: (310) 888-2848
or to such other person or place as UNOVA shall have specified to Western Atlas
in a notice in accordance with this Section 6.5.
Section 6.6 AMENDMENTS. This Agreement may not be modified or amended except
by an agreement in writing signed by the parties.
Section 6.7 SUCCESSORS AND ASSIGNS. Neither party shall have the right to
assign this Agreement or any of its rights or interests herein without the
written consent of the other party, and any attempted assignment without such
consent shall be null and void; provided, however, that Western Atlas shall have
the right to assign this Agreement to a purchaser or acquirer of substantially
all of the business, properties, and assets of Western Atlas or to the survivor
of a statutory merger or consolidation to which Western Atlas is a constituent
party; provided, however, that UNOVA shall have the right to assign this
Agreement to a purchaser or acquirer of substantially all of the business,
properties and assets of UNOVA or to the survivor of a statutory merger or
consolidation to which UNOVA is a constituent party; and provided further,
however, that in the event of any such assignment by Western Atlas or UNOVA,
Western Atlas or UNOVA, as the case may be, shall nevertheless remain liable and
obligated under this Agreement. This Agreement and the Agreements in the form of
Annexes A through C hereof, as the same may be amended or modified, and the
provisions hereof and thereof, shall be binding upon and inure to the benefit of
the parties and their respective successors and permitted assigns.
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Section 6.8 TERMINATION. This Agreement may be terminated and the
Distribution abandoned at any time prior to the Distribution Date by and in the
sole discretion of the Western Atlas Board without the approval of UNOVA or
Western Atlas' shareholders. In the event of such termination, no party shall
have any liability of any kind to any other party on account of such termination
except that expenses incurred in connection with the transactions contemplated
hereby shall be paid as provided in Section 6.3.
Section 6.9 NO THIRD-PARTY BENEFICIARIES. Except for the provisions of
Article IV relating to Indemnitees, and except as may be otherwise provided for
in any of the Agreements in the form of Annexes A through C hereto, as the same
may be amended or modified, this Agreement is solely for the benefit of the
parties hereto and their respective Affiliates and should not be deemed to
confer upon third parties (including any employee of Western Atlas or UNOVA or
any Western Atlas or UNOVA Subsidiary) any remedy, claim, reimbursement, claim
of action or other right in excess of those existing without reference to this
Agreement.
Section 6.10 TITLES AND HEADINGS. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
Section 6.11 LEGAL ENFORCEABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 6.12 ARBITRATION. Any dispute hereunder which is not resolved by
agreement of the parties, shall be subject to resolution by arbitration in
accordance with the Rules of the American Arbitration Association but subject to
the procedural stipulation set forth on Schedule C. Any decision or award in
such arbitration shall be legally enforceable between the parties by any Court
of competent jurisdiction. Such arbitration proceeding shall be conducted before
a single arbitrator unless either party requests a panel of three arbitrators.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
WESTERN ATLAS INC.
By:_________________________________________
UNOVA, INC.
By:_________________________________________
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SCHEDULE A
Items with respect to which Western Atlas will indemnify the UNOVA
Indemnitees in accordance with Section 4.1 of the Agreement:
(1) All Losses arising out of the businesses conducted or to be conducted by
Western Atlas or any Western Atlas Subsidiary, whether such Losses relate to
events occurring, or whether such Losses are asserted, before or after the
Distribution Date (excluding the businesses conducted or to be conducted by
UNOVA (whether directly or through a subsidiary or Affiliate of UNOVA) and
the UNOVA Subsidiaries) and all Losses arising out of, or attributable to,
any and all of the businesses or operations of Western Atlas or any of
Western Atlas' current or former subsidiaries which have been discontinued,
designated discontinued (excluding UNOVA's inclusion in such account),
liquidated, sold or otherwise disposed of at any time on or prior to the
Distribution Date and which relate or did relate to the businesses to be
conducted by Western Atlas and the Western Atlas Subsidiaries following the
Distribution Date (the "Western Atlas Discontinued Operations"), including
without limitation the Core Laboratories Division, the manufacturing
operations of the Western Geophysical Division and the Western Atlas
Software Division (except to the extent provided for in the Benefits
Agreement); and
(2) All of Western Atlas' and any Western Atlas Subsidiary's Liabilities arising
out of this Agreement or any of the Other Agreements, except as otherwise
provided for in such Other Agreements;
(3) All Losses arising out of or based upon any untrue statement or alleged
untrue statement of a material fact or omission or alleged omission to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, with respect to all information set forth
in the following sections of the Information Statement or any preliminary or
final Form 10 or any amendment thereto: "Introduction"; "The Distribution";
"Arrangements Between Western Atlas and UNOVA Relating to the Distribution";
"Summary of Certain Information" (only to the extent that such summary
includes information also contained in the foregoing sections); and any
letter to shareholders from an officer of Western Atlas; and
(4) Any Liability arising in connection with any Action brought by or on behalf
of any governmental entity for reimbursement, surrender or delivery to a
governmental entity of unclaimed property under the escheat laws of any
State or Country, to the extent that such Liability is attributable to the
businesses conducted or to be conducted by Western Atlas or any Western
Atlas Subsidiary following the Distribution Date (excluding the businesses
conducted or to be conducted by UNOVA (whether directly or through a
subsidiary or Affiliate of UNOVA) and the UNOVA Subsidiaries or to any of
the "UNOVA Discontinued Operations" (as defined in Schedule B)) or to any of
the Western Atlas Discontinued Operations, whether such liability arose
before or arises after the Distribution Date.
<PAGE>
SCHEDULE B
Items with respect to which UNOVA will indemnify the Western Atlas
Indemnitees in accordance with Section 4.2 of the Agreement:
(1) All Losses arising out of any guarantees, indemnities, or obligations to
third parties including, without limitation, letters of credit and surety bonds,
of Western Atlas or any Western Atlas Subsidiary with respect to any obligations
of UNOVA or any UNOVA Subsidiary to third parties or with respect to the
obligations of Western Atlas to third parties arising out of or attributable to
any and all of the businesses or operations of Western Atlas or any of Western
Atlas' current or former subsidiaries which have been discontinued, designated
discontinued, liquidated, sold or otherwise disposed of at any time on or prior
to the Distribution Date and which relate or did relate to the businesses to be
conducted by UNOVA and the UNOVA Subsidiaries following the Distribution Date,
including without limitation the Material Handling Systems Division, the
VantageWare Division, the Automated Guided Vehicles Division, Pro-Tac System AB,
Lamb-Unima and Western Atlas Filtration Systems (collectively, the "UNOVA
Discontinued Operations"); and the Liabilities of UNOVA under the Benefits
Agreement which shall be included within UNOVA's indemnity of Western Atlas and
the Western Atlas Subsidiaries;
(2) All Losses arising out of the businesses conducted or to be conducted by
UNOVA (whether directly or through a subsidiary or Affiliate of UNOVA) and the
UNOVA Subsidiaries, and any Liability of UNOVA or of any of the UNOVA
Subsidiaries with respect to the UNOVA Discontinued Operations, whether such
Losses relate to events occurring, or whether such Losses are asserted before or
after the Distribution Date;
(3) The liability and obligation of Western Atlas or of any Western Atlas
Subsidiary under or with respect to any Revenue Bond financing related to any
of the properties and assets utilized by UNOVA or any of the UNOVA
Subsidiaries in their respective businesses, irrespective of whether or not
Western Atlas has suffered actual loss;
(4) All of UNOVA's and any of the UNOVA Subsidiaries' Liabilities arising
out of this Agreement or any of the Other Agreements, except as otherwise
provided for in such Other Agreements; and
(5) All Losses arising out of or based upon any untrue statement or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, with respect to all information contained in the
Information Statement or any preliminary or final Form 10 or any amendment
thereto; provided, however, that such indemnification shall not apply to any
Losses that arise out of or are based upon any statement or omission made in any
of the sections of the Information Statement or Form 10 that are listed in
paragraph (3) of Schedule A;
(6) Any Liability arising in connection with any Action brought by or on
behalf of any governmental entity for reimbursement, surrender or delivery to a
governmental entity of unclaimed property under the escheat laws of any State or
Country, to the extent that such Liability is attributable to the businesses
conducted or to be conducted by UNOVA or any UNOVA Subsidiary or to any of the
UNOVA Discontinued Operations, whether such liability arose before or arises
after the Distribution Date.
<PAGE>
SCHEDULE C
ARBITRATION PROCEDURAL RULES
1. ADMINISTRATION AND CONDUCT OF ARBITRATION.
(a) At the discretion of the Arbitrator, an administrative conference with
the Arbitrator and the parties and/or their representatives will be scheduled in
appropriate cases to expedite the Arbitration proceedings.
(b) It is intended that the Arbitration be conducted in an expeditious
manner and without evidentiary hearing or oral presentation and argument, unless
the Arbitrator determines that an evidentiary hearing, and/or oral presentation
or argument is required for the rendition of an award or a decision. However,
any such evidentiary hearing shall be limited to not more than fifteen days, and
oral presentation and argument shall be limited to eight hours, with time
equally divided between the parties.
(c) On such schedule as may be established by the Arbitrator, each of the
parties shall submit simultaneous briefs, including exhibits, to the Arbitrator
supporting their respective positions. There shall be no limit to the number of
pages included in such briefs or to the number of exhibits. Each party shall
have a reasonable opportunity, as determined by the Arbitrator, to reply to the
brief of the other. The Arbitrator shall have the right to request additional
written statements of all or any of the parties; provided that each party shall
have the reasonable opportunity to reply to any such additional statements
submitted in response to the request of the Arbitrator.
(d) The Arbitrator shall render its award or decision within two months of
the Arbitrator's appointment.
2. FIXING OF LOCALE. The parties may mutually agree to the locale where the
Arbitration is to be held. If the parties cannot agree on the locale, the
Arbitrator shall have the power to determine the locale and its decision shall
be final and binding.
3. DATE, TIME AND PLACE OF HEARING. The Arbitrator shall set the date, time,
and place for any hearing. The Arbitrator shall mail to each party notice
thereof at least ten days in advance, unless the parties by mutual agreement
waive such notice or modify the terms thereof.
4. POSTPONEMENTS. The Arbitrator for good cause shown may postpone any
hearing upon the request of a party or upon the Arbitrator's own initiative, and
shall also grant such postponement when all of the parties agree thereto.
5. OATHS. Before proceeding with the first hearing, the Arbitrator may take
an oath of office and, if required by law, shall do so. The Arbitrator may
require witnesses to testify under oath administered by any duly qualified
person and, if it is required by law, shall do so.
6. ORDER OF PROCEEDINGS AND COMMUNICATION WITH ARBITRATOR.
(a) A hearing shall be opened by the filing of the oath of the Arbitrator,
where required, and by the recording of the date, time, and place of the
hearing, and the presence of the Arbitrator, the parties, and their
representatives, if any.
(b) The Arbitrator may, at the beginning of the hearing, ask for statements
clarifying the issues involved.
(c) The complaining party shall then present evidence and/or argument, as
required by the Arbitrator, to support its claim. The defending party shall then
present evidence and/or argument supporting its position and responding to the
position of the other. Witnesses, if any, for each party shall submit to
questions or other examination. The Arbitrator has the discretion to vary this
procedure but, within the time limits specified above, shall afford a full and
equal opportunity to all parties for the presentation of any material and
relevant evidence.
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(d) Exhibits, when offered by either party, may be received in evidence by
the Arbitrator. The names and addresses of any witnesses and a description of
the exhibits in the order received shall be made a part of the record.
(e) There shall be no direct communication between either of the parties and
the Arbitrator other than at oral hearing, unless the parties and the Arbitrator
agree in writing.
7. ARBITRATION IN THE ABSENCE OF A PARTY OR REPRESENTATIVE. Unless the law
provides to the contrary, the Arbitration may proceed in the absence of any
party or representative who, after due notice, fails to be present or fails to
obtain a postponement ("absent in default"). An award shall not be made solely
on the default of a party. The Arbitrator shall require the party who is present
to submit such evidence as the Arbitrator may require for the making of an
award.
8. EVIDENCE.
(a) The parties may offer such evidence as is relevant and material to the
dispute and shall produce such evidence as the Arbitrator may deem necessary to
an understanding and determination of the dispute.
(b) The Arbitrator shall be the judge of the relevance and materiality of
the evidence offered, and conformity to legal rules of evidence shall not be
necessary. All evidence shall be taken in the presence of the Arbitrator and all
of the parties, except where any of the parties is absent in default or has
waived the right to be present.
9. EVIDENCE BY AFFIDAVIT AND POST-HEARING FILING OF DOCUMENTS OR OTHER
EVIDENCE.
(a) The Arbitrator may receive and consider the evidence of witnesses by
affidavit, but shall give it only such weight as the Arbitrator deems it to be
entitled to after consideration of any objection made to its admission.
(b) If the parties agree or the Arbitrator directs that documents or other
evidence be submitted to the Arbitrator after the hearing, the documents or
other evidence shall be filed with the Arbitrator. All parties shall be afforded
an opportunity to examine such documents or other evidence.
10. CLOSING OF HEARING. If satisfied that the record is complete, the
Arbitrator shall declare the hearing closed and a minute thereof shall be
recorded. If briefs are to be filed, the hearing shall be declared closed as of
the final date set by the Arbitrator for the receipt of briefs. If documents are
to be filed as provided in Section 9 and the date set for their receipt is later
than that set for the receipt of briefs, the later date shall be the date of
closing and the hearing.
11. REOPENING OF HEARING. The hearing may be reopened on the Arbitrator's
initiative at any time before the award is made. If reopening the hearing would
prevent the making of the award within the specified time limit, the matter may
not be reopened unless the parties agree on an extension of time.
12. WAIVER OF ORAL HEARING. The parties may provide, by written agreement,
for the waiver of oral hearing in any case.
13. WAIVER OF RULES. Any party who proceeds with the Arbitration after
knowledge that any provision or requirement of these rules has not been complied
with and who fails to state an objection thereto in writing shall be deemed to
have waived the right to object.
14. EXTENSIONS OF TIME. The parties may modify any period of time by mutual
agreement. The Arbitrator may for good cause extend any period of time
established by these rules, except the time for making the award. The Arbitrator
shall notify the parties of any extension.
15. SERVING OF NOTICE. Each party shall be deemed to have consented that any
papers, notices, or process necessary or proper for the initiation or
continuation of an Arbitration under these rules, for any court action in
connection therewith, or for the entry of judgment on any award made under these
rules may be served on a party by mail addressed to the party or its
representative at the address specified
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in Section 6.15 or by personal service, in or outside the state where the
Arbitration is to be held, provided that reasonable opportunity to be heard with
regard thereto has been granted to the party.
16. TIME OF THE AWARD. The award shall be made promptly by the Arbitrator
and, unless otherwise agreed by the parties in writing or specified by law, no
later than thirty days from the date of closing the hearing, or, if oral
hearings have not been held, from the date of the transmittal of the final
briefs, statements and proofs to the Arbitrator.
17. AWARD UPON SETTLEMENT. If the parties settle their dispute during the
course of the Arbitration, the Arbitrator may set forth the terms of the agreed
settlement in an award. Such an award is referred to as a consent award.
18. DELIVERY OF AWARD TO PARTIES. Parties shall accept as legal delivery of
the award the placing of the award or a true copy thereof in the mail addressed
to a party or its representative at the last known address, personal service of
the award, or the filing of the award in any other manner that is permitted by
law.
19. APPLICATIONS TO COURT AND EXCLUSION OF LIABILITY.
(a) No judicial proceeding by a party relating to the subject matter of the
Arbitration shall be deemed a waiver of the party's right to arbitrate.
(b) Parties to these rules shall be deemed to have consented that judgment
upon the Arbitration award may be entered in any federal or state court having
jurisdiction thereof.
20. INTERPRETATION AND APPLICATION OF RULES. The Arbitrator shall interpret
and apply these rules insofar as they relate to the Arbitrator's powers and
duties. If there is more than one Arbitrator and a difference arises among them
concerning the meaning or application of these rules, it shall be decided by a
majority vote.
21. COMPLEX PROCEDURES. Notwithstanding the foregoing, if the parties
mutually agree, any Arbitration to be conducted between the parties may be
conducted in the manner provided for in the Supplementary Procedure for Large
Complex Disputes of the American Arbitration Association.
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<PAGE>
TAX SHARING AGREEMENT
This Tax Sharing Agreement (the "Agreement") is being entered into
this ____ day of ______, 1997, in connection with a Distribution and Indemnity
Agreement (the "Distribution Agreement") dated as of ______ __, 1997 by and
between Western Atlas Inc., a Delaware corporation ("Western Atlas"), and UNOVA,
Inc., a Delaware corporation ("UNOVA"), pursuant to which, among other things,
Western Atlas will distribute to holders of its common stock all the issued and
outstanding common stock of UNOVA (the "UNOVA Distribution"). Western Atlas, on
behalf of itself and its present and future subsidiaries (the "Western Atlas
Group"), and UNOVA on behalf of itself and its present and future subsidiaries
(the "UNOVA Group"), are entering into this Agreement to provide for the
allocation between the Western Atlas Group and the UNOVA Group of all
responsibilities, liabilities and benefits relating to or affecting Taxes (as
hereinafter defined) paid or payable by either of them for all taxable periods,
whether beginning before or after the Distribution Date (as hereinafter defined)
and to provide for certain other matters.
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement, the following terms shall have the
following meanings (such meanings to be
<PAGE>
equally applicable to both the singular and the plural forms of the terms
defined):
"1997 Stub Period" shall have the meaning assigned to such term in
Section 3.1(a) of this Agreement.
"Accounting Firm" shall have the meaning assigned to such term in
Section 3.1(b)(2)(B) of this Agreement.
"Acquisition" shall have the meaning assigned to such term in Section
3.6(b) of this Agreement.
"Calendar Year" means the 52-53 week year ending on the Sunday nearest
December 31.
"Carryback Item" shall have the meaning assigned to such term in
Section 3.8(b) of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute, and shall include corresponding provisions of any
subsequently enacted federal tax laws.
"Distribution Agreement" shall have the meaning assigned to such term
in the preface to this Agreement.
"Distribution Date" means the date determined by Western Atlas Board
of Directors as of which the UNOVA Dis-
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<PAGE>
tribution shall be effected, which is presently contemplated to be ______ __,
1997.
"Filed UNOVA Group Separate Tax Liability" means the amount determined
pursuant to Section 3.1(b) for the Year 1997 Stub Period.
"Filed UNOVA Group Separate Joint Tax Liability" means that amount
determined pursuant to Section 3.2(b) for the 1997 Stub Period.
"Final Determination" shall mean the final resolution of liability for
any tax for a taxable period (i) by IRS Form 870 or 870-AD (or any successor
forms thereto), on the date of acceptance by or on behalf of the IRS, or by a
comparable form under the laws of other jurisdictions; except that a Form 870 or
870-AD or comparable form that reserves (whether by its terms or by operation of
law) the right of the taxpayer to file a claim for refund and/or the right of
the taxing authority to assert a further deficiency shall not constitute a Final
Determination; (ii) by a decision, judgment, decree, or other order by a court
of competent jurisdiction, which has become final and unappealable; (iii) by a
closing agreement or accepted offer in compromise under Section 7121 or 7122 of
the Code, or comparable agreements under
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<PAGE>
the laws of other jurisdictions; (iv) by any allowance of a refund or credit in
respect of an overpayment of Tax, but only after the expiration of all periods
during which such refund may be recovered (including by way of offset) by the
Tax imposing jurisdiction; or (v) by any other final disposition of liability in
respect of a Tax provided for under applicable law, including by reason of the
expiration of the applicable statute of limitations.
"IRS" means the Internal Revenue Service.
"Joint Return" means a state income tax return, including, but not
limited to, a unitary, combined or consolidated state income tax return, that
includes at least one Western Atlas Business and at least one UNOVA Business.
"Litton Agreement" shall have the meaning assigned to such term in
Section 5.4 of this Agreement.
"Norand Tax" shall have the meaning assigned to such term in Section
3.11 of this Agreement.
"Notification Date" shall have the meaning assigned to such term in
Section 3.1(b)(2)(B) of this Agreement.
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<PAGE>
"Other Tax Return" means any Tax Return other than (1) a federal
income tax return, (2) a state or local tax return and (3) a foreign tax return.
"Pre-Distribution Year" means any taxable year beginning before the
Distribution Date during which any member of the UNOVA Group was included in the
Western Atlas Consolidated Group.
"Restructuring Taxes" means any Taxes, including related interest,
penalties and additions to Tax and reasonable attorneys' fees, resulting from
(1) the failure of the UNOVA Distribution to qualify as a distribution described
in Sections 355 and/or 368(a)(1)(D) of the Code or corresponding provisions of
state tax law or (2) the application of Sections 355(e) of the Code to the UNOVA
Distribution.
"Tax" means any of the Taxes.
"Taxes" means all forms of taxation, whenever created or imposed, and
whether of the United States or elsewhere, and whether imposed by a local,
municipal, governmental, state, federation or other body, and without limiting
the generality of the foregoing, shall include income, sales, use, ad valorem,
gross receipts, value added, franchise, transfer, recording, withholding,
payroll, employment,
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<PAGE>
excise, occupation, premium and property taxes, together with any related
interest, penalties and additions to any such tax, or additional amounts imposed
by any taxing authority (domestic or foreign) upon the UNOVA Group, the Western
Atlas Group or any of their respective members or divisions or branches.
"Tax Benefit" means any item of loss, deduction, credit or any other
Tax Item which decreases Taxes paid or payable, other than Tax Items resulting
from an adjustment pursuant to Section 3.1(d) or 3.2(c).
"Tax Detriment" means any item of income, gain, recapture of credit or
any other Tax Item which increases Taxes paid or payable, including taxes paid
or payable to Litton pursuant to the Litton Agreement, other than Tax Items
previously taken into account pursuant to Section 3.1(d) and/or 3.2(c).
"Tax Item" means any item of income, gain, loss, deduction, credit,
recapture of credit or any other item which increases or decreases Taxes paid or
payable, including an adjustment under Code Section 481 resulting from a change
in accounting method.
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<PAGE>
"Tax Reserves" shall have the meaning assigned to such term in Section
5.1 of this Agreement.
"Tax Return" means any return, filing, questionnaire or other document
required to be filed, including requests for extensions of time, filings made
with estimated tax payments, claims for refund and amended returns that may be
filed, for any period with any taxing authority (whether domestic or foreign) in
connection with any Tax or Taxes (whether or not a payment is required to be
made with respect to such filing).
"UNOVA Business" means any present or future subsidiary, division or
business of any member of the UNOVA Group which is not, or is not contemplated
by the Distribution Agreement to be, part of the Western Atlas Group immediately
after the UNOVA Distribution. UNOVA Business shall include any subsidiary,
division or business listed on Schedule A hereto.
"UNOVA Distribution" shall have the meaning assigned to such term in
the preface to this Agreement.
"UNOVA Group" shall have the meaning assigned to such term in the
preface to this Agreement.
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<PAGE>
"UNOVA Group Separate Joint Tax Liability" shall have the meaning
assigned to such term in Section 3.2(b) of this Agreement.
"UNOVA Group Separate Taxable Income" means, with respect to Calendar
Year 1996 or the 1997 Stub Period, the sum of (i) the consolidated federal
taxable income of the UNOVA Group members that were members of the Western Atlas
Consolidated Group at any time during Calendar Year 1996 or Calendar Year 1997,
determined as though such UNOVA Group members constituted a separate
consolidated group of which UNOVA was the common parent and (ii) the UNOVA
Group's portion of the federal taxable income of the FSC.
"UNOVA Group Separate Tax Liability" means, with respect to Calendar
Year 1996 or the 1997 Stub Period, the sum of (i) the consolidated federal
income tax liability of UNOVA Group members that were members of the Western
Atlas Consolidated Group at any time during such year, determined as though
such UNOVA Group members constituted a separate consolidated group of which
UNOVA was the common parent, reduced by the tax benefit of any loss or credit
that is limited at the UNOVA level but utilized at the Western Atlas
Consolidated Group level and increased by the tax benefit of any loss or
credit that is limited at the Western Atlas Consolidated Group level but
utilized at the UNOVA level; and (ii) the UNOVA Group's portion of the
federal income tax liability of the FSC.
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<PAGE>
"UNOVA Indemnity Issue" shall have the meaning assigned to such term
in Section 4.1(a) of this Agreement.
"UNOVA Issue" shall have the meaning assigned to such term in Section
3.4(a) of this Agreement.
"UNOVA Notice" shall have the meaning assigned to such term in Section
3.1(b)(2)(B) of this Agreement.
"Unrelated Person" means any person (within the meaning of Section
7701(a)(1) of the Code) other than a party hereto or a corporation that is a
controlled subsidiary (within the meaning of Section 368(c) of the Code) of such
party immediately prior to the Acquisition of such party's stock or assets.
"Western Atlas Adjustment" shall have the meaning assigned to such
term in Section 3.1(b)(2)(A) of this Agreement.
"Western Atlas Business" means any present or future subsidiary,
division or business of any member of the Western Atlas Group, other than a
present or future subsidiary, division or business of any member of the UNOVA
Group. Western Atlas Business also shall include any former subsidi-
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<PAGE>
ary, division or business of Western Atlas not listed on Schedule A hereto.
"Western Atlas Consolidated Group" means with respect to any taxable
period, the affiliated group of corporations of which Western Atlas is the
common parent (within the meaning of Section 1504 of the Code).
"Western Atlas Group" shall have the meaning assigned to such term in
the preface to this Agreement.
"Western Atlas Issue" shall have the meaning assigned to such term in
Section 3.4(a) of this Agreement.
"Western Atlas Revision" shall have the meaning ascribed to such term
in Section 3.1(e) of this Agreement.
ARTICLE II
FILING OF TAX RETURNS
---------------------
Section 2.1. MANNER OF FILING. All Tax Returns filed after the
Distribution Date shall be prepared on a basis which is consistent with any
opinion of counsel obtained by Western Atlas in connection with the UNOVA
Distribution and shall be filed on a timely basis (including extensions) by the
party responsible for such filing under this Agreement. In the absence of a
change in controlling
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<PAGE>
law, all Tax Returns filed after the date of this Agreement shall be prepared
on a basis consistent with the elections, accounting methods, conventions,
and principles of taxation used for the most recent taxable periods for which
Tax Returns involving similar Tax Items have been filed, except to the extent
that an inconsistent position would not result in a Tax Detriment to the
other party; provided, however, that any deduction attributable to the
exercise after the Distribution Date of a stock option (with respect to
either Western Atlas stock or Litton Industries, Inc. stock) under section
83(h) of the Code or Treasury Regulation section 1.83-6, or any deduction
attributable to the disqualifying disposition of incentive stock option stock
(with respect to either Western Atlas stock or Litton Industries, Inc. Stock)
or ithe disqualifying disposition of stock acquired through the Western Atlas
Inc. 1996 Employee Stock Purchase Plan (with respect to either Western Atlas
stock or UNOVA Stock) under Section 421(b) of the Code, shall be claimed on
the Tax Return of the UNOVA Group in the case of an employee, independent
contractor, or director (other than a director who is an employee of Western
Atlas) of any member of the UNOVA Group and on the Tax Return of the Western
Atlas Group in the case of an employee, independent contractor or director
(other than a director who is an employee of UNOVA) of any member of the
Western Atlas Group. Subject to the provisions of this Agreement, all
decisions relating to the preparation of Tax Returns shall be made in the
sole discretion of the party responsible under this Agreement for such
preparation.
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<PAGE>
Section 2.2. PRE-DISTRIBUTION TAX RETURNS.
(a) Except as otherwise provided in this Section 2.2, all Tax Returns
required to be filed for periods beginning before the Distribution Date shall be
filed by UNOVA or the appropriate UNOVA Business.
(b) State and local tax returns (other than Joint Returns) and Other
Tax Returns for all taxable periods beginning before the Distribution Date shall
be filed by the Western Atlas Business or UNOVA Business, as the case may be,
which had responsibility for filing such return for the last taxable period
ending prior to the Distribution Date.
(c) All foreign Tax Returns for taxable periods beginning before the
Distribution Date shall be filed by the legal entity which had responsibility
for filing such return for the last taxable period ending prior to the
Distribution Date, regardless of whether such entity was a member of the Western
Atlas Group or the UNOVA Group before or after the Distribution Date.
(d) The United States consolidated federal income Tax Return for the
Western Atlas Consolidated Group for the 1996 Calendar Year, if not filed before
the Distribution Date, shall be filed by UNOVA. The United States consoli-
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<PAGE>
dated federal income Tax Return for the Western Atlas Consolidated Group for
the 1997 Calendar Year shall be filed by Western Atlas. All Joint Returns
for the 1996 Calendar Year, if not filed before the Distribution Date, shall
be filed by Western Atlas, and all Joint Returns for the 1997 Calendar Year
shall be filed by Western Atlas.
(e) IRS Form 8697, Interest Computation Under the Look-Back Method
for Completed Long-Term Contracts, and any comparable state forms, for the
Western Atlas Consolidated Group for the 1997 Calendar Year shall be prepared
by UNOVA and filed by Western Atlas.
Section 2.3. POST-DISTRIBUTION TAX RETURNS. All Tax Returns of
the UNOVA Group for periods beginning after the Distribution Date shall be
filed by UNOVA or the appropriate UNOVA Business and all Tax Returns of the
Western Atlas Group for periods beginning after the Distribution Date shall
be filed by Western Atlas or the appropriate Western Atlas Business.
ARTICLE III
PAYMENT OF TAXES
----------------
Section 3.1. UNFILED FEDERAL TAXES FOR PRE-DISTRIBUTION PERIODS.
(a) On or about October 15, 1997, Western Atlas shall pay to or receive
from, as appropriate, the UNOVA
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Group a sum equal to the difference between (i) the UNOVA Group Separate Tax
Liability for Calendar Year 1996, and (ii) an amount equal to all payments
previously made by the UNOVA Group or any member thereof. On or about March 31,
1998, UNOVA shall deliver to Western Atlas an estimate of the UNOVA Group
Separate Taxable Income for the period beginning on December 30, 1996 and ending
on the last day in which the members of the UNOVA Group are includible in the
Western Atlas Consolidated Group (the "1997 Stub Period"). On or about April
30, 1998, UNOVA shall pay to Western Atlas, or Western Atlas shall pay to UNOVA,
as appropriate, a sum equal to the difference (if any) between (i) Western
Atlas's estimate of the UNOVA Group Separate Tax Liability for the 1997 Stub
Period, and (ii) an amount equal to all payments previously made by the UNOVA
Group or any member thereof. Not later than one business day before April 15,
1998, Western Atlas shall deliver to UNOVA a schedule showing its estimate of
the UNOVA Group Separate Tax Liability for the 1997 Stub Period and the amount
payable by UNOVA to Western Atlas, or by Western Atlas to UNOVA, as the case may
be, pursuant to this Section 3.1(a).
(b) UNOVA shall pay to Western Atlas, or Western Atlas shall pay to
UNOVA, as appropriate, an amount reflect-
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<PAGE>
ing the difference (if any) between (i) the Filed UNOVA Group Separate Tax
Liability for the 1997 Stub Period and (ii) an amount equal to all federal
income tax payments made by the UNOVA Group with respect to such period. Such
payment shall be made on or before November 15, 1998. Amounts due or refunds
receivable from IRS Form 8697 and any comparable state forms which relate to
the UNOVA Group shall be allocated to UNOVA for all periods. The Filed UNOVA
Group Separate Tax Liability for the 1997 Stub Period shall be determined
pursuant to the following procedures:
(1) On or before June 30, 1998, UNOVA shall deliver to Western Atlas
all information (including without limitation, Federal Form 1120, prepared
on a separate basis in accordance with past practice, together with
schedules, statements and supporting documentation) as Western Atlas may
reasonably request from time to time, with respect to each member of the
UNOVA Group that was a member of the Western Atlas Consolidated Group at
any time in Calendar Year 1997, for the preparation of the federal income
Tax Return of the Western Atlas Consolidated Group for Calendar Year 1997.
All information provided by UNOVA pursuant to this paragraph shall
correctly reflect the facts regarding the income, properties, operations
and status of each such
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member of the UNOVA Group and shall be prepared applying elections and
methods of accounting that are consistent with those made or used by such
member in prior taxable periods or such other elections and methods as
may be reasonably agreed upon by the parties.
(2) (A) Western Atlas shall make any adjustments to the information
so submitted that it deems appropriate (individually, a "Western Atlas
Adjustment") and shall prepare and file the consolidated federal income Tax
Return for the Western Atlas Consolidated Group for Calendar Year 1997.
Western Atlas shall determine, in good faith, the UNOVA Group Separate Tax
Liability for 1997 Stub Year, including amounts due or refunds receivable
with respect to IRS Form 8697. Western Atlas shall notify UNOVA in writing
of the amount of such liability no later than October 15, 1998. Such
notification shall include an explanation of the basis for any Western
Atlas Adjustments and a copy of the calculations of the UNOVA Group
Separate Tax Liability.
(B) On or before November 15, 1998, UNOVA shall provide Western Atlas with
written notice (the "UNOVA Notice") of all Western Atlas Adjustments with which
UNOVA disagrees, together with the grounds for such disagreement and any
supporting documentation.
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If and to the extent that any Western Atlas Adjustments remain in
dispute, Western Atlas shall provide to any branch of a nationally recognized
accounting firm not then engaged by either party as its primary auditor
(hereinafter, "Accounting Firm") all portions of the UNOVA Notice pertaining to
the disputed Western Atlas Adjustments, together with a statement of Western
Atlas's position with respect to each such adjustment and any supporting
documentation. Accounting Firm's fees and expenses shall be borne equally by
Western Atlas and UNOVA. Western Atlas shall provide such information to
Accounting Firm no later than December 15, 1998. Accounting Firm shall resolve
all
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disputed Western Atlas Adjustments and shall notify the parties of such
resolution, which shall be binding on the parties hereto. Such notification
shall be given on or before January 15, 1999 (the "Notification Date"). Any
communication by either party with Accounting Firm prior to the applicable
Notification Date shall be in writing, with a copy simultaneously furnished to
the other party. If Accounting Firm cannot resolve a disputed Western Atlas
Adjustment by the applicable Notification Date, Western Atlas shall use its sole
discretion in reflecting such disputed Western Atlas Adjustment on its federal
income Tax Return. Accounting Firm shall be directed to proceed to a resolution
of such disputed Western Atlas Adjustment as soon as practicable, and, if such
resolution differs from the manner in which the disputed Western Atlas
Adjustment was reflected on Western Atlas's federal income Tax Return, Western
Atlas shall file an amended return reflecting such difference within two months
of such resolution. Western Atlas shall make the appropriate adjustments to the
amount of the Filed UNOVA Group Separate Tax Liability for the 1997 Stub Period,
and shall promptly pay UNOVA any balance otherwise due UNOVA within three months
of such resolution.
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(c) Either party may extend any date referenced in this Section 3.1
with the consent of the other party, and such consent shall not be unreasonably
withheld and shall be deemed to be given unless the other party objects to such
extension in writing within a reasonable time after the request therefor.
(d) For all known adjustments, including credits, for the UNOVA Group
for which an amended federal return has not been filed as of the Distribution
Date, UNOVA shall notify Western Atlas within 90 days of the Distribution
Date of these known adjustments and resulting tax liabilities or refunds.
The resulting tax liabilities or refunds shall be an amount by which the
actual Taxes paid or payable Western Atlas shall increase or decrease.
Within 30 days of such notification, Western Atlas shall pay to UNOVA, or
UNOVA shall pay to Western Atlas, as appropriate, such liability or refund as
the case may be.
(e) (A) Western Atlas shall make any revisions to the known
adjustments so submitted that it deems appropriate (individually, a "Western
Atlas Revision") and shall determine, in good faith, a resulting tax liability
of the known adjustments including any Western Atlas Revisions. Western Atlas
shall notify UNOVA of the amount of such
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liability including an explanation for any Western Atlas Revision no later than
180 days from the Distribution Date.
(B) Within 30 days of such notice from Western Atlas, UNOVA
shall provide Western Atlas with a response of all Western Atlas Revisions with
which UNOVA disagrees, together with an explanation.
If and to the extent that any Western Atlas
Revisions remain in dispute, Western Atlas and UNOVA shall jointly meet with
Accounting Firm. The parties shall discuss all explanations, notices and
calculations provided under this Subsection. Accounting Firm's fees and
expenses shall be borne equally by Western Atlas and UNOVA. Accounting Firm
shall resolve all disputed Western Atlas Revisions and shall notify the parties
of such resolution, which shall be binding on the parties hereto. Such
notification shall be given within 30 days of such meeting. Any communication
with the Accounting Firm will include Western Atlas and UNOVA. If Accounting
Firm cannot resolve a disputed Western Atlas Revision within the applicable
period, an extension of time may be granted upon agreement of all parties.
Western Atlas shall make the appropriate adjustments to the resulting tax
liability, and Western Atlas or UNOVA, as the case may be, shall promptly
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pay any balance otherwise due UNOVA or Western Atlas, as appropriate, within 30
days of such resolution.
Section 3.2. UNFILED JOINT RETURNS FOR PRE-DISTRIBUTION PERIODS. (a)
On or about November 15, 1997, Western Atlas shall pay to or receive from, as
appropriate, the UNOVA Group a sum equal to the difference between (i) the UNOVA
Group Separate Joint Tax Liability for Calendar Year 1996, and (ii) an amount
equal to all payments previously made by the UNOVA Group or any member thereof.
On or about April 30, 1998, UNOVA shall pay to Western Atlas, or Western Atlas
shall pay to UNOVA, as appropriate, a sum equal to the difference (if any)
between (i) Western Atlas's estimate of the UNOVA Group Separate Joint Tax
Liability for the 1997 Stub Period, computed using 1996 apportionment factors
and the taxable income numbers supplied in Section 3.1(a), and (ii) an amount
equal to all payments previously made by the UNOVA Group or any member thereof.
Not later than one business day before April 15, 1998, Western Atlas shall
deliver to UNOVA a schedule showing its estimate of the UNOVA Group Separate
Joint Tax Liability for the 1997 Stub Period and the amount payable by UNOVA to
Western Atlas, or by
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Western Atlas to UNOVA, as the case may be, pursuant to this Section 3.2(a).
(b) UNOVA shall pay to Western Atlas, or Western Atlas shall pay to
UNOVA, as appropriate, an amount reflecting the difference (if any) between
(i) the Filed UNOVA Group Separate Joint Tax Liability for the 1997 Stub
Period and (ii) an amount equal to all tax payments made by the UNOVA Group
with respect to such period. Such payment shall be made on or before
December 15, 1998. Amounts due or refunds receivable from any state or other
taxing jurisdiction with regard to the interest computations under the
look-back method for completed long-term contracts which relate to the UNOVA
Group shall be allocated to UNOVA for all periods. The Filed UNOVA Group
Separate Joint Tax Liability for the 1997 Stub Period shall be determined
pursuant to the following procedures:
(1) On or before July 31, 1998, UNOVA shall deliver to Western Atlas
all information (including without limitation, schedules, statements and
supporting documentation) as Western Atlas may reasonably request from time
to time, with respect to each member of the UNOVA Group that Western Atlas,
in its sole discretion, deems includible in the filing of a Joint Return
for Calendar Year 1997. All information provided by UNOVA pursuant to this
paragraph shall correctly reflect the facts regarding the income,
properties, operations and status of each such member of the UNOVA Group
and shall be prepared applying elections and methods of accounting
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that are consistent with those made or used by such member in prior taxable
periods or such other elections and methods of accounting as may be
reasonably agreed upon by the parties.
(2) (A) Western Atlas shall adjust the information so submitted in
good faith and shall prepare and file all Joint Returns for Calendar Year
1997. Western Atlas shall determine, in good faith, the UNOVA Group
Separate Joint Tax Liability of the UNOVA Group for each state in which
UNOVA is included in a Joint Return for Calendar Year 1997, reduced by
the tax benefit of any loss or credit that is limited at the UNOVA level
but utilized in the Joint Return and increased by the tax benefit of any
loss or credit that is limited at the Western Atlas Consolidated Group
level but utilized at the UNOVA level (the "UNOVA Group Separate Joint
Tax Liability"). Western Atlas shall notify UNOVA in writing of the
amount of such liability no later than November 30, 1998. Such
notification shall include an explanation of the basis for any Western
Atlas Adjustments and a copy of the calculations of the UNOVA Group
Separate Joint Tax Liability.
(B) Any adjustments made by Western Atlas under Section 3.2(b) (2)
(A) shall be revised in the manner set forth in Section 3.1(b) (2) (B) in
accordance with the procedures set forth therein and moving the dates
specified therein one month forward or substituting for the dates specified
therein such other dates as may be mutually agreed upon by the parties.
(c) For all known tax adjustments, including credits, for the UNOVA
Group for which an amended Joint Return has not been filed as of the
Distribution Date, UNOVA shall notify Western Atlas within 120 days of the
Distribution Date of those known adjustments and resulting tax liabilities
or refunds. The resulting tax liabilities or refunds shall be an amount by
which actual Tax paid or payable by Western Atlas shall increase or decrease
or, if both parties agree, an amount calculated using an agreed-upon
effective state tax rate. Within 30 days after such notification, Western
Atlas shall pay to UNOVA, or UNOVA shall pay to Western Atlas, as
appropriate, such liability or refund, as the case may be. The know tax
adjustments so submitted shall be revised in the manner described in Section
3.1(e) in accordance with the procedures set forth therein.
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(d) Either party may extend any date referenced in this Section 3.2
with the consent of the other party, and such consent shall not be
unreasonably withheld and shall be deemed to be given unless the other party
objects in writing within a reasonable time after the request therefor.
Section 3.3. CHANGE IN FEDERAL RETURNS AND JOINT RETURNS. (a) The
parties acknowledge that there has not yet been a Final Determination of the
federal income tax liability of the Western Atlas Group for any taxable year
after the fiscal year ended August 1, 1982 and that certain members of the UNOVA
Group were included in the Western Atlas Consolidated Group from March 18, 1994
through the Distribution Date. Except as otherwise provided in this Agreement,
Western Atlas and each member of the Western Atlas Group shall jointly and
severally indemnify UNOVA and each member of the UNOVA Group against and hold
them harmless from federal income taxes and all Taxes with respect to Joint
Returns for all periods beginning before the Distribution Date and shall be
entitled to receive and retain all refunds of federal income taxes and Taxes
with respect to Joint Returns with respect to periods beginning before the
Distribution Date.
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(b) Except as otherwise provided in this Agreement, if as a result of
any audit, amendment or other change in a federal income tax return or a
Joint Return as filed by Western Atlas or UNOVA with respect to any period,
the Final Determination of an adjustment to any Tax Item generates a Tax
Detriment to Western Atlas or any Western Atlas Business for any period and a
corresponding Tax Benefit for UNOVA or any of the UNOVA Businesses for any
period (a "Reimbursable Adjustment"), then Western Atlas shall notify UNOVA
of such Reimbursable Adjustment.
(c) If UNOVA receives a notice of a Reimbursable Adjustment, UNOVA
shall use reasonable efforts to have the Tax Benefit to UNOVA flow through to
Western Atlas.
(d) If UNOVA is unable to have a Tax Benefit flow through to Western
Atlas as described in Section 3.3(c), within ninety (90) days of receiving
notice of a Reimbursable Adjustment that generates a Tax Benefit for UNOVA or
any member of the UNOVA Group for any taxable period(s) with respect to which
(i) a federal income tax return or a Joint Return has been filed, and (ii) the
applicable statute of limitations has not expired, UNOVA (or the appropriate
member of the UNOVA Group) shall file a refund claim pursuant to Code Section
6511 reflecting such Tax Benefit (or a comparable provision of state law in the
case of a Joint Return). UNOVA
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shall, within 30 days after receipt, pay to Western Atlas any refunds received
by UNOVA resulting from the filing of a refund claim pursuant to the preceding
sentence, together with any interest refunded with respect thereto. In the
event that UNOVA would have received a refund with respect to such claim had
such refund not been offset by the United States Government (or the relevant
state government in the case of a Joint Return) against deficiencies, interest
or penalties assessed against UNOVA or any member of the UNOVA Group, UNOVA
shall pay to Western Atlas, within 30 days after receipt of written notice of
such offset, an amount equal to the amount of such offset, together with
interest at the overpayment rate established under Section 6621 of the Code.
If, for any taxable year, UNOVA is required to and does make a repayment to the
IRS (or a state governmental authority in the case of a Joint Return) of any
portion of a refund described herein, then Western Atlas shall pay to UNOVA,
within 30 days following the date UNOVA notifies Western Atlas of such
repayment, the amount of such repayment, including related interest.
(e) In the event that UNOVA receives notice of a Reimbursable
Adjustment that generates a Tax Benefit for UNOVA or any member of the UNOVA
Group for any taxable
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period(s) with respect to which a federal income tax return or a Joint Return
has not been filed and UNOVA is unable to have such Tax Benefit flow through to
Western Atlas as described in Section 3.3(c), then UNOVA (or the appropriate
member of the UNOVA Group) shall file federal Form 1120(s) (or corresponding
form under relevant state law in the case of a Joint Return) reflecting such Tax
Benefit and shall pay to Western Atlas, no later than thirty (30) days after the
filing of such return(s), the amount by which such Tax Benefit actually reduces
the federal income taxes and/or Taxes with respect to a Joint Return payable by
UNOVA or such member of the UNOVA Group with respect to such taxable period(s),
using the appropriate statutory income tax rate applicable to such period(s).
If, pursuant to a Final Determination for any taxable year, UNOVA is required to
and does make a payment to the IRS (or a state governmental authority in the
case of a Joint Return) representing any portion of the amount paid to Western
Atlas pursuant to the preceding sentence, then Western Atlas shall pay to UNOVA,
within 30 days following the date UNOVA notifies Western Atlas of such payment
to the IRS (or a state governmental authority in the case of a Joint Return),
the amount of such payment, including related interest.
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(f) Western Atlas may notify UNOVA of a Reimbursable Adjustment prior
to the Final Determination of such adjustment if Western Atlas, in its sole
discretion, determines that such Reimbursable Adjustment may, upon Final
Determination, generate a Tax Benefit for UNOVA with respect to which a refund
claim may be barred by the applicable statute of limitations. If Western Atlas
so requests, UNOVA shall file a refund claim for the appropriate taxable
period(s) reflecting such Tax Benefit, and shall pay to Western Atlas any Tax
and interest refunded with respect thereto under the terms and conditions set
forth in subsection (c) of this Section 3.3. All refund claims filed by UNOVA
pursuant to this Section 3.3(e) shall be prepared in cooperation with Western
Atlas, shall fully explain the circumstances giving rise to the claim and shall
be identified with the notation "Protective Claim".
(g) If as a result of any audit, amendment or other change in a
federal income Tax Return or a Joint Return filed by Western Atlas or UNOVA
with respect to any period beginning after the Distribution Date, the Final
Determination of an adjustment to any Tax Item generates a Tax Detriment to
UNOVA or any UNOVA Business and a corresponding Tax Benefit for Western Atlas
or any Western Atlas Business for any period, then the provisions of
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subsections (b), (c), (d), (e) and (f) of this Section 3.3 shall be applied by
substituting Western Atlas for UNOVA and UNOVA for Western Atlas, as the context
requires.
(h) Any payment not made on or before the last day on which such
payment could be timely made under this Section 3.3 shall thereafter bear
interest at the rate established for large corporate underpayments pursuant to
Section 6621(c)(1) of the Code.
(i) Notwithstanding any provision of this Agreement to the contrary,
the total amount payable by UNOVA to Western Atlas with respect to any
Reimbursable Adjustment pursuant to subsections (c), (d) and/or (e) of this
Section 3.3 shall not exceed the amount of the Taxes paid by Western Atlas with
respect to such adjustment.
Section 3.4. CHANGE IN OTHER PRE-DISTRIBUTION YEAR STATE, LOCAL OR
OTHER RETURN. (a) Except as otherwise provided in this Section 3.4, if as a
result of any audit, amendment or other change in a state or local tax return
(other than a Joint Return) or any Other Tax Return filed with respect to any
period beginning before the Distribution Date, there is an adjustment to any Tax
Item, then Western Atlas shall be responsible for and shall hold UNOVA harmless
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from any such adjustment generated by or attributable to Western Atlas or any
Western Atlas Business (a "Western Atlas Issue"), and UNOVA shall be responsible
for and shall hold Western Atlas harmless from any such adjustment generated by
or attributable to UNOVA or any UNOVA Business (a "UNOVA Issue"). Upon request
by Western Atlas, UNOVA or any member of the UNOVA Group shall use its
reasonable best efforts to cooperate in any contest of such UNOVA Issue.
(b) Any payment required to be made under this Section 3.4 shall be
inclusive of interest and penalties and shall be made no later than 30 days
after the party required to make such payment receives written notice of a Final
Determination of the Western Atlas Issue or UNOVA Issue, as the case may be,
giving rise to such payment; provided, however, that no payment shall be due
under this Section 3.4 unless the total amount payable with respect to any
individual state or local return (other than a Joint Return) or Other Tax Return
by Western Atlas or by UNOVA, as the case may be, equals or exceeds $10,000
exclusive of interest and penalties. Any payment not made within the 30-day
period described in the preceding sentence shall thereafter bear interest at the
rate established for large corporate underpayments pursuant to Section
6621(c)(1) of the Code.
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Section 3.5. CHANGE IN PRE-DISTRIBUTION YEAR FOREIGN RETURN. Any
legal entity responsible for filing a foreign Tax Return with respect to any
taxable period beginning prior to the Distribution Date shall be responsible for
the payment of all Taxes, penalties and interest whenever assessed, due or
payable in connection therewith and shall be entitled to all refunds, whenever
granted, attributable thereto, regardless of whether such legal entity is a
member of the Western Atlas Group or the UNOVA Group before or after the
Distribution Date. Notwithstanding the foregoing, if a decrease in foreign
Taxes results in a Tax Detriment to Western Atlas and a corresponding Tax
Benefit to UNOVA or any of the UNOVA Businesses, UNOVA shall pay Western Atlas
an amount equal to such Tax Detriment. In the event that an increase in foreign
Taxes results in a Tax Benefit to Western Atlas and a corresponding Tax
Detriment to UNOVA or any of the UNOVA Businesses, Western Atlas shall pay UNOVA
an amount equal to the amount by which such Tax Benefit actually reduces the
Taxes of Western Atlas.
Section 3.6. RESTRUCTURING TAXES. (a) Notwithstanding any other
provision of this Agreement to the contrary, and except as otherwise provided in
this Section 3.6, Western Atlas shall pay fifty percent (50%) of all
Restructuring Taxes and UNOVA shall pay fifty percent (50%) of all Restruc-
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turing Taxes. UNOVA and each member of the UNOVA Group will jointly and
severally indemnify Western Atlas and each member of the Western Atlas Group
against and hold them harmless from any payment of Restructuring Taxes in excess
of fifty percent (50%) of such taxes, and Western Atlas and each member of the
Western Atlas Group will jointly and severally indemnify UNOVA and each member
of the UNOVA Group against and hold them harmless from any payment of
Restructuring Taxes in excess of fifty percent (50%) of such taxes.
(b) In the event that any Restructuring Taxes are attributable to the
acquisition ("Acquisition") of fifty percent (50%) or more of the stock or
assets of Western Atlas or UNOVA by an Unrelated Person, then the party so
acquired, or the party whose assets were so acquired, as the case may be, shall
pay and shall indemnify and hold harmless the other party to this Agreement from
and against any and all Restructuring Taxes and from and against any costs
whatsoever connected with such Restructuring Taxes. For purposes of this
Section 3.6(b), a Restructuring Tax is attributable to an Acquisition if the
Acquisition occurs prior to the assessment of such Restructuring Tax.
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(c) Any payment required to be made pursuant to this Section 3.6
shall be made no later than 30 days after the payor receives written notice of a
Final Determination of such Restructuring Taxes. Any payment not so made within
30 days shall thereafter bear interest at the rate established for large
corporate underpayments pursuant to Section 6621(c)(1) of the Code.
(d) Neither Western Atlas nor UNOVA shall engage in any acts, other
than an Acquisition, which would result in any Restructuring Taxes. In the
event that any Restructuring Taxes are attributable to such acts, the party so
engaged shall pay and shall indemnify and shall hold harmless the other party to
this Agreement from and against any such Restructuring Taxes.
Section 3.7. DUAL CONSOLIDATED LOSS CLOSING AGREEMENT. Prior to
the filing of the 1997 federal income tax return of the Western Atlas
Consolidated Group, in accordance with Treasury Regulation section
1.1503-2(g) (2) (iv) (B) (2) (i), WAI and UNOVA will enter into a closing
agreement with the IRS providing that WAI and UNOVA will be jointly and
severally liable for the total amount of the recapture of dual consolidated
loss and interest charge required in Treasury Regulation section 1.1503-2(g)
(2) (vii) related to Norand's dual consolidated losses, if there is a
triggering event described in Treasury Regulation section 1.1503-2 (g) (2)
(iii).
In accordance with Treasury Regulation section 1.1503-2 (g) (2) (iv)
(B) (2) (ii), WAI will agree with the IRS to treat any potential recapture
amount under Treasury Regulation section 1.1503-2(g) (2) (vii) related to
Norand's dual consolidated losses as unrealized built in gain for
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purposes of Section 384(a) of the Code, subject to any applicable exceptions
thereunder.
In accordance with Treasury Regulation section 1.1503-2(g) (2) (iv)
(B) (2) (iii), WAI will file, with the timely filed 1997 federal income tax
return of the Western Atlas Consolidated Group, the agreement described in
Treasury Regulation section 1.1503-2(g) (2) (i).
Prior to the filing of the 1997 federal income tax return of the
Western Atlas Consolidated Group, in accordance with Treasury Regulation
section 1.1503-2(g) (2) (iv) (B) (2) (i), WAI and UNOVA will enter into a
closing agreement with the IRS providing that WAI and UNOVA will be jointly
and severally liable for the total amount of the recapture of dual
consolidated loss and interest charge required in Treasury Regulation section
1.1503-2(g) (2) (vii) related to UNOVA Business' dual consolidated losses, if
there is a triggering event described in Treasury Regulation section
1.1503-2(g) (2) (iii).
In accordance with Treasury Regulation section 1.1503-2(g) (2) (iv)
(B) (2) (ii), UNOVA will agree with the IRS to treat any potential recapture
amount under Treasury Regulation section 1.1503-2(g) (2) (vii) related to
Norand's and UNOVA Business' dual consolidated losses as unrealized
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built-in gain for purposes of Section 384(a) of the Code, subject to any
applicable exceptions therunder.
In accordance with Treasury Regulation section 1.1503-2(g) (2) (iv)
(B) (2) (iii), UNOVA will file, with its 1997 UNOVA Group Consolidated Tax
Return for the short period beginning the day after the Distribution Date and
ending on December 28, 1997, the agreement described in Treasury Regulation
Section 1.1503-2(g) (2) (i).
Section 3.8. LIABILITY FOR TAXES WITH RESPECT TO POST-DISTRIBUTION
PERIODS. Unless otherwise provided in this Agreement, the Western Atlas Group
shall pay all Taxes and shall be entitled to receive and retain all refunds of
Taxes with respect to periods beginning after the Distribution Date which are
attributable to Western Atlas Businesses. Unless otherwise provided in this
Agreement, the UNOVA Group shall pay all Taxes and shall be entitled to receive
and retain all
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refunds of Taxes with respect to periods beginning after the Distribution Date
which are attributable to UNOVA Businesses.
Section 3.9. CARRYBACKS. (a) If, for any taxable year beginning on
or after the Distribution Date, a member of the UNOVA Group (or a successor to
such member) incurs a net operating loss that may be carried back to a
Pre-Distribution Year in which such member was a member of the Western Atlas
Consolidated Group, such member shall make an election pursuant to Section
172(b)(3) of the Code, unless Western Atlas, in its sole discretion, consents to
treat such net operating loss as a Carryback Item pursuant to paragraph (b) of
this Section 3.9.
(b) If, for any taxable year beginning on or after the Distribution
Date, a member of the UNOVA Group (or a successor to such member) incurs a net
capital loss, business tax credit, or foreign tax credit (each a "Carryback
Item") that may be carried back to a consolidated federal income tax return
which was filed by the Western Atlas Consolidated Group, UNOVA (or such member
of the UNOVA Group) may file a refund claim pursuant to Code section 6411
reflecting such Carryback Item. In the event that UNOVA (or such member of the
UNOVA Group) shall not elect to file such a claim (or shall not be eligible to
file such claim under applicable
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law), Western Atlas shall, at the request and expense of UNOVA, file amended
returns or refund claims reflecting such Carryback Item. Western Atlas shall,
within 30 days after receipt, pay to UNOVA any refunds received by Western Atlas
resulting from the filing of a refund claim pursuant to the foregoing provisions
of this Section 3.9(b)(without regard to whether the income or tax in the
Pre-Distribution Year was earned or paid, as the case may be, by Western
Atlas or by UNOVA), together with any interest refunded with respect
thereto. In the event that Western Atlas would have received a refund with
respect to such claim had such refund not been offset by the United States
Government against deficiencies, interest or penalties assessed against the
Western Atlas Consolidated Group or any member thereof (other than deficiencies,
interest or penalties attributable to (i) the operations of the UNOVA Group and
with respect to which the UNOVA Group would otherwise be responsible under the
terms of this Agreement or (ii) a taxable year of the Western Atlas Consolidated
Group for which the statute of limitations has expired), Western Atlas shall pay
to UNOVA, within 30 days after receipt of notice of such offset, an amount equal
to the amount of such offset, together with interest at the overpayment rate
established under Section 6621 of the Code. To the extent that a member of the
Western Atlas Group or a member of the UNOVA Group receives a double benefit as
a result of this Section 3.9(b) and the operation of the Code, Western Atlas or
UNOVA,
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respectively, will compensate UNOVA or Western Atlas, respectively, for the
duplication of the benefit. If, for any taxable year, Western Atlas is required
to and does make a repayment to the IRS of any portion of a refund described
herein, then UNOVA shall pay to Western Atlas, within 30 days following the date
Western Atlas notifies UNOVA of such repayment, the amount of such repayment,
including interest.
(C) Rules similar to those provided in Sections 3.9(a) and 3.9(b)
with respect to federal income Tax Returns shall be applied to Joint Returns.
Section 3.10. STATUTES OF LIMITATIONS.
(a) Except as otherwise provided in this Agreement, UNOVA or Western
Atlas may allow a statute of limitations to expire, extend a statute, or make
exceptions for any Tax Item in a final agreement with the IRS or other taxing
authority in respect of any taxable period ending after the Distribution
Date, as UNOVA or Western Atlas in its sole discretion may determine.
(b) At least six months prior to the expiration of the statute of
limitations with respect to any consolidated federal income Tax Return or any
Joint Return of UNOVA for any taxable period, UNOVA shall advise Western Atlas
in writing of the date of such expiration.
Section 3.11. EARNINGS AND PROFITS. The allocation of earnings and
profits described in Section 312(h) of the Code and Treasury Regulation
Section 1.312-10 shall be made by Western
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Atlas in its sole discretion and its good faith determination shall be binding
on the parties hereto. Western Atlas shall provide such allocation to UNOVA on
or before the second anniversary of the Distribution Date.
Section 3.12. LIABILITY FOR NORAND TAXES. Notwithstanding any other
provision of this Agreement to the contrary, UNOVA shall represent Norand
Corporation in connection with, and shall pay and hold harmless Western Atlas
from and against any and all Taxes, together with related penalties and
interest, assessed in respect of any audit, amendment or other change in a Tax
Return filed by or on behalf of Norand Corporation for any taxable period ending
prior to the date upon which Norand Corporation became a member of the Western
Atlas Consolidated Group (hereinafter, "Norand Taxes").
Section 3.13. BREACH. Western Atlas shall indemnify and hold
harmless each member of the UNOVA Group and UNOVA shall indemnify and hold
harmless each member of the Western Atlas Group from and against any Taxes,
penalties or interest required to be paid as a result of the breach by a member
of the Western Atlas Group or the UNOVA Group, as the case may be, of any
obligation under this Agreement.
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ARTICLE IV
INDEMNITY: COOPERATION AND EXCHANGE OF INFORMATION
---------------------------------------------------
Section 4.1. INDEMNITY.
(a) Western Atlas shall have full responsibility and discretion in
the handling of any federal income tax controversy or controversy with respect
to a Joint Return, including, without limitation, any audit, protest to the
Appeals Division of the IRS, or litigation in Tax Court or any other court of
competent jurisdiction or comparable state governmental authority in the case of
any Joint Return of the Western Atlas Consolidated Group. Upon request by
Western Atlas, UNOVA or any member of the UNOVA Group shall use its reasonable
best efforts to cooperate in a defense in any such federal income tax
controversy or Joint Return controversy with respect to any Reimbursable
Adjustment, or any Restructuring Tax, for which UNOVA could be liable under
Section 3.3 or 3.6 of this Agreement (hereinafter, a "UNOVA Indemnity Issue").
(b) Western Atlas shall (i) promptly notify UNOVA of any inquiries by
any taxing authority or any other administrative, judicial or other governmental
authority that relate to any UNOVA Indemnity Issue or any liability of any
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member of the UNOVA Group that might arise under this Agreement, (ii) shall
provide UNOVA with such notice and information as is necessary to keep UNOVA
reasonably apprised of the progress of any audit or proceeding involving a UNOVA
Indemnity Issue and (iii) shall in good faith consider all reasonable
suggestions of UNOVA with respect to the contest of such issue. UNOVA shall
promptly notify Western Atlas of any inquiries by any taxing authority or any
other administrative, judicial or other governmental authority that relate to
any Tax that may be imposed on any member of the Western Atlas Group or any
liability of any member of the Western Atlas Group that might arise under this
Agreement.
Section 4.2. COOPERATION AND EXCHANGE OF INFORMATION. (a) Western
Atlas, on behalf of itself and each member of the Western Atlas Group, agrees to
provide the UNOVA Group, and UNOVA, on behalf of itself and each member of the
UNOVA Group, agrees to provide the Western Atlas Group, with such cooperation
and information as the other shall reasonably request in connection with the
preparation or filing of any Tax Return or claim for refund contemplated by this
Agreement or in conducting any audit or other proceeding in respect of Taxes.
Such cooperation and information shall include without limitation promptly
forwarding copies of
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appropriate notices and forms or other communications received from or sent to
any taxing authority which relate to Western Atlas Businesses in the case of the
UNOVA Group and UNOVA Businesses in the case of the Western Atlas Group, or
which relate to any Tax Item for which the other party may bear responsibility
under the terms of this Agreement, and providing copies of all relevant Tax
Returns, together with accompanying schedules and related workpapers, documents
relating to rulings or other determinations by taxing authorities, including,
without limitation, foreign taxing authorities, and records concerning the
ownership and tax basis of property, which either party may possess. Western
Atlas shall make available to UNOVA any information in Western Atlas's
possession that would enable UNOVA to compute the tax basis of its assets or
stock. UNOVA shall collect and make available to Western Atlas foreign tax
receipts with respect to periods beginning before the Distribution Date,
regardless of when such foreign tax receipts are issued. Each party shall make
its employees and facilities available on a mutually convenient basis to provide
explanation of any documents or information provided hereunder. However,
neither party or its employees shall make any voluntary disclosures to any
taxing authority, respecting any taxable period or Tax Item for which the other
party may bear
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responsibility under the terms of this Agreement, without the specific prior
consent of such other party, which consent shall not be unreasonably withheld.
(b) Subject to subsection (d) of this Section 4.2, UNOVA and Western
Atlas agree to retain all Tax Returns, related schedules and workpapers, and all
material records and other documents relating thereto existing on the date
hereof or created through or with respect to periods ending on or before the
first anniversary of the Distribution Date, until the expiration of the statute
of limitations (including extensions) of the taxable years to which such Tax
Returns and other documents relate and until the Final Determination of any
payments which may be required in respect of such years under this Agreement.
Western Atlas and UNOVA agree to advise each other promptly of any such Final
Determination.
(c) If any member of the Western Atlas Group or the UNOVA Group, as
the case may be, fails to provide any information requested pursuant to Section
3.1(b)(1), Section 3.2(a) or this Section 4.2 by (i) the date(s) specified in
such Section or (ii) if no date is specified, within a reasonable period, as
determined in good faith by the party requesting the information, then the
requesting party shall have the right to engage a public accountant of its
choice to
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gather such information. UNOVA and Western Atlas, as the case may be, agree
upon 24 hours' notice, in the case of a failure to provide information pursuant
to Section 3.1(b)(1) or Section 3.2(a) of this Agreement, and otherwise upon 30
days' notice after the expiration of such reasonable period, to permit any such
public accountant full access to all appropriate records or other information in
the possession of any member of the Western Atlas Group or the UNOVA Group, as
the case may be, during reasonable business hours and to reimburse or pay
directly all costs and expenses in connection with the engagement of such public
accountant.
(d) Upon the expiration of any statute of limitations, the
documentation of Western Atlas or UNOVA or any member of their respective
groups, including, without limitation, books, records, Tax Returns and all
supporting schedules and information relating thereto, may be destroyed or
disposed of unless (i) the other party requests that such documentation be
retained, by written notice describing in reasonable detail the documentation to
be retained, and (ii) the recipient of such notice agrees in writing to such
retention. If the recipient of such notice objects, then the party proposing
the retention shall promptly offer to take
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delivery of such materials from the objecting party at the expense of the
objecting party.
Section 4.3. RELIANCE ON EXCHANGED INFORMATION. If either Western
Atlas or UNOVA, or a member of their respective groups, supplies information to
another party upon such party's request, and an officer of the requesting party
intends to sign a statement or other document under penalties of perjury in
reliance upon the accuracy of such information, then a duly authorized officer
of the party supplying such information shall certify, to the best of such
party's knowledge, the accuracy and completeness of the information so supplied.
ARTICLE V
MISCELLANEOUS
-------------
Section 5.1. RESERVES. The parties agree that all accrued taxes,
tax reserves and other tax balances in the balance sheet accounts of Western
Atlas and its subsidiaries as of the Distribution Date, including but not
limited to Financial Consolidations accounts (hereinafter, "Tax Reserves"),
shall remain with the Western Atlas Group after the UNOVA Distribution, except
for those Tax Reserves which
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shall belong to the UNOVA Group upon the UNOVA Distribution, as set forth by
company and division on Schedule B hereto.
Section 5.2. EXPENSES. Unless otherwise expressly provided in this
Agreement or in the Distribution Agreement, each party shall bear any and all
expenses that arise from their respective obligations under this Agreement.
Section 5.3. PAYMENTS. All payments to be made under this Agreement
shall be made in immediately available funds.
Section 5.4. ENTIRE AGREEMENT; TERMINATION OF PRIOR AGREEMENTS OTHER
THAN LITTON AGREEMENT. Except for that certain Tax Sharing Agreement dated as
of March 17, 1994 by and between Litton Industries, Inc. and Western Atlas (the
"Litton Agreement"), this Agreement constitutes the entire agreement of the
parties concerning the subject matter hereof and supersedes all other
agreements, whether or not written, in respect of any Tax between or among any
member or members of the Western Atlas Group, on the one hand, and any member or
members of the UNOVA Group, on the other hand. All such agreements other than
the Litton Agreement are hereby canceled and any rights or obligations existing
thereunder are hereby fully and finally settled without any payment by any
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party thereto. This Agreement may not be amended except by an agreement in
writing, signed by the parties hereto. Anything in this Agreement or the
Distribution Agreement to the contrary notwithstanding, in the event and to the
extent that there shall be a conflict between the provisions of this Agreement
and the Distribution Agreement, the provisions of this Agreement shall control.
In the event and to the extent that there shall be a conflict between the
provisions of this Agreement and the Litton Agreement, the provisions of the
Litton Agreement shall control.
Section 5.5. NOTICES. All notices and other communications
hereunder shall be in writing and shall be personally delivered (provided a
receipt is obtained therefor); or mailed by registered or certified mail (return
receipt requested); transmitted by telex or telecopy; or sent by private
messenger or carrier that issues delivery receipts, to the parties at the
following addresses (or at such other addresses for a party as shall be
specified by like notice) and shall be deemed given on the date on which such
notice is received:
To Western Atlas or any member of the Western Atlas Group:
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General Counsel
Western Atlas Inc.
10205 Westheimer Road
Houston, TX 77042
To UNOVA or any member of the UNOVA Group:
General Counsel
UNOVA Inc.
360 North Crescent Drive
Beverly Hills, CA 90210
Section 5.6. APPLICATION TO PRESENT AND FUTURE SUBSIDIARIES. This
Agreement is being entered into by Western Atlas and UNOVA on behalf of
themselves and each member of the Western Atlas Group and UNOVA Group,
respectively. This Agreement shall constitute a direct obligation of each
such member and shall be deemed to have been readopted and affirmed on behalf
of any corporation which becomes a member of the Western Atlas Group and
UNOVA Group in the future. Western Atlas and UNOVA hereby guarantee the
performance of all actions, agreements and obligations provided for under
this Agreement of each member of the Western Atlas Group and the UNOVA Group,
respectively. Western Atlas and UNOVA shall, upon the written request of the
other, cause any of their respective group members formally to execute this
Agreement. This Agreement shall be binding upon, and shall inure to the
benefit of, the successors, assigns and persons controlling any of the
corporations bound hereby for so long
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as such successors, assigns or controlling persons are members of the Western
Atlas Group or the UNOVA Group or their successors and assigns.
Section 5.7. TERM. This Agreement shall commence on the date of
execution indicated below and shall continue in effect until otherwise agreed to
in writing by Western Atlas and UNOVA or their successors.
Section 5.8. TITLES AND HEADINGS. Titles and headings to sections
herein are inserted for the convenience of reference only and are not intended
to be a part or to affect the meaning or interpretation of this Agreement.
Section 5.9. LEGAL ENFORCEABILITY. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provisions in any other jurisdiction. Without
prejudice to any rights or remedies otherwise available to any party hereto,
each party hereto acknowledges that damages would be an inadequate remedy for
any breach of the provisions of this Agreement and
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agrees that the obligations of the parties hereunder shall be specifically
enforceable.
Section 5.10. FURTHER ASSURANCES. Subject to the provisions hereof,
the parties hereto shall make, execute, acknowledge and deliver such other
instruments and documents, and take all such other actions, as may be reasonably
required in order to effectuate the purposes of this Agreement and to consummate
the transactions contemplated hereby. Subject to the provisions hereof, each of
the parties shall, in connection with entering into this Agreement, perform its
obligations hereunder and take any and all actions relating hereto, comply with
all applicable laws, regulations, orders, and decrees, obtain all required
consents and approvals and make all required filings with any governmental
agency, other regulatory or administrative agency, commission or similar
authority and promptly provide the other parties with all such information as
they may reasonably request in order to be able to comply with the provisions of
this sentence.
Section 5.11. PARTIES IN INTEREST. Except as herein otherwise
specifically provided, nothing in this Agreement expressed or implied is
intended to confer any right or benefit upon any person, firm or corporation
other
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than the parties and their respective successors and permitted assigns.
Section 5.12. SETOFF. All payments to be made under this Agreement
shall be made without setoff, counterclaim or withholding, all of which are
expressly waived.
Section 5.13. CHANGE OF LAW. If, due to any change in applicable law
or regulations or the interpretation thereof by any court of law or other
governing body having jurisdiction subsequent to the date of this Agreement,
performance of any provision of this Agreement or any transaction contemplated
thereby shall become impracticable or impossible, the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such provision.
Section 5.14. GOVERNING LAW AND INTERPRETATION. This Agreement shall
be governed by and construed in accordance with the laws of the State of
Delaware applicable to agreements made and to be performed in the State of
Delaware, without regard to conflict of laws principles thereof.
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Section 5.14. RESOLUTION OF CERTAIN DISPUTES.
(a) Disagreements between Western Atlas, on the one hand, and the
members of the UNOVA Group, on the other, with respect to amounts that Western
Atlas claims are owed by the UNOVA Group, or that the UNOVA Group claims are
owed by Western Atlas, under Sections 3.3, 3.4 or 3.6 of this Agreement shall be
resolved as follows: No later than the last day on which a disputed payment
could be timely made pursuant to Section 3.3, 3.4 or 3.6 of this Agreement, as
the case may be, the complaining party shall provide written notice to the other
party of the amount of the payment with which it disagrees and the basis for
such disagreement. Any disagreement that is not resolved by mutual agreement
within 30 days of such notice shall be resolved by arbitration pursuant to this
Section 5.15. Upon the commencement of the 30-day dispute resolution period
specified in the preceding sentence until the time of a final resolution by the
arbitrator, the applicable time period for making a disputed payment pursuant to
Section 3.3, 3.4 or 3.6 shall be tolled. Such tolling shall not affect the
accrual of interest pursuant to Section 3.3(h), 3.4(b) or 3.6(c).
(b) Any arbitrator selected pursuant to this Section 5.15 shall have
at least five years of experience in the
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field of corporate taxation, shall be an attorney licensed to practice law in
any state of the United States and shall not be or have been employed by or
affiliated with either party. The parties shall first attempt to agree on a
mutually satisfactory arbitrator. If the parties are unable to agree on a
mutually satisfactory arbitrator within 15 days after expiration of the 30-day
dispute resolution period specified in subsection (a) of this Section 5.15, such
arbitrator shall be selected by the American Arbitration Association. If the
position of an arbitrator is vacated, the person or persons who originally
selected the arbitrator to fill such position shall select a new arbitrator to
fill the position. The arbitrator's fees and expenses shall be borne equally by
Western Atlas and UNOVA.
(c) Arbitration Procedure.
(i) The arbitration shall be conducted in accordance with the rules set forth
in Exhibit A. The arbitration shall not be conducted under the auspices of the
American Arbitration Association.
(ii) Each party within 30 days after engagement of the arbitrator shall
submit to the arbitrator a written statement of the party's position
(including the total net amount it
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asserts is owed by it or is due to it) regarding the total amount in dispute,
which position shall be consistent with any notice provided by such party
pursuant to subsection (a) of this Section 5.15, together with a copy of such
notice.
(iii) The arbitrator shall base his decision on the following standards. In
the case of a factual dispute between the parties, the arbitrator shall make a
determination of the correct facts. In the case of a dispute regarding a legal
issue or a settlement amount, the arbitrator shall consider the strength of
Western Atlas's and UNOVA's litigation positions (with respect to all issues
raised by the taxing authority with whom the settlement was made in a Revenue
Agent's Report or similar document) relative to the costs and risks of
litigation. Upon making determinations with respect to all issues in dispute
the arbitrator shall find in favor of the party whose statement submitted
pursuant to paragraph (ii) above proposed the amount closest to the aggregate of
the amounts so determined.
(iv) The arbitrator shall render a written decision stating only the
amount of such decision as soon as practicable. The arbitrator shall also
orally explain the bases of such decision to both parties as soon as
practicable. If and only if both parties request, the arbitrator shall state
the bases
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of such decision in writing. The arbitrator's decision shall be in an amount
equal to one of the total amounts asserted by one of the parties in the written
statements submitted pursuant to paragraph (ii) above. The arbitrator shall
not, and is not authorized to, render a decision in any other amount.
(v) The arbitrator's decision shall be final and binding on the parties.
Section 5.16. CONFIDENTIALITY. Each party shall hold and shall cause
its consultants and advisors to hold in strict confidence, unless compelled to
disclose by judicial or administrative process or, in the opinion of its
counsel, by other requirements of law, all information (other than any such
information relating solely to the business or affairs of such party) concerning
the other parties hereto furnished it by such other party or its representatives
pursuant to this Agreement (except to the extent that such information can be
shown to have been (i) previously known by the party to which it was furnished,
(ii) in the public domain through no fault of such party, or (iii) later
lawfully acquired from other sources by the party to which it was furnished),
and each party shall not release or disclose such information to any other
person, except its auditors, attorneys, financial
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advisors, bankers and other consultants and advisors who shall be advised of the
provisions of this Agreement. 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.
Section 5.17. LIMITATION ON WAIVERS. The provisions of this
Agreement may be waived only if the waiver is in writing and signed by the party
making the waiver. No delay or omission in exercising any right under this
Agreement will operate as a waiver of the right on any further occasion. No
waiver of any particular provision of this Agreement will be treated as a waiver
of any other provision, and no waiver of any rights will be deemed a continuing
waiver of the same right with respect to subsequent occurrences that give rise
to it. All rights given by this Agreement are cumulative to other rights
provided for in this Agreement and to any other rights available under
applicable law.
Section 5.18. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
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Section 5.19. FAIR MEANING. This Agreement shall be construed in
accordance with its fair meaning and shall not be construed strictly against the
drafter.
Section 5.20. CONSTRUCTION. In this Agreement, unless the context
otherwise requires, the terms "herein," "hereof," "hereto," and "hereunder"
refer to this Agreement.
Section 5.21. TERMINATION. This Agreement may be terminated at any
time prior to the Distribution Date, without the approval of UNOVA, by and in
the sole discretion of the Western Atlas Board of Directors. In the event of
such termination, no party shall have any liability to the other party from or
for the terminated Agreement, except that expenses incurred in connection with
the preparation of this Agreement shall be paid as provided in Section 5.2
hereof.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day and year first above written.
WESTERN ATLAS INC.
By:
---------------------------
Title:
UNOVA INC.
By:
---------------------------
Title:
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EXHIBIT "A"
ARBITRATION PROCEDURAL RULES
1. Administration and Conduct of Arbitration.
(a) At the discretion of the Arbitrator, an administrative conference with the
Arbitrator and the parties and/or their representatives will be scheduled in
appropriate cases to expedite the Arbitration proceedings.
(b) It is intended that the Arbitration be conducted in an expeditious manner
and without evidentiary hearing or oral presentation and argument, unless the
Arbitrator determines, at any time, that an evidentiary hearing, and/or oral
presentation or argument is desired by the Arbitrator for the rendition of an
award or a decision. However, the Arbitrator shall fix limits on the duration
of any such evidentiary hearing and/or oral presentation and argument, in
advance, with time equally divided between the parties.
(c) On such schedule as may be established by the Arbitrator, each of the
parties shall submit simultaneous briefs, including exhibits, to the Arbitrator
supporting their respective positions. There shall be no limit to the number of
pages included in such briefs or to the number of exhibits. Each party shall
have a reasonable opportunity, as determined by the Arbitrator, to reply to the
brief of the
<PAGE>
other. The Arbitrator shall have the right to request additional written
statements of all or any of the parties; provided that each party shall have the
reasonable opportunity to reply to any such additional statements submitted in
response to the request of the Arbitrator.
2. Fixing of Locale.
The parties may mutually agree to the locale where the Arbitration is
to be held. If the parties cannot agree on the locale, the Arbitrator shall
have the power to determine the locale and its decision shall be final and
binding.
3. Date, Time and Place of Hearing.
The Arbitrator shall set the date, time, and place for any hearing.
The Arbitrator shall mail to each party notice thereof at least ten days in
advance, unless the parties by mutual agreement waive such notice or modify the
terms thereof.
4. Postponements.
The Arbitrator for good cause show may postpone any hearing upon the
request of a party or upon the Arbitra-
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tor's own initiative, and shall also grant such postponement when all of the
parties agree thereto.
5. Oaths.
Before proceeding with the first hearing, the Arbitrator may take an
oath of office and, if required by law, shall do so. The Arbitrator may require
witnesses to testify under oath administered by any duly qualified person and,
if it is required by law, shall do so.
6. Order of Proceedings and Communication with Arbitrator.
(a) A hearing shall be opened by the filing of the oath of the Arbitrator,
where required, and by the recording of the date, time, and place of the
hearing, and the presence of the Arbitrator, the parties, and their
representatives, if any.
(b) The Arbitrator may, at the beginning of the hearing, ask for statements
clarifying the issues involved.
(c) The complaining party shall then present evidence and/or argument, as
required by the Arbitrator, to support its claim. The defending party shall
then present evidence and/or argument supporting its position and responding to
the position of the other. Witnesses, if any, for each party shall submit to
questions or other examination. The
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Arbitrator has the discretion to vary this procedure but, within the time limits
specified above, shall afford a full and equal opportunity to all parties for
the presentation of any material and relevant evidence.
(d) Exhibits, when offered by either party, may be received in evidence by the
Arbitrator. The names and addresses of any witnesses and a description of the
exhibits in the order received shall be made a part of the record.
(e) There shall be no direct communication between the parties and the
Arbitrator other than at oral hearing, unless the parties and the Arbitrator
agree in writing.
7. Arbitration in the Absence of a Party or Representative.
Unless the law provides to the contrary, the Arbitration may proceed
in the absence of any party or representative who, after due notice, fails to be
present or fails to obtain a postponement ("absence in default"). An award
shall not be made solely on the default of a party. The Arbitrator shall
require the party who is present to submit such evidence as the Arbitrator may
require for the making of an award.
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8. Evidence.
(a) The parties may offer such evidence as is relevant and material to the
dispute and shall produce such evidence as the Arbitrator may deem necessary to
an understanding and determination of the dispute.
(b) The Arbitrator shall be the judge of the relevance and materiality of the
evidence offered, and conformity to legal rules of evidence shall not be
necessary. All evidence shall be taken in the presence of the Arbitrator and
all of the parties, except where any of the parties is absent in default or has
waived the right to be present.
9. Evidence by Affidavit and Post-Hearing Filing of Documents or
Other Evidence.
(a) The Arbitrator may receive and consider the evidence of witnesses by
affidavit, but shall give it only such weight as the Arbitrator deems it to be
entitled to after consideration of any objection made to its admission.
(b) If the parties agree or the Arbitrator directs that documents or other
evidence be submitted to the Arbitrator after the hearing, the documents or
other evidence shall be
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filed with the Arbitrator. All parties shall be afforded an opportunity to
examine such documents or other evidence.
10. Closing of Hearing.
If satisfied that the record is complete, the Arbitrator shall
declare the hearing closed and a minute thereof shall be recorded. If briefs
are to be filed, the hearing shall be declared closed as of the final date set
by the Arbitrator for the receipt of briefs. If documents are to be filed as
provided in Section 9 and the date set for their receipt is later than that set
for the receipt of briefs, the later date shall be the date of closing of the
hearing.
11. Reopening of Hearing.
The hearing may be reopened on the Arbitrator's initiative at any
time before the award is made. If reopening the hearing would prevent the
making of the award within the specified time limit, the matter may not be
reopened unless the parties agree on an extension of time.
12. Waiver of Oral Hearing.
The parties may provide, by written agreement, for the waiver of oral
hearing in any case.
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13. Waiver of Rules.
Any party who proceeds with the Arbitration after knowledge that any
provision or requirement of these rules has not been complied with and who fails
to state an objection thereto in writing shall be deemed to have waived the
right to object.
14. Extensions of Time.
The parties may modify any period of time by mutual agreement. The
Arbitrator may for good cause extend any period of time established by these
rules, except the time for making the award. The Arbitrator shall notify the
parties of any extension.
15. Serving of Notice.
Each party shall be deemed to have consented that any papers,
notices, or process necessary or proper for the initiation or continuation of an
Arbitration under these rules, for any court action in connection therewith, or
for the entry of judgment on any award made under these rules may be served on a
party by mail addressed to the party or its representative at the last known
address or by personal service, in or outside the state where the Arbitration is
to be
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held, provided that reasonable opportunity to be heard with regard thereto has
been granted to the party.
16. Time of the Award.
The award shall be made promptly by the Arbitrator and, unless
otherwise agreed by the parties in writing or specified by law, no later than
thirty days from the date of closing the hearing, or, if oral hearings have not
been held, from the date of the transmittal of the final briefs, statements and
proofs to the Arbitrator.
17. Award upon Settlement.
If the parties settle their dispute during the course of the
Arbitration, the Arbitrator may set forth the terms of the agreed settlement in
an award. Such an award is referred to as a consent award.
18. Deliver of Award to Parties.
Parties shall accept as legal delivery of the award the placing of
the award or a true copy thereof in the mail addressed to a party or its
representative at the last known address, personal service of the award, or the
filing of the award in any other manner that is permitted by law.
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19. Applications to Court and Exclusion of Liability.
(a) No judicial proceeding by a party relating to the subject matter of the
Arbitration shall be deemed a waiver of the party's right to arbitrate.
(b) Parties to these rules shall be deemed to have consented that judgment upon
the Arbitration award may be entered in any federal or state court having
jurisdiction thereof.
20. Interpretation and Application of Rules.
The Arbitrator shall interpret and apply these rules insofar as they
relate to the Arbitrator's powers and duties. If there is more than one
Arbitrator and a difference arises among them concerning the meaning or
application of these rules, it shall be decided by a majority vote.
21. Complex Procedures.
Notwithstanding the foregoing, if the parties mutually agree, any
Arbitration to be conducted between the parties may be concluded in the manner
provided for in the Supplementary Procedure for Large Complex Disputes of the
American Arbitration Association, with such modification as the parties may
agree upon.
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EXHIBIT 10D
EMPLOYEE BENEFITS AGREEMENT
EMPLOYEE BENEFITS AGREEMENT (the "Agreement") dated as of October
__, 1997 by and between Western Atlas Inc., a Delaware corporation ("Western
Atlas") and UNOVA, Inc., a Delaware corporation ("UNOVA"), which, as of the
date hereof, is a direct, wholly-owned subsidiary of Western Atlas.
WHEREAS, the Board of Directors of Western Atlas has decided to
distribute all of the stock of UNOVA to the shareholders of Western Atlas in
a transaction intended to qualify under Section 355 of the Code (the
"Distribution");
WHEREAS, Western Atlas and UNOVA are entering into a Distribution
and Indemnity Agreement (the "Distribution Agreement") which, among other
things, together with the annexes to the Distribution Agreement, sets forth
the principal corporate transactions required to effect the Distribution and
sets forth other agreements that will govern certain other matters following
the Distribution; and
WHEREAS, in connection with the Distribution, Western Atlas and
UNOVA desire to provide for the allocation of assets and liabilities and
other matters relating to employee benefit plans and compensation
arrangements;
NOW, THEREFORE, in consideration of the mutual agreements,
provisions and covenants contained in this Agreement, Western Atlas and UNOVA
agree as follows:
SECTION 1. DEFINITIONS.
Terms used but not defined in this Agreement shall have the
meanings set forth in the Distribution Agreement. As used in this Agreement
the following terms shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the term defined):
AFFILIATE: with respect to a Person, any Person controlled by,
controlling or under common control with such Person.
BENEFIT PLAN: any Plan, existing on or prior to the Distribution
Date which was established by any member of the Western Atlas Group or the
UNOVA Group, or any predecessor or Affiliate of any of the foregoing, to
which any member of the Western Atlas Group or the UNOVA Group contributes,
has contributed, is required to contribute or has been required to
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contribute, or under which any employee, former employee, director or former
director of any member of the Western Atlas Group or the UNOVA Group or any
beneficiary thereof is covered, is eligible for coverage or has benefits
rights.
CODE: the Internal Revenue Code of 1986, as amended.
CURRENT PLAN YEAR: the plan year during which the Distribution
Date occurs.
DISTRIBUTION DATE: the date on which the Distribution is effected.
ERISA: the Employee Retirement Income Security Act of 1974, as
amended.
EXISTING RETIREMENT PLANS: the Western Atlas Inc. Retirement Plan,
the Landis Tool Pension Plan and the Retirement Plan of the von Gal
Operations of Western Atlas Inc.
GROUP: the Western Atlas Group or the UNOVA Group.
LIABILITY: any debt, liability or obligation, whether absolute or
contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, and whether or not the same
would properly be reflected on a balance sheet, and all costs and expenses
related thereto.
NONQUALIFIED PLAN: any Plan that provides retirement benefits and
is not intended to qualify under Section 401(a) of the Code.
PERSON: an individual, a partnership, a joint venture, a
corporation, a limited liability company, a trust, an unincorporated
organization or a government or any department or agency thereof.
PLAN: any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
purchase, stock ownership, stock appreciation rights, phantom stock, leave of
absence, layoff, vacation, day or dependent care, legal services, cafeteria,
life, health (including medical, dental and vision care), accident,
disability, severance, pay in lieu of notice, separation, workers'
compensation, travel or other employee benefit plan, practice, policy or
arrangement of any kind (including, but not limited to, any "employee benefit
plan" (within the meaning of Section 3(3) of ERISA)).
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PRIOR PLAN YEAR: to the extent applicable with respect to any
Plan, any plan year that ended on or prior to the Distribution Date.
QUALIFIED PLAN: a Plan which is an employee benefit pension plan
(within the meaning of Section 3(2) of ERISA) and which is intended to
qualify under Section 401(a) of the Code.
SUBSIDIARY: a corporation more than 50% of the voting power of
whose outstanding voting securities are owned directly or indirectly by
another specified corporation.
UNOVA COMMON STOCK: the Common Stock, par value $.01 per share, of
UNOVA.
UNOVA-ONLY DIRECTOR: any director of UNOVA immediately after the
Distribution Date who was a director of Western Atlas immediately prior to
the Distribution Date, but who ceases to be a director of Western Atlas in
connection with the Distribution.
UNOVA EMPLOYEE: any individual who immediately after the
Distribution Date is an officer or employee of the UNOVA Group.
UNOVA FORMER EMPLOYEE: any terminated employee of Western Atlas
who was principally employed in the business which will be conducted by the
UNOVA Group and any beneficiary or dependent of such terminated employee.
UNOVA GROUP: UNOVA and the UNOVA Subsidiaries and Affiliates.
UNOVA INC. PENSION PLAN: the Western Atlas Inc. Retirement Plan
assumed by UNOVA on or prior to the Distribution Date and renamed the UNOVA
Inc. Pension Plan.
UNOVA OPTION PLAN: the UNOVA 1997 Stock Incentive Plan.
UNOVA PARTICIPANT: any individual, with respect to a particular
Plan maintained by the UNOVA Group or the Western Atlas Group, who (i) is a
UNOVA Employee and who is eligible to participate in such Plan, (ii) at any
time after the Distribution Date is or becomes an officer or employee of any
member of the UNOVA Group and is eligible to participate in such Plan or
(iii) is a beneficiary or dependent of any individual described in clause
(i) or (ii).
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UNOVA SUBSIDIARIES: any direct or indirect Subsidiary of UNOVA at
or after the Distribution.
WELFARE PLAN: any Plan, other than a Qualified Plan, which
provides medical, health, disability, accident, life insurance, death,
dental or other welfare benefits, including any post-employment benefits or
retiree medical, life insurance or other such benefits.
WESTERN ATLAS BONUS PLAN: the Western Atlas Inc. 1995 Incentive
Compensation Plan and the Western Atlas Inc. Individual Performance Award
Plan, and any other cash incentive plan in which both UNOVA Employees and
Western Atlas Employees participated.
WESTERN ATLAS EMPLOYEE: any individual who immediately after the
Distribution Date is an officer or employee of a member of the Western Atlas
Group.
WESTERN ATLAS FORMER EMPLOYEE: any terminated employee of Western
Atlas other than a UNOVA Former Employee.
WESTERN ATLAS FSSP: the Western Atlas Financial Security and
Savings Program.
WESTERN ATLAS GROUP: Western Atlas and the Subsidiaries and
Affiliates of Western Atlas, other than UNOVA and the UNOVA Subsidiaries and
Affiliates.
WESTERN ATLAS INDEMNITEE: each member of the Western Atlas Group
and each of their respective directors, officers, employees and agents (but
only in their capacities as such) and each of the heirs, executors,
successors and assigns of any of the foregoing.
WESTERN ATLAS MISCELLANEOUS PLANS: any Benefit Plan, other than
any Qualified Plan, Nonqualified Plan, Welfare Plan, Western Atlas Bonus Plan
or Western Atlas Stock Option Plan.
WESTERN ATLAS OPTION: an option to purchase shares of Western
Atlas Common Stock granted pursuant to a Western Atlas Stock Option Plan.
WESTERN ATLAS PARTICIPANT: any individual who is a participant in
any Benefit Plan and is not a UNOVA Participant or UNOVA Former Employee, and
any beneficiary or dependent of such individual.
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WESTERN ATLAS STOCK OPTION PLANS: the Western Atlas Inc. Director
Stock Option Plan and the Western Atlas Inc. 1993 Stock Incentive Plan.
SECTION 2. OFFERS OF EMPLOYMENT; ASSUMPTION OF EMPLOYMENT, SEVERANCE AND
CONSULTING AGREEMENTS.
(a) On or prior to the Distribution Date, the UNOVA Group shall
offer to employ, to the extent required in this Section 2(a), each employee
employed by the Western Atlas Group who is principally employed by Western
Atlas in connection with the Western Atlas industrial automations systems
businesses which will be conducted by the UNOVA Group following the
Distribution and each Western Atlas corporate headquarters employee, except
as may otherwise be agreed upon by Western Atlas and UNOVA with respect to
any particular Western Atlas corporate headquarters employees. The
employees to be offered employment by the UNOVA Group shall include all
active and inactive employees of such businesses, including all employees
laid-off, disabled or on leave of absence, unless their employment with the
Western Atlas Group has been terminated. The UNOVA Group is not obligated to
employ any such employees of the Western Atlas Group who decline employment
with the UNOVA Group, and Western Atlas shall not be obligated to continue
the employment of such employees.
(b) Western Atlas and UNOVA agree that with respect to individuals
who, in connection with the Distribution, cease to be employees of the
Western Atlas Group and become employees of the UNOVA Group, such cessation
shall not be deemed a severance of employment from either Group for purposes
of any Plan or agreement that provides for the payment of severance, salary
continuation or similar benefits or stock repurchase rights and, in
connection with the Distribution, if and to the extent appropriate, Western
Atlas and UNOVA shall use their best efforts (without payment of monetary
compensation) to obtain waivers from individuals against any such assertion.
(c) The UNOVA Group shall assume and be solely responsible for,
and shall indemnify the Western Atlas Group against, all liabilities and
obligations whatsoever in connection with claims made by or on behalf of
UNOVA Employees or UNOVA Former Employees in respect of severance pay, salary
continuation and similar obligations relating to the termination or alleged
termination of any such person's employment either before, on or after the
Distribution Date.
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SECTION 3. CASH BONUS PLANS.
(a) Western Atlas shall be responsible for the payment of all
Liabilities for benefits due and payable but unpaid as of and through the
Distribution Date under each Western Atlas Bonus Plan with respect to any
Prior Plan Year (other than the Current Plan Year), other than with respect
to benefits due and payable to UNOVA Participants or UNOVA Former Employees.
(b) Except as provided in paragraph (c) below, under each Western
Atlas Bonus Plan, the UNOVA Group shall be responsible for the payment of
all Liabilities for benefits to UNOVA Participants and UNOVA Former Employees
due and payable after the Distribution Date or due and payable but unpaid as
of and through the Distribution Date, including the portions of awards made
prior to the Distribution Date which are not payable prior to the
Distribution Date.
(c) Prior to the Distribution Date, Western Atlas shall determine
1997 annual bonus awards under the Western Atlas Bonus Plans for UNOVA
Employees who are Western Atlas corporate headquarters employees. Such
awards shall be pro rated based upon the portion of the 1997 bonus year which
had expired as of the Distribution Date. Western Atlas shall pay a portion
of the cash bonus prior to the Distribution Date (the bonus amount that is up
to 50% of the employee's base salary earned for 1997 prior to the
Distribution Date), and UNOVA shall pay the balance of the bonus following
the Distribution Date in installments pursuant to the terms of the Western
Atlas Bonus Plans.
(d) Following the end of 1997, UNOVA shall determine 1997 annual
bonus awards for UNOVA Employees who were not Western Atlas corporate
headquarters employees, and shall make such payments to such UNOVA Employees.
(e) For purposes of the Western Atlas Bonus Plans, individuals
who, in connection with the Distribution, cease to be employees of Western
Atlas and become UNOVA Employees shall not be deemed to have terminated
employment under such Plans as a result of becoming UNOVA Employees for
purposes of receiving installments of prior year "Final Awards" under the
Western Atlas Bonus Plans. To the extent applicable, for purposes of
receiving payments of installments of prior year "Final Awards" under the
Western Atlas Bonus Plans, UNOVA Employees must at the time such payment is
due (i) be in the active employ of UNOVA or a Subsidiary or Affiliate of
UNOVA, (ii) have terminated employment with UNOVA by reason of death, or
"Disability" or "Retirement" (as defined in the UNOVA Option Plan) or (iii)
be on an "Approved Leave of Absence" (as determined by
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the UNOVA Compensation Committee or, prior to the Distribution, by the
Western Atlas Compensation Committee but including, without limitation, a
leave of absence for purposes of service in the Armed Services of the United
States).
SECTION 4. STOCK OPTIONS.
Western Atlas shall take all action necessary to amend (if
necessary), or otherwise provide for adjustments of outstanding awards under,
the Western Atlas Stock Option Plan, so that each outstanding Western Atlas
Option will be adjusted by (i) multiplying the number of shares of Western
Atlas Common Stock subject to the option by the Adjustment Factor and (ii)
dividing the exercise price per share of the option by the Adjustment
Factor. For these purposes, the "Adjustment Factor" is defined as the
quotient obtained by dividing (x) the Average Market Price of the Western
Atlas Common Stock plus the Average Market Price of the UNOVA Common Stock by
(y) the Average Market Price of the Western Atlas Common Stock. The
"Average Market Price" of Western Atlas Common Stock or UNOVA Common Stock,
as the case may be, is defined to be the average of the high and low daily
prices of such security as reported on the NYSE Composite Tape (or, if not
listed on such exchange, on any other national securities exchange on which
the Western Atlas Common Stock or the UNOVA Common Stock is listed or on
NASDAQ) on the sixth through tenth trading days, inclusive, following the
Distribution Date. Each Western Atlas Option held by a UNOVA Employee or
UNOVA-only Director who, in (a) connection with the Distribution, ceases to
be a Western Atlas Employee or director of Western Atlas and becomes a UNOVA
Employee or UNOVA-only Director, respectively, shall be amended to provide
that (i) service with UNOVA shall be deemed continuous service with Western
Atlas for purposes of vesting, exercisability and the duration of such
Western Atlas Option and (ii) to avoid the potential loss of the opportunity
to exercise such Western Atlas Option following a "Change in Control" of
UNOVA (as defined in the UNOVA Option Plan), such Western Atlas Option held
by UNOVA Employees or UNOVA-only Directors shall immediately vest and become
exercisable upon a Change in Control of UNOVA.
SECTION 5. QUALIFIED PLANS.
(a) Effective on or prior to the Distribution Date, UNOVA shall
assume sponsorship of the Existing Retirement Plans. The Western Atlas Inc.
Retirement Plan shall be renamed the UNOVA, Inc. Pension Plan. The other two
Existing Retirement Plans will remain as frozen plans with no further
benefit accruals thereunder. The UNOVA, Inc. Pension Plan shall continue to
provide benefits for all UNOVA Participants and UNOVA Former Employees who,
immediately prior to the Distribution
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Date, were participants in or otherwise entitled to benefits under the
Western Atlas Inc. Retirement Plan. UNOVA agrees that each such UNOVA
Participant or UNOVA Former Employee shall be, to the extent applicable,
entitled, for all purposes under the UNOVA, Inc. Pension Plan (including,
without limitation, eligibility, vesting and benefit accrual), to be credited
with the term of service and any accrued benefit credited to such UNOVA
Participant or UNOVA Former Employee as of the Distribution Date under the
terms of the Western Atlas Inc. Retirement Plan as if such service had been
rendered to UNOVA and as if such accrued benefit had originally been credited
to such UNOVA Participant or UNOVA Former Employee under the UNOVA, Inc.
Pension Plan. Western Atlas shall, as soon as practicable after the
Distribution Date, provide UNOVA with such additional information (in the
possession of the Western Atlas Group and not already in the possession of
the UNOVA Group) as may be reasonably requested by UNOVA and necessary in
order for the UNOVA Group to establish and administer effectively the
Existing Retirement Plans assumed by UNOVA.
(b) Effective on or prior to the Distribution Date, UNOVA shall
assume sponsorship of the Western Atlas FSSP and the Western Atlas FSSP shall
be renamed the UNOVA, Inc. Financial Security and Savings Program (the
"UNOVA FSSP"). UNOVA agrees that all service credited under the Western
Atlas FSSP as of the Distribution Date with respect to UNOVA Participants
shall be credited under the UNOVA FSSP for all Plan purposes, including
eligibility and vesting.
(c) From and after the Distribution Date, the Western Atlas Group
shall cease to have any Liability whatsoever with respect to UNOVA
Participants or UNOVA Former Employees under the Western Atlas Inc.
Retirement Plan or the Western Atlas FSSP, and UNOVA and the UNOVA, Inc.
Pension Plan and the UNOVA FSSP, as the case may be, shall assume or retain
sole responsibility for, and shall indemnify the Western Atlas Indemnitees
with respect to, all Liabilities of either Group with respect to UNOVA
Participants or UNOVA Former Employees under the UNOVA, Inc. Pension Plan and
the UNOVA FSSP.
SECTION 6. NONQUALIFIED RETIREMENT PLANS.
Effective as of the Distribution Date, UNOVA shall assume and shall
indemnify the Western Atlas Indemnitees from and against all Liabilities with
respect to UNOVA Participants and UNOVA Former Employees and UNOVA-only
Directors under the Western Atlas Inc. Restoration Plan, the Western Atlas
Inc. Supplemental Executive Retirement Plan (the "SERP"), the Supplemental
Retirement Agreement between Western Atlas Inc. and Alton J. Brann (dated
March 17, 1994), and the Western Atlas
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Inc. Deferred Compensation Plan for Directors (the "Western Atlas
Nonqualified Plans"). UNOVA represents that it has established plans on
substantially the same terms as the Western Atlas Nonqualified Plans pursuant
to which each UNOVA Participant will be credited with the term of service
credited to such UNOVA Participant as of the Distribution Date under the
Western Atlas Nonqualified Plans, as if such service had been rendered to
UNOVA.
SECTION 7. DEFERRED COMPENSATION.
Effective as of the Distribution Date, UNOVA shall assume and
indemnify the Western Atlas Indemnitees from and against all Liabilities with
respect to UNOVA Participants and UNOVA Former Employees in connection with
any deferred compensation plans.
SECTION 8. WELFARE PLANS.
(a) Effective on or prior to the Distribution Date, UNOVA shall
assume the Western Atlas Inc. Employees Welfare Benefit Trust, and such trust
shall be renamed the UNOVA, Inc. Employees Welfare Benefit Trust (the "UNOVA
Trust"). Effective as of the Distribution Date, UNOVA shall be responsible
for and shall indemnify the Western Atlas Indemnitees from and against all
Liabilities arising under any Welfare Plan with respect to claims by UNOVA
Participants or UNOVA Former Employees for benefits incurred prior to or
after the Distribution Date pursuant to the terms of the applicable Plan.
(b) Effective on or prior to the Distribution Date, UNOVA shall
assume sponsorship of the Welfare Plans maintained by Western Atlas in which
UNOVA Employees participate. In connection with the foregoing, Western
Atlas agrees to provide UNOVA or its designated insurance representative with
such information (in the possession of the Western Atlas Group and not
already in the possession of the UNOVA Group) as may be reasonably requested
by UNOVA and necessary for the UNOVA Group to assume or establish any such
Welfare Plan, and UNOVA agrees to provide Western Atlas or its designated
insurance representative with similar information. Split-dollar insurance
policies noted on Exhibit A as UNOVA policies shall be assumed by UNOVA, and
split-dollar insurance policies noted on Exhibit A as Western Atlas policies
shall remain with Western Atlas.
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SECTION 9. WESTERN ATLAS MISCELLANEOUS PLANS;
POST-DISTRIBUTION LIABILITIES.
(a) The Western Atlas Group shall be solely responsible for the
payment of all Liabilities whatsoever with respect to any Western Atlas
Participant or Western Atlas Former Employee unpaid as of and through the
Distribution Date under any Western Atlas Miscellaneous Plan and the UNOVA
Group shall assume and be solely responsible for the payment of all
Liabilities with respect to any UNOVA Participant or UNOVA Former Employee
unpaid as of and through the Distribution Date under any Western Atlas
Miscellaneous Plan.
(b) Except as otherwise expressly provided herein, the Western
Atlas Group shall be solely responsible for the payment of all Liabilities
whatsoever arising with respect to any Western Atlas Employee or Western
Atlas Former Employee and attributable to any period subsequent to the
Distribution Date and the UNOVA Group shall be solely responsible for the
payment of all Liabilities whatsoever arising with respect to any UNOVA
Employee or UNOVA Former Employee and attributable to any period subsequent
to the Distribution Date.
SECTION 10. PRESERVATION OF RIGHTS TO AMEND OR TERMINATE PLANS.
No provisions of this Agreement, including the agreement or
representation of Western Atlas or UNOVA that it, or any member of the
Western Atlas Group or the UNOVA Group, will make or has made a contribution
or payment to or under any Plan herein referred to for any period, shall be
construed as a limitation on the right of Western Atlas or UNOVA or any
member of the Western Atlas Group or the UNOVA Group to amend such Plan or
terminate its participation therein which Western Atlas or UNOVA or any
member of the Western Atlas Group or the UNOVA Group would otherwise have
under the terms of such Plan or otherwise, and no provision of this
Agreement shall be construed to create a right in any employee or former
employee or beneficiary of such employee or former employee under a Plan
which such employee or former employee or beneficiary would not otherwise
have under the terms of the Plan itself.
SECTION 11. REIMBURSEMENT; INDEMNIFICATION.
Each of the parties hereto acknowledges that the Western Atlas
Group, on the one hand, and the UNOVA Group, on the other hand, may incur
costs and expenses (including contributions to Plans and the payment of
insurance premiums) arising from or related to any of the Plans which are, as
set forth in this Agreement, the responsibility of the other party hereto.
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Accordingly, Western Atlas and UNOVA agree to reimburse each other, as soon
as practicable but in any event within 30 days of receipt from the other
party of appropriate verification, for all such costs and expenses.
SECTION 12. TRANSFER OF RESERVES.
To the extent that any Liability assumed by any member of the
UNOVA Group hereunder is secured by a reserve on the books of Western Atlas,
such reserve shall be transferred from Western Atlas to the books of UNOVA as
soon as practicable on or following the Distribution Date.
SECTION 13. FURTHER TRANSFERS.
Western Atlas and UNOVA recognize that there may be UNOVA Employees
who will, after the Distribution Date, become employed by Western Atlas and
there may be Western Atlas Employees who become employed, after the
Distribution Date, by UNOVA and there may be UNOVA Former Employees or
Western Atlas Former Employees who are hired by Western Atlas or UNOVA,
respectively. If Western Atlas and UNOVA so agree with respect to any such
individuals, the assets and liabilities with respect to such employees which
are associated with the plans and programs described in this Agreement may be
transferred and assumed in a manner consistent with this Agreement and such
employees will be treated as Western Atlas Employees or UNOVA Employees, as
the case may be. Any such transfers or assumptions and treatment of
employees will be considered to be governed by the terms of this Agreement
and shall not require the agreement of Western Atlas and UNOVA if they occur
within 3 months following the Distribution Date.
SECTION 14. OFFICERS AND EMPLOYEES.
Except as otherwise agreed by the parties hereto, effective as of
the Distribution Date, all officers or employees of the UNOVA Group who are
acting as directors or officers of the Western Atlas Group and are UNOVA
Employees shall resign from such positions with the Western Atlas Group.
SECTION 15. OTHER LIABILITIES; GUARANTEE OF OBLIGATIONS.
(a) As of the Distribution Date, UNOVA shall assume and be solely
responsible for all Liabilities whatsoever of the Western Atlas Group with
respect to claims made by the UNOVA Employees or UNOVA Former Employees
relating to any Liability not otherwise expressly provided for in this
Agreement, including earned salary, wages, bonus, incentive or severance
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payments or other compensation and accrued sick, holiday, vacation, health,
dental or retirement benefits, regardless of whether such Liability was
incurred before or after the Distribution Date.
(b) Effective immediately after the Distribution, and in
connection with the assumption by UNOVA of obligations with respect to
employees of the UNOVA Subsidiaries, UNOVA shall cause each corporation which
will become an UNOVA Subsidiary, to perform, and guarantees the performance
of, each and every obligation of such UNOVA Subsidiaries with respect to the
provisions of this Agreement.
SECTION 16. COMPLIANCE.
Notwithstanding anything to the contrary in this Agreement, to the
extent any actions of the parties contemplated in this Agreement are
determined prior to the Distribution Date to violate law or result in
unintended tax liability for Western Atlas Participants or Western Atlas
Former Employees or UNOVA Participants or UNOVA Former Employees, such
action may be modified to avoid such violation of law or unintended tax
liability.
SECTION 17. TERMINATION OF PARTICIPATION.
Except as otherwise expressly provided herein, the participation of
UNOVA Participants in any Benefit Plan sponsored or maintained by Western
Atlas shall cease as of the Distribution Date.
SECTION 18. COMPLETE AGREEMENT.
This Agreement, together with the Distribution Agreement, and the
Annexes and Schedules thereto, shall constitute the entire agreement between
the parties hereto with respect to the subject matter hereof and shall
supersede all previous negotiations, commitments and writings with respect
to such subject matter.
SECTION 19. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware (other than the laws regarding choice
of laws and conflicts of laws) as to all matters, including matters of
validity, construction, effect, performance and remedies.
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SECTION 20. NOTICES.
All notices, requests, claims, demands and other communications
hereunder (collectively, "Notices") shall be in writing and shall be given
(and shall be deemed to have been duly given upon receipt) by delivery in
person, by cable, telegram, telex, telecopy or other standard form of
telecommunications, or by registered or certified mail, postage prepaid,
return receipt requested, addressed as follows:
If to Western Atlas:
Western Atlas Inc.
10205 Westheimer Road
Houston, Texas 77042
Attention: General Counsel
If to UNOVA:
UNOVA, Inc.
360 North Crescent Drive
Beverly Hills, California 90210
Attention: General Counsel
or to such other address as any party hereto may have furnished to the other
parties by a notice in writing in accordance with this Section 20.
SECTION 21. AMENDMENT AND MODIFICATION.
This Agreement may be amended, modified or supplemented only by a
written agreement signed by Western Atlas and UNOVA, Inc.
SECTION 22. SUCCESSORS AND ASSIGNS; NO THIRD-PARTY BENEFICIARIES.
This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties hereto and their successors and
permitted assigns, but neither this Agreement nor any of the rights,
interests and obligations hereunder shall be assigned by any party hereto
without the prior written consent of each of the other parties (which
consent shall not be unreasonably withheld). This Agreement is solely for
the benefit of the parties hereto and their Subsidiaries and is not intended
to confer upon any other Persons any rights or remedies hereunder.
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SECTION 23. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
SECTION 24. INTERPRETATION.
The Section headings contained in this Agreement are solely for the
purpose of reference, are not part of the agreement of the parties hereto
and shall not in any way affect the meaning or interpretation of this
Agreement.
SECTION 25. TERMINATION.
Notwithstanding any provision hereof, this Agreement may be
terminated at any time prior to the Distribution Date. Any termination of the
Distribution Agreement shall result in the termination of this Agreement. In
the event of such termination, no party hereto shall have any Liability to
any Person by reason of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the date first above written.
WESTERN ATLAS INC.
By:____________________________
UNOVA, INC.
By:____________________________
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EXHIBIT 10E
INTELLECTUAL PROPERTY AGREEMENT
This Intellectual Property Agreement, dated this day of ,
1997, is entered into by and between Western Atlas Inc., a Delaware corporation
("WESTERN"), and UNOVA, Inc., a Delaware corporation ("UNOVA").
WHEREAS, WESTERN proposes the distribution (the "Distribution") to its
shareholders in a tax-free spin-off of UNOVA which will own WESTERN's industrial
automation systems business, consisting of the automated data collection and
mobile computing businesses operated by Intermec Corporation, Norand Corporation
and United Barcode Industries and the integrated manufacturing systems, body
welding and assembly systems and precision grinding and abrasive systems
businesses operated by various WESTERN divisions (collectively, the "UNOVA
Businesses");
WHEREAS, WESTERN will retain its oilfield information services businesses
(the "Western Businesses");
WHEREAS, WESTERN and UNOVA each desire to allocate intellectual property to
the business which is using or holding for use the intellectual property;
WHEREAS, WESTERN became a publicly traded company as a result of a tax-free
spin-off from Litton Industries, Inc., a Delaware corporation ("Litton"), on
March 17, 1994;
NOW, THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, receipt of which is hereby acknowledged, WESTERN and
UNOVA agree as follows:
1. Definition:
"Intellectual Property" is defined to mean patents, patent applications,
trademarks, service marks, trade names, copyrights, registrations and
applications for registration of trademarks, service marks, trade names and
copyrights, software, mask works, trade secrets and technical information and
licenses relating thereto.
2. Patents:
WESTERN does hereby sell, assign, transfer and convey unto UNOVA, its
successors and assigns, the entire right, title and interest in and to the
patents and patent applications set forth in Attachment A.1 including any
divisions, continuations or continuations-in-part thereof, and any
re-examinations or re-issues thereof, not only for, to and in the United States
of America, its territories and possessions, but for, to and in all countries
foreign thereto, together with the right to recover for past infringement.
3. Trademarks:
3.1 WESTERN does hereby sell, assign, transfer, and convey unto UNOVA, its
successors and assigns, the entire right, title and interest in and to the
trademark or service mark registrations and applications for registrations set
forth in Attachment B.1 including the right to recover for past infringement of
said trademarks and service marks and the good will of the business in
connection with which said trademarks and service marks are used and which is
symbolized thereby.
3.2 UNOVA has adopted and begun to use the name "UNOVA" as a trade name,
trademark and service mark. WESTERN is currently the owner of trademark, service
mark and/or trade name applications for registration and/or reservations of
"UNOVA" in the United States of America, several States within the United States
of America and countries foreign thereto. WESTERN does hereby sell, assign,
transfer, and convey unto UNOVA, its successors and assigns, the entire right,
title and interest in and to such "UNOVA" trademark, service mark, and/or trade
name applications and reservations, including the right to recover for past
infringement of said marks and the good will in the business in connection with
which said marks are used and which is symbolized thereby.
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3.3 WESTERN shall retain ownership in the corporate name, trademark and
service mark "WESTERN ATLAS," including the trademark and service mark
applications for registration and registrations of "WESTERN ATLAS" in the United
States of America and countries foreign thereto listed in Attachment B.5 whose
files shall be transferred from the present corporate headquarters of WESTERN to
the Houston Texas, offices of WESTERN upon the Distribution.
4. Assistance:
4.1 The distribution on March 17, 1994, by Litton, which resulted in the
tax-free spin-off of WESTERN, included that certain Intellectual Property
Agreement, Annex C of the Distribution Agreement, under which Litton was to
sell, assign, transfer and convey unto WESTERN certain patents and trademarks.
Some of those certain patents may still be assigned of record to Litton and/or
its subsidiaries (or a predecessor in interest to Litton and/or its
subsidiaries). Attachments A.2, A.3 and A.4 hereto list, respectively, patents
owned by Litton Industrial Automation Systems, Inc. (LIAS)(which changed its
name to WESTERN); Litton Industrial Products, Inc. (LIPI); and Pratt & Whitney
(PW). Some of those certain trademarks may still be assigned of record to Litton
and/or its subsidiaries. Attachments B.2, B.3 and B.4 hereto list, respectively,
trademarks owned by Litton Industries, Inc. (LII); Litton Industrial Automation
Systems, Inc. (LIAS); and Litton Industrial Products, Inc. (LIPI). WESTERN, if
requested, will execute documents as reasonably requested by UNOVA, and without
expense to WESTERN, to obtain the sale, assignment, transfer and conveyance unto
UNOVA, its successors and assigns of the entire right, title and interest in and
to the patents and trademarks set forth in Attachments A.2, A.3, A.4, B.2, B.3
and B.4 hereto.
5. Other Intellectual Property:
The ownership of Intellectual Property not specifically referred to in
Sections 2, 3, 4 and 6 of this Intellectual Property Agreement shall be as
follows:
5.1 Intellectual Property owned by each incorporated subsidiary owned in
whole or in part, directly or indirectly, by WESTERN or UNOVA will continue to
be owned by each such subsidiary.
5.2 Intellectual Property which is used or held for use by a division or
other unit of WESTERN in the Western Businesses, including Intellectual Property
from discontinued operations of the oilfield information services business,
shall continue to be owned by WESTERN.
5.3 Intellectual Property which is used or held for use by a division or
other unit of WESTERN in the UNOVA Businesses, including Intellectual Property
from discontinued operations of the UNOVA Businesses, shall be owned by, and all
WESTERN's right, title and interest is hereby assigned by WESTERN to, UNOVA.
5.4 Intellectual Property used jointly by the Western Businesses and the
UNOVA Businesses listed in Attachment C hereto shall be retained by WESTERN.
5.5 Copyrights, software, software services and licenses and agreements
relating thereto, presently owned by WESTERN, including e-mail, which have been
used at the corporate headquarters of WESTERN and which relate to or are
utilized primarily or exclusively by the Western Businesses shall remain the
property of WESTERN. Copyrights, software, software services and licenses and
agreements relating thereto, presently owned by WESTERN, including e-mail, which
have been used at the corporate headquarters of WESTERN, and which relate to or
are utilized primarily or exclusively by the UNOVA Businesses shall become the
property of UNOVA, to the extent the same may be transferred to UNOVA. If
requested, WESTERN will assist with the assignment to UNOVA of any transferable
right, title and interest of WESTERN in such copyrights, software, software
services and related licenses and agreements which relate to or are utilized
primarily or exclusively by the UNOVA Businesses. Copyrights, software, software
services and licenses and agreements relating thereto, presently owned by
WESTERN, including e-mail, which have been used at the corporate headquarters of
WESTERN and which relate to or are utilized by both the Western Businesses and
the UNOVA Businesses and not primarily by the Western Businesses shall become
the property of UNOVA, to the extent the same may be transferred to UNOVA;
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provided, however, that UNOVA will cooperate with and, if requested, assist
WESTERN to obtain similar copyrights, software, software services and licenses
and agreements relating thereto.
6. Licenses:
6.1 In no event shall UNOVA, or any direct or indirect subsidiary or
division of UNOVA have any interest in or rights under the non-exclusive
license granted to Litton under the Amalgamation Agreement dated April 30,
1987 (including Section ll.9(b), Exhibit M and Schedule M(b)), among Litton
Industries, Inc. Research Holdings, Inc., a successor-in-interest to Western
Geophysical Company of America, of the first part, Dresser Industries, Inc.,
of the second part, and Western Atlas International, Inc., of the third part,
and the Letter Agreement dated June 10, 1993 among Litton Industries, Inc.,
Western Atlas Inc. and Western Atlas International, Inc. ("Non-Exclusive
License"). The foregoing notwithstanding, WESTERN will cause its subsidiary,
Western Atlas International, Inc. (WAII), to enter into a license agreement
with the UNOVA subsidiary, Intermec Technologies Corporation (Intermec),
granting to Intermec a non-exclusive, nontransferable license under WAII's
GPS patents in a specified field of use under such terms as are mutually
agreeable to Intermec and WAII at a royalty rate not to exceed five percent
(5%), it being understood that this more favorable royalty rate is being made
available to Intermec as company currently under common ownership with WAII.
6.2 Promptly following the Distribution Date (as defined in the Distribution
and Indemnity Agreement), UNOVA shall cause all UNOVA subsidiaries with names
that include the words "Western Atlas" or derivations thereof to change their
corporate names to names that do not include such words or derivations. WESTERN
grants to UNOVA and the UNOVA subsidiaries the right to leave the Western Atlas
name on all buildings, vehicles, inventory and supplies owned by UNOVA or the
UNOVA subsidiaries in the form it appears thereon on the Distribution Date,
until the sooner of the date on which all inventory and supplies existing on the
Distribution Date have been consumed or sold or six months following the
Distribution Date; provided, however, that UNOVA shall indemnify WESTERN for any
loss incurred by WESTERN in connection with such use by UNOVA and the UNOVA
subsidiaries. Nothing in this Section 6.2 shall be construed to grant to UNOVA
or the UNOVA subsidiaries any rights whatsoever in the Western Atlas name.
WESTERN and UNOVA shall, and shall require their subsidiaries to, take such
actions and execute such documents as required to carry out and complete the
transfer of Intellectual Property contemplated under this Agreement. After the
Distribution should a patent or patent application, or a trademark registration
or application for registration of a trademark be discovered which is assigned
directly to WESTERN, and which is a part of the UNOVA Businesses, WESTERN will
assign such patent, patent application, trademark registration or application
for registration of a trademark to UNOVA.
IN WITNESS WHEREOF, the parties hereto affix their respective hands as of
the date indicated above.
WESTERN ATLAS INC.
By:___________________________________
______________________________________
(Print Name)
______________________________________
(Print Title)
UNOVA, INC.
By:___________________________________
______________________________________
(Print Name)
______________________________________
(Print Title)
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EXHIBIT 10H
UNOVA, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
THIS PLAN CONTAINS ARBITRATION CLAUSES
<PAGE>
UNOVA, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
TABLE OF CONTENTS
PAGE
ARTICLE I INTRODUCTION AND PURPOSE...................................1
ARTICLE II DEFINITIONS.....................................................1
Section 2.1 Active Participant...............................1
2.2 Actuarial Equivalent.............................1
2.3 Average Earnings.................................2
2.4 Base Compensation Amount.........................3
2.5 Beneficiary or Beneficiaries.....................3
2.6 Board............................................4
2.7 Bonus or Bonuses.................................4
2.8 Business Combination.............................4
2.9 Change of Control................................4
2.10 Chief Executive Officer..........................6
2.11 Chief Financial Officer..........................6
2.12 Code.............................................6
2.13 Committee........................................6
2.14 Company..........................................7
2.15 Death Benefit....................................7
2.16 Dependent Children...............................7
2.17 Director.........................................7
2.18 Disability or Disabled...........................7
2.19 Disability Benefit...............................7
2.20 Distribution Date................................7
2.21 Employee Benefits Agreement......................7
2.22 ERISA............................................7
2.23 Exchange Act.....................................7
2.24 Litton...........................................7
2.25 Leave of Absence.................................7
2.26 Normal Form......................................8
2.27 Offset Amount....................................8
2.28 Outstanding Company Common Stock.................9
2.29 Participant......................................9
2.30 Person...........................................9
2.31 Qualified Plan...................................9
2.32 Retired Participant..............................9
2.33 Retirement Benefit...............................9
2.34 Special Administrators...........................9
2.35 Successor or Successors..........................9
2.36 Supplemental Plan................................9
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2.37 Trust...........................................10
2.38 Trustee.........................................10
2.39 Trust Agreement.................................10
2.40 Western Atlas...................................10
2.41 Western Atlas Plan .............................10
2.42 Years of Service................................10
ARTICLE III PARTICIPATION..................................................11
Section 3.1 General.........................................11
3.2 Entry and Continuing Participation..............11
ARTICLE IV RETIREMENT BENEFITS............................................11
Section 4.1 Eligibility for Retirement Benefit..............11
4.2 Retirement Benefit Formula......................13
4.3 Vesting in Retirement Benefit...................13
4.4 Retirement Benefit Forms........................13
4.5 Normal Form of Retirement Benefit...............13
4.6 Alternative Forms of Benefit....................14
ARTICLE V BENEFITS UPON PARTICIPANT'S DEATH..............................15
Section 5.1 Eligibility for Death Benefit...................15
5.2 Death Benefit...................................15
5.3 Spouse Retirement Benefit.......................15
5.4 Change of Control...............................16
ARTICLE VI BENEFITS OF DISABLED PARTICIPANTS..............................16
Section 6.1 Eligibility for Disability Benefit..............16
6.2 Disability Formula..............................16
6.3 Vesting Disability Benefit......................16
6.4 Disabled Participant's Retirement
Benefit.........................................17
ARTICLE VII ELECTIONS, CLAIMS, COMMENCEMENT OF PAYMENTS
AND BENEFICIARY DESIGNATIONS...................................17
Section 7.1 General.........................................17
7.2 Commencement of Payments........................17
7.3 Form of Benefit Elections.......................18
7.4 Beneficiaries...................................18
7.5 Failure to Claim................................18
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ARTICLE VIII ADMINISTRATION.................................................18
ARTICLE IX SOURCE OF PAYMENTS.............................................19
Section 9.1 General Assets of Company............................19
ARTICLE X CLAIMS AND ENFORCEMENT....................................20
Section 10.1 Administrative Procedures............................20
10.2 Enforcement..........................................20
10.3 Arbitration..........................................21
ARTICLE XI AMENDMENT AND TERMINATION......................................22
Section 11.1 Amendment and Termination of the Plan................22
11.2 Contractual Obligation...............................23
ARTICLE XII MISCELLANEOUS..................................................24
Section 12.1 Employment Rights....................................24
12.2 Rights of the Committee..............................24
12.3 Benefit Statements...................................24
12.4 Assignment...........................................24
12.5 Applicable Law.......................................24
12.6 Effective Date.......................................24
12.7 Entire Plan..........................................24
12.8 Terms................................................24
12.9 Waiver...............................................25
ARTICLE XIII BENEFITS FOR RETIRED WESTERN EMPLOYEES.........................25
Section 13.1 Benefit Payments..........................................25
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UNOVA, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
ARTICLE I--INTRODUCTION AND PURPOSE
UNOVA, Inc. establishes this UNOVA,Inc. Supplemental Executive
Retirement Plan (the "Supplemental Plan") effective as of the Distribution
Date. The purpose of the Supplemental Plan is to provide for supplemental
retirement benefits to selected key employees of the Company (as that term is
defined in Section 2.14 and as used hereinafter such term shall have such
defined meaning), and thereby encourage those employees to continue providing
services to the Company until retirement. The Supplemental Plan is intended
to provide benefits solely for a select group of management or highly
compensated employees within the meaning of Sections 201(2), 301(a)(3) and
401(a)(1) of Title I of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"). Payments under the Supplemental Plan shall be made
either from general assets of the Company or from the assets of a trust which
may be established hereunder. It is intended that the Supplemental Plan
remain at all times an unfunded plan for purposes of ERISA and that the
trust, if established, shall constitute a grantor trust under Sections 671
through 679 of the Internal Revenue Code of 1986, as amended (the "Code").
ARTICLE II--DEFINITIONS
SECTION 2.1 "ACTIVE PARTICIPANT" shall mean a person who has been
designated as a Participant in the Supplemental Plan pursuant to Article III,
and who continues to be employed by the Company continuously from such
designation, except as provided for in Section 3.2 A Participant (other than
a Disabled Participant during the period of Disability) shall be treated as
having terminated from employment during any period of Leave of Absence,
unless the Committee, in its sole and absolute discretion, and subject to
such terms and conditions as the Committee may specify, decides otherwise.
However, a Disabled or deceased Participant shall continue to be treated as
an Active Participant and, thus, continue to accrue additional Years of
Service until the earlier of the date that the Participant attains (or, if
deceased, would have attained) age 65, or the date that the Participant is no
longer Disabled. A Disabled Participant who returns to active employment
with the Company when Disability ends shall thereafter be an Active
Participant, so long as such employment continues, without further
designation pursuant to Article III. An Active Participant who terminates
employment with the Company (other than for Disability) and is subsequently
re-employed with the Company shall not be treated as an Active Participant
unless such individual is redesignated as an Active Participant pursuant to
Article III.
SECTION 2.2 "ACTUARIAL EQUIVALENT" shall mean the adjustment of an
amount or amounts using actuarial methods and factors identical with those
actuarial methods and factors then being used, at the time such calculations
are to
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be made hereunder, under the UNOVA Pension Plan adopted by UNOVA, Inc. as
of the Distribution Date and intended to be qualified under Section 401(a) of
the Code, as such Plan may be amended from time to time and any retirement
plan intended to replace such Plan (the "Qualified Plan").
SECTION 2.3 "AVERAGE EARNINGS" shall mean the average of gross base
salary payments plus Bonuses as defined in Section 2.7 (except, for a Retired
Participant receiving a Retirement Benfit as of the Distribution Date,
Bonuses shall mean gross cash payments of Bonuses) from the Company to the
Participant in the three twelve consecutive month periods (with no overlap),
in which such Participant's gross base salary payments plus gross Bonuses are
the highest, in the Participant's final 60 months of employment. For all
purposes of calculating "Average Earnings" under this Supplemental Plan
"gross base salary" shall include any amounts deferred pursuant to Section
401(k) or Section 125 of the Code and shall include cash payments, during the
relevant period, of commissions payable to a Participant as a regular part of
the Participant's compensation, e.g. to a person engaged in sales or
marketing; however, commissions not payable as a regular part of a
Participant's compensation shall not be included in the calculation of
Average Earnings. Commissions or portions thereof otherwise included in the
calculation of Average Earnings pursuant to the preceding sentence which are
deferred (other than at the election of a Participant) shall be included in
the calculation of Average Earnings in the relevant period in which cash
payments are made. For purposes of calculating Average Earnings under this
Supplemental Plan salary (including relevant commission payments and bonuses)
paid in a non-U.S. currency shall be converted to U.S. dollar equivalents
using the quarterly UNOVA, Inc. official rates of exchange, as determined by
the Chief Financial Officer and as utilized generally for corporate purposes.
(a). Average Earnings for purposes of calculating a Disability
or Death Benefit for or with respect to a Disabled Participant shall be
calculated using the 60 months that include and precede the month that his or
her Disability commenced. If a formerly Disabled Participant who has
returned to active employment with the Company does not have a minimum of 36
consecutive calendar months of employment with the Company after such return
to active employment, then Average Earnings shall be calculated by the
Committee in accordance with subparagraph (e).
(b). Average Earnings in the case of an Active Participant who
dies prior to attaining age 65 shall be calculated using the 60 months that
include and precede the month of the Participant's death (or Disability, in
the case of a Disabled Participant who dies). For purposes of calculating a
lump sum payment pursuant to Section 4.1(d) in the event of a Change of
Control, with respect to a person (other than a Disabled or deceased
Participant) who is an Active Participant as of the date of such calculation,
Average Earnings shall be calculated as if the person's employment with the
Company ended on such date.
(c). For purposes of calculating Average Earnings, the
Participant's gross base salary plus gross Bonuses received while employed by
Western Atlas (beginning on or after March 17, 1994) or Litton (prior to such
date), if and to the extent such Western Atlas or Litton employment is
included
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within the period of 60 months to be used in such calculation, shall be taken
into account, provided that the Participant's benefits under the Western
Atlas retirement plans were transferred to the Company pursuant to the
Employee Benefits Agreement between Western Atlas and UNOVA,Inc. (the
"Employee Benefits Agreement").
(d). If a Participant is eligible to receive payments under
the Supplemental Plan but does not have 36 consecutive months of employment
with Western Atlas and the Company, then Average Earnings shall be calculated
by the Committee in accordance with subparagraph (e).
(e). Notwithstanding the foregoing, the Committee may
determine Average Earnings for the purposes of this Section by another
methodology which it determines to be more appropriate under the facts and
circumstances; provided, however, that, following a Change of Control, the
authority of the Committee under this subparagraph (e) shall be limited to
matters referred to in the last sentence of subparagraph (a) above and the
matters referred to in subparagraph (d) above unless the methodology for
determining Average Earnings selected by the Committee is more advantageous to
the Participant.
SECTION 2.4 "BASE COMPENSATION AMOUNT" shall mean the applicable
dollar amount on the date that the Active Participant terminates from
employment with the Company, calculated as follows:
(a). The Base Compensation Amount, as defined under the Western
Plan, for the 12-month period ending on December 31, 1997;
(b). For each 12-month period following the period described
above in Section 2.4(a), the Base Compensation Amount shall be the dollar
amount applicable for the immediately preceding 12-month period increased by
a percentage, which shall be the sum of: (1) the percentage increase in the
U.S. Department of Labor consumer price index for all urban consumers from
the index amount in effect at the beginning of the immediately preceding
12-month period to the index amount in effect at the beginning of the current
12-month period, and; (2) one percent.
(c). In the case of an Active Participant who dies, the Base
Compensation Amount shall be the dollar amount in effect under Section 2.4(a)
or (b) for the month in which the Participant died and, in the case of a
Disabled Participant (who does not return to active employment with the
Company), the Base Compensation Amount shall be the dollar amount in effect
under Section 2.4(a) or (b) for the month in which the Disabled Participant
becomes disabled. For purposes of calculating a lump sum payment pursuant to
Section 4.1(d) in the event of a Change of Control, with respect to a person
(other than a Disabled or deceased Participant) who is an Active Participant
as of the date of such calculation, the Base Compensation Amount shall be the
Base Compensation amount in effect as of the date of such calculation.
SECTION 2.5 "BENEFICIARY" or "BENEFICIARIES" shall mean those who are
designated under the Supplemental Plan to receive payment of a benefit on
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account of a Participant's death. If and to the extent the spouse of a
deceased Participant is living at the time of the Participant's death, only
the spouse may be the Beneficiary. Upon the death of the spouse of a deceased
Participant prior to commencement of Retirement Benefit payments, the
Dependent Children of the Participant may be Beneficiaries, but only of the
Death Benefit.
SECTION 2.6 "BOARD" shall mean the Board of Directors of UNOVA,Inc.
or of its Successor, as of the time in question, the succession of which did
not result from or constitute or follow a Change of Control ("Successor" or
"Successors").
SECTION 2.7 "BONUS" or "BONUSES" shall mean the full amount of the
bonus or similar cash incentive awarded with respect to any given fiscal year
or portion thereof and shall be deemed, for purposes of the calculation of
Average Earnings, to have been paid by the Company to the Participant, during
the month in which determined and awarded by the Committee (or other body or
individual having authority to award such Bonus) (except, for a Retired
Participant receiving a Retirement Benefit as of the Distribution Date, Bonus
or Bonuses shall mean gross cash payments of Bonuses), under
Company-sponsored, formal or informal, incentive compensation or bonus plans,
excluding, however, any payments under Company Stock-based option or award
plans; provided, however, that, for purposes of calculating Average Earnings,
any portion of a Bonus, the payment of which is deferred at the election of
the Participant, shall be treated as paid during the month in which such
Bonus was determined and awarded, notwithstanding such elected deferral, and
payment of the deferred portion shall be disregarded for purposes of
calculating Average Earnings. "Bonus or Bonuses" shall not include any
bonus, commission or fee paid to a Participant for the accomplishment of a
particular non-ordinary course transaction or circumstance as determined by
the committee prior to or at the time of the award.
SECTION 2.8 "BUSINESS COMBINATION" shall have the meaning specified
in Section 2.9(c).
SECTION 2.9 "CHANGE OF CONTROL" shall mean:
(a). An acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended [the "Exchange Act"] (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30
percent or more of either (1) the then outstanding shares of common stock of
the Company (the "Outstanding Company Common Stock") or (2) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); excluding, however, the following acquisitions
of Outstanding Company Common Stock and Outstanding Company Voting
Securities: (A) any acquisition directly from the Company other than an
acquisition by virtue of the exercise of a conversion privilege unless the
security being so converted was itself acquired directly from the Company;
(B) any acquisition by the Company; (C) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company; or (D) any
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acquisition by any Person pursuant to a transaction which complies with
clauses (1), (2), and (3) of paragraph (c) below of this Section 2.9; or
(b). Individuals who, as of the effective date hereof,
constitute the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that any
individual who becomes a member of the Board subsequent to the effective date
hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but provided further that
any such individual whose initial assumption of office occurs as a result of
either an actual or threatened election contest (as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board shall not be so considered as a member of the
Incumbent Board; or
(c). The approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or other disposition of all
or substantially all of the assets of the Company ("Business Combination"),or
if consummation of such Business Combination is subject, at the time of such
approval by shareholders, to the consent of any government or governmental
agency, the obtaining of such consent (either explicitly or implicitly by
consummation); excluding, however, such Business Combination pursuant to
which: (1) all or substantially all of the individuals and entities who are
the beneficial owners, respectively, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities immediately prior to such Business
Combination, will beneficially own, directly or indirectly, more than 60
percent of, respectively, the outstanding shares of common stock and the
combined voting power of the outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be; (2) no Person (other than any employee benefit plan (or
related trust) sponsored or maintained by the Company or any corporation
controlled by the Company or such corporation resulting from such Business
Combination) will beneficially own, directly or indirectly, 30 percent or
more of, respectively, the outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the outstanding voting securities of such corporation entitled to
vote generally in the election of directors except to the extent that such
ownership existed with respect to the Company prior to the Business
Combination; and (3) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination will
have been members of the Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board, providing for such Business
Combination; or
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(d). Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
SECTION 2.10 "CHIEF EXECUTIVE OFFICER" shall mean the chief executive
officer of UNOVA,Inc. or of its Successor.
SECTION 2.11 "CHIEF FINANCIAL OFFICER" shall mean the chief financial
officer of UNOVA, Inc. or of its Successor.
SECTION 2.12 "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
SECTION 2.13 "COMMITTEE" shall mean:
(a). The Compensation Committee of the Board.
(b). Notwithstanding Section 2.13(a), upon a Change of
Control, the Committee shall mean exclusively the "special administrators."
The "special administrators" shall be the individuals who constituted the
Company's Compensation Committee of the Board immediately prior to the Change
of Control. The "special administrators" shall constitute the Committee
until the earlier of the termination of the Supplemental Plan or the last day
of the 18-month period following the month in which the Change of Control
occurred. The "special administrators" shall have all rights and authority
reserved to the Committee under the Supplemental Plan, including, but not
limited to, the rights specified in Section 12.2.
(c). If a "special administrator" dies, becomes disabled, or
resigns as "special administrator" during the period that the "special
administrators" constitute the Committee, the remaining "special
administrator(s)" shall continue to serve as the Committee without
interruption, and successor "special administrator(s)" shall be designated,
and subject to removal, by the individual who was Chief Executive Officer
immediately prior to the Change of Control from among the then remaining
Participants, but such Chief Executive Officer shall also have the right to
designate himself or herself as a successor "special administrator" but, in
the event of the death or disability of such Chief Executive Officer,
successor "special administrators" shall be designated by that one of the
remaining "special administrators" who has the greatest seniority in terms of
years of employment with the Company and Western Atlas including, for this
purpose, years of service prior to age 40. No Participant who has been
designated as a "special administrator" shall participate in any decision
which addresses peculiarly the Benefits of or with respect to such
Participant.
If at any time there are no remaining "special administrators," the
presiding Judge of the Superior Court of the State of California for Los
Angeles County shall designate three "special administrators" from among the
remaining Participants upon the application of any of the Participants. For
purposes of this Section, the term "Participant" means a Participant who has
satisfied the conditions
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of Section 4.1(a)(3) or is a Disabled Participant, or is receiving Retirement
Benefits.
SECTION 2.14 "COMPANY" shall mean UNOVA,Inc., a Delaware corporation,
and its Successors, and their respective subsidiaries. Any reference to stock
or securities of the Company shall mean only the stock or securities of
UNOVA,Inc. or of its Successor.
SECTION 2.15 "DEATH BENEFIT" shall mean the benefit payable pursuant
to Article V to the Participant's Beneficiary or Beneficiaries, if any.
SECTION 2.16 "DEPENDENT CHILDREN" shall mean a natural or legally
adopted son or daughter who either: (a) has not attained age 19; or (b) has
attained age 19 but has not attained age 23 and is a full-time student at an
accredited educational institution.
SECTION 2.17 "DIRECTOR" shall mean a member of the Board of Directors
of UNOVA,Inc. or of its Successor.
SECTION 2.18 "DISABILITY" or "DISABLED" shall mean the condition of a
person, or a person, who has been determined by the Committee to be unable to
perform the material and substantive duties of the person's position or
profession, to an extent which prevents the person from engaging in the
person's regular position or profession, due to injury or sickness for which
the person is receiving medical care from, or with respect to which a current
certification of disability is received by the Committee from, a professional
person appropriate for such injury or sickness.
SECTION 2.19 "DISABILITY BENEFIT" shall mean the benefit payable
pursuant to Article VI to an Active Participant who becomes Disabled.
SECTION 2.20 "DISTRIBUTION DATE" shall mean the date determined by the
Board of Directors of Western Atlas on which the shares of the Company are
distributed by Western Atlas to the holders of Western Atlas common stock.
SECTION 2.21 "EMPLOYEE BENEFITS AGREEMENT" shall have the meaning
specified in Section 2.3(c).
SECTION 2.22 "ERISA" shall have the meaning specified in Article I.
SECTION 2.23 "EXCHANGE ACT" shall have the meaning specified in
Section 2.9(a).
SECTION 2.24 "LITTON" shall mean Litton Industries, Inc., a Delaware
corporation, and its subsidiaries at the time in question.
SECTION 2.25 "LEAVE OF ABSENCE," with respect to a person who has been
designated a Participant, shall mean and refer to a discontinuance of
regular, full-time services by the person for the Company resulting in the
discontinuance,
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in whole or in part, of base salary payments by the Company to such person
during such discontinuance of service, provided, however, that, to the extent
federal or state so-called "Family Leave Acts" or "Maternity or Pregnancy
Leave Acts" may make unlawful the treatment of an absence or a portion of an
absence as a termination for purposes of the Supplemental Plan, such absence
or portion shall not constitute a Leave of Absence.
SECTION 2.26 "NORMAL FORM" shall mean the form of Retirement Benefit
payable under Section 4.5 to a Retired Participant.
SECTION 2.27 "OFFSET AMOUNT" shall mean the sum of the annual "primary
insurance amount" and the annual "Company-provided pension."
(a). The "primary insurance amount" shall mean the annual
benefit determined under the Social Security Act that is payable to the
Participant as of the calendar year that Retirement Benefits to the
Participant, if any, would commence under this Supplemental Plan. If no
"primary insurance amount" is payable to a Participant, who is otherwise
covered by the Social Security Act, as of the calendar year in which
Retirement Benefit commences to the Participant, if any, would commence under
the Supplemental Plan, then the "primary insurance amount" shall be deemed to
be the "primary insurance amount" that would be payable to the Participant at
the earliest date thereafter (or would have been payable at the earliest date
thereafter, in the case of a deceased Participant); provided, however, that
the amount payable under the Social Security Act shall be determined without
regard to any election by the Participant or a Beneficiary to defer receipt
of a benefit and without regard to any reduction of the amount of the Social
Security Act benefit by virtue of the receipt of earned income by the
Participant or a Beneficiary. The "primary insurance amount" shall also
include any annual retirement benefit payable under any public retirement
program of a foreign country that the Committee determines is comparable in
purpose to the benefits payable under the Social Security Act.
(b). The "Company-provided pension" shall mean the annual
amount that would be payable to a Participant under any defined benefit or
defined contribution plan sponsored by the Company, which is either intended
to qualify under Section 401(a) of the Code or is intended to restore
benefits under such plan (excluding only this Supplemental Plan and Part II
of the UNOVA, Inc. or Western Atlas Inc. FSSP and Restoration Plan) assuming
for purposes of calculating such annual amount that the Participant withdrew
his or her actual contributions, if any, and earnings thereon. Any
non-United States defined benefit or defined contribution plan of the Company
which is not subject to the Code but which is comparable in purpose to plans
which would qualify under Section 401(a) of the Code shall be included within
the meaning of "Company-provided pension." Annual amounts payable under any
retirement plans of a Participant's former employer, assuming for purposes of
calculating such annual amount that the Participant withdrew his or her
actual contributions, if any, and earnings thereon, shall be included in the
calculations of the "Company-provided pension," if such former employer, or
substantially all of such former employer's assets, have been acquired by the
Company and the Participant's service with such former employer are included
in the calculation of "Years of Service"; provided, however, that amounts
payable under the Landis Tool Savings Plan shall not be included in the
calculation of
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"Company-provided pension"; and provided further, however, that amounts
payable under the Intermec Canada Savings Plan, to the extent attributable to
Company contributions or Company matching amounts, shall be included in the
calculation of "Company-provided pensions." The amount of the
"Company-provided pension" shall be deemed to be the amount which would have
been payable if the Participant joined each such plan at the earliest date on
which the Participant was eligible to join such plan and participated in the
plan to the fullest extent possible and withdrew his or her actual and
presumed contributions, plus income thereon. The amount of the
"Company-provided pension" shall be calculated under the terms that were in
effect during the Participant's actual, if any, and presumed participation,
except that a subsequent, retroactive amendment to any of such plans shall be
taken into account only to the extent that it actually would have increased
the Participant's benefit under that plan. The "Company-provided pension"
shall be computed as if the Participant actually received the plan benefits
under such "Company-provided pension" as a single life annuity beginning on
the date that Retirement Benefits commence under this Supplemental Plan.
SECTION 2.28 "OUTSTANDING COMPANY COMMON STOCK" and "OUTSTANDING
COMPANY VOTING SECURITIES" shall have the meanings specified for those items
in Section 2.9(a).
SECTION 2.29 "PARTICIPANT" shall mean a person who has been designated
as a Participant in the Supplemental Plan pursuant to Article III and who is
either an Active Participant, a Disabled Participant, a Retired Participant,
a former Active Participant who has satisfied the condition of Section
4.1(a)(3), or a Participant who died while an Active Participant.
SECTION 2.30 "PERSON" shall have the meaning specified in Section
2.9(a).
SECTION 2.31 "QUALIFIED PLAN" shall have the meaning specified in
Section 2.2.
SECTION 2.32 "RETIRED PARTICIPANT" shall mean a Participant who has
terminated from employment with the Company, and who has satisfied the
conditions of Section 4.1.
SECTION 2.33 "RETIREMENT BENEFIT" shall mean the benefits payable to a
Retired Participant and, if applicable, the Beneficiary of a Retired
Participant, as provided in Article IV.
SECTION 2.34 "SPECIAL ADMINISTRATORS" shall have the meaning specified
in Section 2.13(b).
SECTION 2.35 "SUCCESSOR" or "SUCCESSORS" shall have the meaning
specified in Section 2.6.
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SECTION 2.36 "SUPPLEMENTAL PLAN" shall mean the UNOVA,Inc.
Supplemental Executive Retirement Plan that is described in this document, as
amended from time to time, and including any rules and regulations
promulgated by the Committee for purposes of administering the Supplemental
Plan.
SECTION 2.37 "TRUST" shall mean a grantor trust under Section 671
through 679 of the Code, if and when established. The decision to establish
a Trust shall be in the sole and absolute discretion of the Company.
SECTION 2.38 "TRUSTEE" shall mean the trustee of the Trust.
SECTION 2.39 "TRUST AGREEMENT" shall mean the terms of the agreement,
entered into between UNOVA,Inc. or its Successor and the Trustee, that
establishes the Trust.
SECTION 2.40 "WESTERN ATLAS" shall mean Western Atlas Inc. and its
subsidiaries and affiliates.
SECTION 2.41 "WESTERN ATLAS PLAN" shall mean the Western Atlas Inc.
Supplemental Executive Retirement Plan, as in effect immediately prior to the
Distribution Date.
SECTION 2.42 "YEARS OF SERVICE" shall mean the number resulting from:
(a). The division of twelve into the number of consecutive and
continuous calendar months of employment with the Company (and with an
employer, all or substantially all of the assets of which were acquired by
the Company only to the extent the Participant was employed by the employer
at the date of the acquisition of the employer) that elapse from and
including the month that an Active Participant commenced the period of
employment with the Company (or such employer) and which ends: (1) upon the
Active Participant's death; or (2) upon termination of an Active
Participant's employment with the Company other than by death, until and
including the earlier of the month of such death or termination; provided,
however, the calculation of Years of Service shall not include any calendar
months of employment preceding the calendar month in which the Active
Participant attained age 40, nor shall such calculation include any calendar
months of employment with the Company in any separate period of employment
with the Company preceding the most recent and continuous period of
employment with the Company; and provided, further, that an Active
Participant who dies or becomes Disabled shall continue to accrue Years of
Service from the date of such death or Disability until the earlier of the
calendar month (x) in which such person attains or, if deceased, would have
attained age 65, or (y) in which such Participant is no longer Disabled.
(b). For purposes of determining a Participant's Years of
Service under the terms of Section 2.42(a), service with Litton and Western
Atlas immediately preceding the period of service with the Company referred
to in Section 2.42(a) which ends upon the Active Participant's death, or
which ends upon an Active Participant's termination of employment with the
Company other
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than by death, and after the Participant attains age 40, shall be taken into
account, provided that the Participant's benefits under the Western Atlas
retirement plans were transferred to UNOVA,Inc. pursuant to the Employee
Benefits Agreement. In addition, service with Litton immediately preceding
the period of service with the Western Atlas which ends upon the Active
Participant's death, or which ends upon an Active Participant's termination
of employment with the Company other than by death, and after the Participant
attains age 40, shall be taken into account, provided that the Participant's
benefits under the Litton retirement plans were transferred to Western Atlas
Inc.
(c). In its discretion, the Committee may: (1) compute a
Participant's Years of Service by treating separate but not continuous
periods of employment with Litton, Western Atlas or the Company as continuous
periods of employment; (2) credit a Participant with Years of Service in
addition to the Years of Service accrued while actually employed with Litton,
Western Atlas or the Company; and (3) credit a Participant for Years of
Service solely for purposes of satisfying the vesting requirements of
Sections 4.3.
(d). For purposes of calculating a lump sum payment pursuant
to Section 4.1(d) in the event of a Change of Control, with respect to a
person (other than a Disabled or deceased Participant) who is an Active
Participant, Years of Service shall be determined as if the person's
employment with the Company ended on such date or such later date on which a
Participant's employment could be terminated by the Company without cause
under a Change of Control Agreement.
ARTICLE III--PARTICIPATION
SECTION 3.1 GENERAL. Participation in the Supplemental Plan is
limited solely to key employees of the Company who are designated by the
Committee or the Board, after nomination by the Chief Executive Officer. A
key employee shall not be designated as an Active Participant prior to
attaining age 40. A key employee shall not be disqualified from becoming an
Active Participant solely because the key employee is also a Director.
SECTION 3.2 ENTRY AND CONTINUING PARTICIPATION. A key employee shall
become an Active Participant as of the date specified by the Committee. A
key employee who is designated as an Active Participant shall continue to be
an Active Participant until termination of employment with the Company,
except as provided in Section 2.1 with respect to Disabled or deceased
Participants.
ARTICLE IV--RETIREMENT BENEFITS
SECTION 4.1 ELIGIBILITY FOR RETIREMENT BENEFIT.
(a). GENERAL. A Participant shall be eligible to begin receiving a
Retirement Benefit if the Participant has (1) either attained age 65 or
satisfied the conditions in Section 4.1(b) or (c) below; (2) filed an
election to receive payments under Article VII; (3) satisfied the vesting
requirement of Section 4.3; (4)
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terminated employment with the Company; and, (5) except for a Participant
whose employment with the Company is terminated in connection with a Change
of Control, the Participant agrees that for a period of five years after
commencement of receipt of Retirement Benefits under this Supplemental Plan,
not to engage in any activity which interferes with the economic or business
interests, or contractual relationships of UNOVA,Inc. or its Successors or of
any of its subsidiaries or affiliates with third parties in connection with
which the Participant worked for UNOVA,or its subsidiaries or affiliates or
to perform services for any entity in competition with a business of
UNOVA,Inc. or of its subsidiaries or affiliates for which the Participant
worked and with respect to which the Participant possesses trade secrets or
business confidential information of UNOVA,or of its subsidiaries or
affiliates. In the event that any provision of the covenant provided for in
(5) immediately above shall be held invalid or unenforceable by a Court of
competent jurisdiction by reason of the geographic or business matter scope,
or the duration thereof, such invalidity or unenforceability shall attach
only to such provisions and shall not affect or render invalid or
unenforceable any other provision of the Supplemental Plan, and this
Supplemental Plan shall be construed as if the geographic or subject matter
scope, or the duration thereof, had been more narrowly drafted so as not to
be invalid or unenforceable.
(b). RETIREMENT BENEFITS AT AGE 62. A Participant who has attained
age 62, but not yet attained age 65, and who has satisfied the conditions of
Section 4.1(a)(2), (3) and (4), and agrees to the covenant provided for in
Section 4.1(a)(5), shall be eligible to begin receiving the Actuarial
Equivalent, based upon the Participant's age (below 65) and the age of
Participant's spouse, if applicable, at which the Participant commences
receiving the Retirement Benefit, of the Retirement Benefit payable at age 65.
(c). RETIREMENT BENEFITS PRIOR TO AGE 62. A Participant shall
not be entitled to begin receiving a Retirement Benefit prior to attainment
of age 62, except in the sole and absolute discretion of the Committee, and
subject to such terms and conditions, including the imposition of Retirement
Benefit reductions, that the Committee may specify.
(d). CHANGE OF CONTROL. Except as otherwise provided in any Change
of Control Agreement between the Company and a Participant, an Active
Participant and a Participant who has satisfied the conditions of Section
4.1(a)(3) and (4) shall be entitled to a lump sum payment equal to the
Actuarial Equivalent, at the age of such Participant at the date of the
Change of Control, of the Retirement Benefit which would be payable to such
Participant at the later of age 65 or, if the Active Participant continued in
employment with the Company after attaining age 65 (or would have been
entitled to continue employment under a change of Control Agreement), at the
earlier of the age at which such employment ended (or could have been
terminated by the Company without cause under the terms of a Change of
Control Agreement) or at the age of such Participant at the date of such
Change of Control, which has been earned by the Participant to the date of
Change of Control assuming, for such purposes, that the Retirement Benefit is
payable in the form of a single life annuity. In addition, there shall be
waived any condition concerning eligibility for payment of a Retirement
Benefit that requires: (1) the filing of any election; (2) the attainment of
a specified age; (3) an agreement not to engage in competitive activities
with the Company; (4)
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satisfaction, as to such Active Participant, of the conditions of Section
4.1(a)(3) or of any other terms or conditions or the application of any
benefit reductions described in Section 4.1(b) or (c); and (5) as to such
Active Participant, termination of employment with the Company, in order to
begin receiving Retirement Benefits. "Change of Control Agreement" means any
agreement between the Company and the Participant which provides for the
employment of the Participant and/or payment to the Participant upon or
following a Change of Control.
SECTION 4.2 RETIREMENT BENEFIT FORMULA. A Participant's annual
Retirement Benefit shall be the Actuarial Equivalent of the amount calculated
under the formula: [(A + B) x C] - D = Retirement Benefit, where:
(a). "A" is Average Earnings up to the Base Compensation
Amount multiplied by 1.6 percent;
(b). "B" is Average Earnings in excess of the Base
Compensation Amount multiplied by 2.2 percent;
(c). "C" is Years of Service not in excess of 25; and
(d). "D" is the Offset Amount.
SECTION 4.3 VESTING IN RETIREMENT BENEFIT. A Participant shall have
no vested right to a Retirement Benefit prior to the later of attaining: (1)
age 60 while an Active Participant; or (2) 15 Years of Service after
attainment of age 40. Upon a Change of Control and thereafter, an Active
Participant shall be vested in his or her Retirement Benefit regardless of
Years of Service or age.
SECTION 4.4 RETIREMENT BENEFIT FORMS.
(a). GENERAL RULE. Unless a Participant had made an election
to receive payment of Retirement Benefits in an available alternative form, a
Participant shall be deemed to have elected the Normal Form.
(b). ACTUARIAL EQUIVALENT. All forms of payment of Retirement
Benefits shall be the Actuarial Equivalent of a single life annuity payable
at age 65, except that, in the case of an Active Participant who remains in
continuous employment with the Company after attaining age 65, the amount of
the benefit shall be actuarially increased to reflect the commencement of the
benefit after age 65.
SECTION 4.5 NORMAL FORM OF RETIREMENT BENEFIT.
(a). SINGLE LIFE ANNUITY. The Normal Form of payment of a
Retirement Benefit for a Participant who is living at the time payment
commences shall be a single life annuity for a Participant who is unmarried
at the time that payment of the annual Retirement Benefit commences. Under a
single life annuity, a Retired Participant shall receive a monthly benefit
for life equal to the Actuarial Equivalent of 1/12 of his or her Retirement
Benefit and all payments shall cease upon the Retired Participant's death.
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(b). JOINT AND SURVIVOR ANNUITY. If a Participant is married at
the time that payment of the Retirement Benefit commences, the Normal Form of
Retirement Benefit shall be a joint and survivor annuity (which shall be the
Actuarial Equivalent of a single life annuity) for the benefit of the
Participant's spouse as of the date that payment of the Retirement Benefit
commences. Under the Normal Form of a joint and survivor annuity, a
Participant shall receive a monthly benefit for life and, upon the
Participant's death, the spouse, if living, shall receive a monthly benefit
for life equal to 100% of the monthly benefit that was payable to the
Participant. If a Participant, who has satisfied the conditions of Section
4.1(a)(3) (including consideration of Years of Service accrued for Disabled
or deceased Participants pursuant to Section 2.1), dies prior to the
commencement of the payment of Retirement Benefits, and was married at the
date of death, the spouse Beneficiary of such Participant shall have the
right to a survivor Retirement Benefit, commencing at the date such
Participant would have attained age 65, if the Participant died prior to
attaining age 65, or commencing on the first day of the month following the
month in which the Participant died if the Participant continued in
continuous employment with the Company after attaining age 65 and until the
date of Participant's death, calculated under Section 4.2 as if the
Participant had survived to such entitlement date and begun receiving payment
of the Retirement Benefit at such entitlement date as a joint and 100%
survivor annuity and then died on the following date.
SECTION 4.6 ALTERNATIVE FORMS OF BENEFIT.
(a). ELECTION OF FORMS OF BENEFIT. Prior to the commencement of
payment of a Retirement Benefit, a Participant may file an election
designating a payment form other than the Normal Form of Retirement Benefit;
provided, however, that any such alternate payment form is a payment form
available under the Qualified Plan and, if such Participant is entitled to a
benefit under such Qualified Plan, is the same as the payment form elected
under such Qualified Plan. If a Participant is married, an election to
receive a Retirement Benefit in a form other than the Normal Form shall be
valid only if such election includes the written consent of the Participant's
spouse in the form and manner specified by the Committee. However, a joint
and survivor annuity shall not be available under this Supplemental Plan with
respect to any Beneficiary other than the spouse of the Participant as of the
date that the Retirement Benefit commences.
(b). ADDITIONAL FORMS OF BENEFIT. From time to time, the
Committee may, in its sole discretion, make other forms of payment of
Retirement Benefits available; provided, however, that once a Participant or
the Participant's Beneficiary begins receiving Retirement Benefit payments,
no change may be made in the form of payment except as provided for in
Section 4.6(c) below.
(c). FORM OF BENEFIT ON CHANGE OF CONTROL. Notwithstanding the
other provisions of this Section, upon a Change of Control, all Retirement
Benefits including, without limitation, benefits payable to Active
Participants who remain employed by the Company, shall be paid in the manner
set forth in Section 4.1(d).
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ARTICLE V--BENEFITS UPON PARTICIPANT'S DEATH
SECTION 5. 1 ELIGIBILITY FOR DEATH BENEFIT. The Beneficiary or
Beneficiaries of an Active or Disabled Participant who dies prior to
attaining age 65 and prior to the time Retirement Benefits to such
Participant commence, shall be eligible to begin receiving a Death Benefit if
the Beneficiary or Beneficiaries have filed a claim under Article VII. The
Beneficiary or Beneficiaries of a Participant who is not a Disabled
Participant and whose employment with the Company terminated prior to that
Participant's death shall not be eligible for a Death Benefit. If there are
no Beneficiaries at the date of the Participant's death, no Death Benefit
shall be payable. The class of individuals who are eligible to be
Beneficiaries of the Death Benefit is limited to the Participant's spouse, as
of the date of the Participant's death, and the Participant's Dependent
Children as of the date of Participant's death; provided, however, that such
term also shall include any natural children of Participant born after
Participant's death and any child who is in the process of being adopted by
the Participant at the date of Participant's death and the adoption of whom
is completed by the spouse of Participant after the date of Participant's
death. If there is both a living spouse and Dependent Children as of the
date of Participant's death, the Beneficiary shall be the spouse. The
Dependent Children shall become the Beneficiaries of the Death Benefit, but
only upon the death of Participant's spouse prior to the earlier of the date
the Participant would have attained age 65, or the date the Participant's
spouse commences to receive a Retirement Benefit.
SECTION 5.2 DEATH BENEFIT.
(a). SPOUSAL BENEFIT. The Death Benefit for the surviving spouse
of an Active or Disabled Participant shall be an annual amount equal to 40%
of the Participant's Average Earnings. The spouse Beneficiary shall receive
the Death Benefit as a monthly benefit equal to 1/12 of the Death Benefit.
The Death Benefit for the spouse Beneficiary shall cease on the earlier of:
(1) the death of the spouse Beneficiary; or (2) the date at which the
Participant would have attained age 65.
(b). DEPENDENT CHILDREN BENEFIT. If a spouse Beneficiary of a
deceased Participant dies prior to the date at which the Participant would
have attained age 65, then a Death Benefit shall be paid to any then
Dependent Children for so long as any such remain Dependent Children. The
aggregate amount of any Death Benefit payable to Dependent Children after the
death of the spouse for each month is the amount equal to the monthly Death
Benefit that would be payable to a spouse Beneficiary multiplied by a
fraction (not greater than one), the numerator of which is the number of
Dependent Children at the time of each monthly payment and the denominator of
which is three. If there are no remaining living Dependent Children
Beneficiaries, no further Death Benefit shall be paid.
(c). VESTING IN DEATH BENEFIT. An Active or Disabled Participant
shall at all times be vested in his or her right to a Death Benefit.
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SECTION 5.3 SPOUSE RETIREMENT BENEFIT. To the extent that a spouse
Beneficiary is receiving a Death Benefit on the date the Participant would
have attained age 65, the spouse Beneficiary thereafter shall receive a
Retirement Benefit pursuant to Article IV, if eligible, in the amount
calculated pursuant to Article IV, and no further Death Benefit payments
shall be payable to the spouse Beneficiary or to any Dependent Children
Beneficiaries or otherwise.
SECTION 5.4 CHANGE OF CONTROL. Upon a Change of Control, after the
Participant's death but prior to the date the Participant would have attained
age 65, the Participant's spouse, if then living and if otherwise eligible,
shall receive a single sum payment that is the Actuarial Equivalent, at the
date of such lump sum payment, of the Death Benefit, calculated through the
date that Participant would have attained age 65. The spouse Beneficiary, if
then living, shall also be entitled to the lump sum payment of the Retirement
Benefit, if any, pursuant to Section 4.1(d). Upon a Change of Control
occurring after commencement of the payment of Death Benefits to the
Dependent Children Beneficiaries pursuant to Section 5.2(b), the Dependent
Children shall receive a single sum payment that is the Actuarial Equivalent,
based upon the ages of the Dependent Children, of the Death Benefit
calculated without regard to the date the Participant would have attained age
65.
ARTICLE VI--BENEFITS OF DISABLED PARTICIPANTS
SECTION 6.1 ELIGIBILITY FOR DISABILITY BENEFIT. An Active
Participant who becomes Disabled prior to attaining age 65 shall be eligible
to begin receiving a Disability Benefit if the Disabled Participant has filed
a claim under Article VII. The Disability Benefit shall cease on the earlier
of: (1) the first day of the calendar month following the Disabled
Participant's attainment of age 65; (2) the date on which the Committee
determines that the Participant is no longer Disabled; or (3) the date of the
Disabled Participant's death (in which case a Death Benefit may be payable
under Article V).
SECTION 6.2 DISABILITY FORMULA. A Disability Benefit shall be a
monthly amount equal to 1/12 of 40% of the Participant's Average Earnings,
offset by the sum of: (a) any other payment to the Disabled Participant that
would be made by or on behalf of the Company on account of the Disability
(including, without limitation, a Company-sponsored disability insurance plan
or any other benefit plan of the Company, any amounts payable as sick pay,
and any amounts payable under so-called Workers Compensation Acts or similar
laws of foreign governments other than lump sum amounts for the loss of an
organ or other body member and other than amounts paid for medical expenses),
calculated as if the Participant participated to the fullest extent possible
in such disability programs; and (b) the Social Security (or comparable
foreign government) disability benefits received by the Disabled Participant.
For purposes of determining any offset under the preceding sentence, any
payments that are not made on a monthly basis shall be converted to monthly
payments under a methodology approved by the Committee.
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SECTION 6.3 VESTING DISABILITY BENEFIT. An Active Participant shall
at all times be vested in his or her right to a Disability Benefit.
SECTION 6.4 DISABLED PARTICIPANT'S RETIREMENT BENEFIT. If a Disabled
Participant attains age 65, then he or she may be eligible to receive a
Retirement Benefit subject to the rules of Article IV, as if such Disabled
Participant continued his or her employment until age 65 with Average
Earnings calculated as provided for in Section 2.3(a).
ARTICLE VII--ELECTIONS, CLAIMS, COMMENCEMENT OF
PAYMENTS AND BENEFICIARY DESIGNATIONS
SECTION 7.1 GENERAL. All elections to receive benefits under this
Supplemental Plan must be made in writing to the Committee in the form
specified by the Committee and include the information or documentation that
the Committee deems necessary. The Committee, in its discretion, may request
additional information or reasonable documentation from time to time in order
to determine whether a Participant receiving a Disability Benefit continues
to be Disabled, and in order to determine whether any Beneficiary who is
receiving a Death Benefit is entitled hereunder to continue receiving a Death
Benefit or the amount thereof.
SECTION 7.2 COMMENCEMENT OF PAYMENTS. Payment of benefits under this
Supplemental Plan shall begin as soon as administratively feasible after the
Participant (or Beneficiary, if applicable) has provided a claim for benefits
in writing to the Committee, including any supporting documentation required
by the Committee, and the Committee has determined that the Participant (or
Beneficiary, if applicable) satisfies the requirements for payment.
Retirement Benefits shall be payable on the later of:
(a) the first day of the month following the month in which the
Participant satisfies all of the conditions set forth in Section 4.1(a), or
(b) if later, the first day of the month following the month in which
the Participant attains the earlier of age 65, or the age, below 65, elected
by the Participant pursuant to and in accordance with the conditions of
Section 4.1(b) or (c);
provided, however, that in the event a Participant has satisfied the
conditions of Section 4.1(a)(1), (3) and (4) in or as of a particular month
(the "Termination Month") and satisfies the conditions of Section 4.1(a)(2)
and (5) (effective as of the date of termination of employment) either
subsequently or contemporaneously with the Termination Month, and provided
that the Participant has attained during the Termination Month age 65 or an
age less than 65 but 62 or older, or an age less than 62 with respect to
which the Committee has approved retirement pursuant to Section 4.1(c),
Retirement Benefits shall be payable to the Participant as of the first day
of the month following the Termination Month and, in the case of retirement
pursuant to Section 4.1(c), on such terms and conditions as specified by
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the Committee. Disability and Death Benefits shall be payable from the first
day of the month following the month in which the Participant becomes
disabled or dies, as the case may be. In the event of any administrative
delay in actual payments, payments shall be made retroactively to the first
day of the month following the month in which the event which is the basis
for the payment occurs but without any payment of interest or other
compensation for such delay in payment. Notwithstanding any provision of the
Supplemental Plan, upon a Change of Control the Committee may, in its sole
discretion, determine to postpone the lump sum payment of Retirement, Death
and Disability Benefits payable upon a Change of Control, in which case such
Benefit payments shall be made as otherwise provided in the Supplemental
Plan, without regard to the Change of Control. In the event the Committee
later determines, in its sole discretion, to effect such a lump sum payment
of the remainder of such Benefits, it shall have the power and authority to
do so.
SECTION 7.3 FORM OF BENEFIT ELECTIONS. An election to receive
payment of Retirement Benefits in a form other than the Normal Form must be
submitted to the Committee in writing at any time prior to the commencement
of payments. An election must be made in the form specified by the Committee
and include the information or documentation that the Committee deems
necessary, including written consent of the spouse in the case of a married
Participant who elects a Retirement Benefit in a form other than the Normal
Form. The filing of an election as to the form of Retirement Benefits shall
revoke any pre-existing election, except that a revocation of an election for
a married Participant shall be valid only if accompanied by the spouse's
written consent to the subsequent election (other than a subsequent election
to receive payments in the Normal Form), and except that once Retirement
Benefits have commenced under this Supplemental Plan, the form of the
Retirement Benefit payable is irrevocable.
SECTION 7.4 BENEFICIARIES. If the Committee makes available
alternative benefit forms that provide for payments after a Participant's
death, the Participant shall designate the Beneficiary under such payment
form in accordance with the procedures set forth by the Committee.
SECTION 7.5 FAILURE TO CLAIM. If a Participant whose employment with
the Company terminated on or before attaining age 65 fails to claim payment
of Retirement Benefits until after such Participant attains age 65, the
Retirement Benefits payable to or with respect to such Participant shall be
the monthly amount which would have been payable to such Participant at age
65, and such Participant shall be entitled to receive Retirement Benefit
payments retroactive to the month such payments would have first accrued
following attainment of age 65, but without interest or other payment on
account of such deferred receipt. Similarly, if a Participant remains
employed by the Company after attaining age 65 but, upon termination of
employment by the Company after attaining age 65, fails to claim payment of
Retirement Benefits until a date after such termination of employment, the
Retirement Benefits payable to or with respect to such person shall,
nevertheless, be the monthly amount which would have been payable to such
person upon termination of employment with the Company, and such Participant
shall be entitled to receive Retirement Benefit payments retroactive to the
month
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such payments would have first accrued following termination of employment,
but without interest or other payment on account of such deferred payment.
Participants do not have the right to defer payment of Retirement Benefits
beyond the date Participants are otherwise eligible to begin receiving
Retirement Benefits.
ARTICLE VIII--ADMINISTRATION
The Committee shall administer the Supplemental Plan in accordance with
its terms and purposes. The Committee shall have full authority and
discretion to interpret the Supplemental Plan, to determine benefits pursuant
to the terms of the Supplemental Plan, to establish rules and procedures
necessary to carry out the terms of the Supplemental Plan, and to waive or
modify any requirements or conditions on the receipt or calculation of
benefits under the Supplemental Plan where the Committee determines that such
a waiver or modification is appropriate. In the event a Participant is or
was also a participant in a similar supplemental retirement plan for
highly-compensated employees within the meaning of Sections 201(2), 301(a),
and 401(a)(1) of Title I of ERISA and maintained by UNOVA,Inc. or one of its
subsidiaries or affiliates or Western (a "Subsidiary Plan"), the Committee
shall have the power and authority to modify and integrate the benefits
payable under this Supplemental Plan with the benefits payable under the
Subsidiary Plan. All decisions by the Committee shall be final and binding
on all parties. The Committee may appoint one or more officers or employees
of the Company to act on the Committee's behalf with respect to
administrative matters related to the Supplemental Plan.
ARTICLE IX--SOURCE OF PAYMENTS
SECTION 9.1 GENERAL ASSETS OF COMPANY. Benefits payable under this
Supplemental Plan shall be paid directly to the Participant, or to the
Participant's Beneficiary, as applicable, from the general assets of the
Company, including the assets of the grantor Trust to the extent that such a
trust is created and so provides. If any person acquires a right to receive
payments from the Company under this Supplemental Plan, such right shall be
no greater than the right of any unsecured general creditor of the Company
notwithstanding the fact that the Company may establish an advance accrual
reserve on its books against its future liability under the Supplemental
Plan.
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ARTICLE X--CLAIMS AND ENFORCEMENT
SECTION 10.1 ADMINISTRATIVE PROCEDURES.
(a). NOTICE OF DENIAL. If the Committee determines that any
person who has submitted a claim for payment of benefits under this
Supplemental Plan is not eligible for payment of benefits or, if applicable,
is not eligible for payment of benefits in the form or amount requested, then
the Committee shall, within a reasonable period of time, but no later than 90
days after receipt of the written claim, notify the claimant of the denial of
the claim. Such notice of denial: (1) shall be in writing; (2) shall be
written in a manner calculated to be understood by the claimant; and (3)
shall contain: (A) the specific reason or reasons for denial of the claim;
(B) a specific reference to the pertinent Supplemental Plan provisions or
administrative rules and regulations upon which the denial is based; (C) a
description of any additional material or information necessary for the
claimant to perfect the claim; and (D) an explanation of the Supplemental
Plan's appeal procedures.
(b). RECONSIDERATION PROCEDURES. Within 90 days of the
receipt by the claimant of the written notice of denial of the claim, the
claimant may file a written request with the Committee that it conduct a full
and fair review of the denial of the claimant's claim for benefits. The
claimant's written request must include a statement of the grounds on which
the claimant appeals the original claim denial. The Committee shall deliver
to the claimant a written decision on the claim promptly, but not later than
60 days after the receipt of the claimant's request for review, except that
if there are special circumstances that require an extension of time for
processing, the 60-day period shall be extended to 120 days, in which case
written notice of the extension shall be furnished to the claimant prior to
the end of the 60-day period.
SECTION 10.2 ENFORCEMENT.
(a). RIGHT TO ENFORCE. Within 90 days after exhaustion of the
review and appeal procedures provided for in Section 10.1 or, if the
Committee fails to grant or deny the claim within 120 days after the
claimant's original claim or fails to provide the written decision of the
Committee on any written request for reconsideration within the time period
in Section 10.1(b), within 90 days after such failure, the Company's
obligations under the Supplemental Plan may be enforced only through binding
arbitration as provided for hereinafter, initiated by any Participant or,
upon the death of a Participant, by any Participant's surviving spouse,
Dependent Child, or personal representative (as the case may be, the
"Claimant").
(b). ATTORNEYS' FEES AND COSTS. If, prior to a Change of Control,
any Claimant is denied a claim, in whole or in part, for benefits under the
Supplemental Plan and the Claimant requests reconsideration under the
procedures described in Section 10.1(b), or initiates any other legal
proceeding (other than binding arbitration pursuant to the following
provisions of this Article X) with respect to such alleged claim, the Company
shall have no obligation to pay or
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reimburse the Claimant for attorneys' fees and costs. If, on or after a
Change of Control, any Claimant is denied a claim for benefits under the
Supplemental Plan and the Claimant has requested reconsideration under the
procedures described in Section 10.1(b), or initiates binding arbitration or
both reconsideration and binding arbitration, to enforce any obligation of
the Company under the Supplemental Plan the basis of which is alleged failure
of the Committee to administer the Supplemental Plan in accordance with its
terms or, if following a Change of Control, the Company fails to make payment
of Benefits as determined by the Committee, the Company shall pay such
Claimant's attorneys' fees and costs incurred in connection with the review
and binding arbitration proceedings, provided that the arbitrator determines
that the claim is not frivolous; provided, however, that in no case shall the
Company be liable for attorneys' fees and costs to the extent incurred
relative to any dispute regarding any determination by the Committee made
based upon the terms of the Supplemental Plan. All attorneys' fees and costs
payable under this Section 10.2(b) shall be paid by the Company as they are
incurred by the Claimant, but no later than 30 days from the date that the
Claimant submits a bill or other statement to the Company.
(c). INTEREST. If any Claimant prevails in a reconsideration
procedure described in Section 10.1(b), or if a Claimant prevails in the
binding arbitration proceeding pursuant to Section 10.3 to enforce the
payment of benefits under the Supplemental Plan, the Company shall pay
interest to the Claimant on any unpaid benefits accruing from the date that
benefit payments should have commenced and continuing until the date that
such owed and unpaid benefits are paid to the Claimant in full. For purposes
of the preceding sentence, interest shall accrue at an annual rate equal to
one percent, plus the prime rate reported by THE WALL STREET JOURNAL as in
effect from time to time, each change in the prime rate to be effective for
purposes of any interest computation on the date of publication of such
changed prime rate in THE WALL STREET JOURNAL.
SECTION 10.3 ARBITRATION. The rights resulting from the designation
of a Participant pursuant to Article III are conditional upon the acceptance
by the Participant, on the Participant's behalf and on behalf of the
Claimants, of all of the terms and conditions of this Supplemental Plan
including specifically and without limitation this Article X. Any
controversy or claim arising out of or under the Supplemental Plan which is
not resolved by the reconsideration referred to in Section 10.1(b) shall be
settled by arbitration in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association
("AAA") or the Employment Arbitration Rules of the Judicial Arbitration and
Mediation Services/Endispute ("JAMS"), subject to the further provisions of
this Section 10.3. Hereinafter the term "Rules" means and refers to the
aforesaid AAA Rules or the JAMS Rules, as the case may be. Judgment upon the
award rendered by the arbitrator may be rendered in any court having
jurisdiction. The Rules are modified or supplemented as follows:
(a). There shall be one arbitrator, unless the parties agree
to more than one arbitrator;
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(b). The arbitrator shall be a retired judge or attorney with
professional experience and expertise in designing or administering
corporate retirement benefits and plans, and resident in the Southern
California area, unless the parties agree otherwise;
(c). The arbitration shall be conducted within Los Angeles
County, California, unless the parties agree otherwise;
(d). The party desiring to initiate the arbitration shall
advise the other party in writing of such desire;
(e) Within 10 days of receipt of a notice pursuant to subparagraph
(d) above the party receiving the notice shall designate either the AAA or
JAMS as the arbitration agency, but in the event such party fails to
designate within such period the initiating party shall have the right to
designate the AAA or JAMS;
(f). All claims arising under the Supplemental Plan known or
which should be known to the party initiating the arbitration shall be
included in the issues presented to the AAA or JAMS, as the case may be, for
arbitration and any which are not included shall be effectively waived;
(g). The expedited procedures of the AAA or JAMS, as the case
may be, shall be applied in any case where no disclosed claim or counterclaim
exceeds the amount then established by the AAA or JAMS for use of expedited
procedures, exclusive of interest and arbitration costs;
(h). The decision of the arbitrator shall be rendered within 60
days after the close of hearings;
(i). The Company and the Claimant shall furnish to the other,
30 days prior to the first hearing, a list and identification of all
witnesses, and copies of all exhibits intended to be submitted by that party.
Ten days prior to the first hearing, each party shall have the right to
supplement their intended list of witnesses and provide additional exhibits.
Only such witnesses and such exhibits identified by one party or the other
may be offered in the arbitration hearings; and
(j). Any documents, affidavits or other evidence requested by
the arbitrator must be submitted within ten days after conclusion of the
arbitration hearings, unless the arbitrator grants additional time.
ARTICLE XI--AMENDMENT AND TERMINATION
SECTION 11.1 AMENDMENT AND TERMINATION OF THE PLAN.
(a). GENERAL. Although the Company intends to maintain the
Supplemental Plan, the Company reserves the right to amend or terminate the
Supplemental Plan at any time for whatever purposes it may deem appropriate,
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except as specifically limited by this Article XI. The Company shall amend,
terminate, or suspend the Supplemental Plan only by the action of the Board,
except that the Committee shall have the authority to make any amendments
that do not decrease the level of benefits payable and that it deems
necessary for the proper administration of the Supplemental Plan.
(b). AUTOMATIC TERMINATION. The Supplemental Plan may be
terminated or suspended only by authorization of the Board, except that the
Supplemental Plan shall terminate automatically if there are no Active
Participants remaining and all Retirement Benefits, Death Benefits, and
Disability Benefits have been paid.
(c). PROTECTION OF BENEFITS. No amendment, termination, or
suspension of the Supplemental Plan shall be effective to the extent that it
reduces: (1) the Retirement Benefit payable to any Participant who has
satisfied the conditions of Section 4.1(a)(3) and (4) immediately prior to
such amendment, termination or suspension; or (2) Retirement Benefits, Death
Benefits or Disability Benefits, which are being paid immediately prior to
such amendment, termination or suspension.
(d). PROTECTION OF ACTIVE PARTICIPANTS. No amendment, termination,
or suspension of the Supplemental Plan shall be effective to the extent that
it reduces the Retirement Benefits that an Active Participant may accrue
unless the amendment, termination, or suspension also provides that the
Active Participant is immediately vested in a Retirement Benefit calculated
as if the Active Participant terminated employment immediately prior to the
later of the date that the amendment, termination, or suspension is enacted
or is effective.
(e). CHANGE OF CONTROL. On or after a Change of Control, any
amendment, termination, or suspension of the Supplemental Plan shall be
effective only upon the written consent of at least eighty-five percent (85
%) of all Participants. The preceding sentence shall not apply to: (1) a
termination that occurs under Section 11.1(b); (2) any amendment,
termination, or suspension that affects the accrual of Retirement Benefits
and that complies with the terms of Section 11.1(c) and (d); or (3) any
amendment, termination, or suspension of the Supplemental Plan that reduces
Death or Disability Benefits but that: (i) does not reduce Death or
Disability Benefit payments that have commenced; and (ii) does not reduce the
Death or Disability Benefit that an Active Participant is eligible to
receive, calculated as if he or she died or became Disabled as of the later
of the effective date or enactment of the amendment, termination, or
suspension.
SECTION 11.2 CONTRACTUAL OBLIGATION. The Company makes a contractual
obligation that any amendment, suspension, or termination of the Supplemental
Plan shall comply with the terms of Section 11.1.
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ARTICLE XII--MISCELLANEOUS
SECTION 12.1 EMPLOYMENT RIGHTS. Nothing contained in the Supplemental
Plan shall be construed as a contract of employment between the Company and
the Participant, or as a right of any employee to be continued in the
employment of the Company, or as a limitation of the right of the Company to
discharge any of its employees, with or without cause.
SECTION 12.2 RIGHTS OF THE COMMITTEE. To the extent permitted by law,
the Company shall indemnify the Committee (including any officers and
employees of the Company appointed to act on behalf of the Committee) and
hold such individuals harmless from and against any damages, losses, costs,
and expenses incurred (including, without limitation, expenses of
investigation and the fees and expenses of counsel) in the course of
administering the Supplemental Plan. The Company shall bear all expenses of
the Committee incurred in the course of administering the Supplemental Plan.
SECTION 12.3 BENEFIT STATEMENTS. At least annually, the Company shall
provide a statement of benefits under the Supplemental Plan to all
Participants (or Beneficiaries) that includes the information necessary to
calculate the possible prospective Retirement Benefit, Disability Benefit,
and Death Benefit with respect to the Participant, based upon Participant's
compensation through such year.
SECTION 12.4 ASSIGNMENT. The benefits payable under the Supplemental
Plan may not be assigned or alienated.
SECTION 12.5 APPLICABLE LAW. The Supplemental Plan shall be governed
by the laws of Delaware except to the extent preempted by ERISA.
SECTION 12.6 EFFECTIVE DATE. The Supplemental Plan shall take effect
as of the Distribution Date.
SECTION 12.7 ENTIRE PLAN. This writing is the final expression of the
Supplemental Plan and a complete and exclusive statement of its terms, except
that to the extent that this Supplemental Plan refers to the Trust, the terms
of the Trust Agreement, as of the date immediately preceding a Change of
Control, shall be deemed to be incorporated herein.
SECTION 12.8 TERMS. Except as required otherwise by the context,
capitalized terms that are used in this Supplemental Plan shall have the
meaning assigned to them in Article II or elsewhere in this Supplemental
Plan. Feminine or neuter pronouns shall be substituted for those of the
masculine form and the plural shall be substituted for the singular, in any
place or places herein where the context may require such substitution or
substitutions. The title and headings of the Sections of this Supplemental
Plan are for convenience only, and are not intended to be a part of or to
affect the meaning or interpretation of this Supplemental Plan.
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SECTION 12.9 WAIVER. Any waiver of or failure to enforce any
provision of this Supplemental Plan in any instance shall not be deemed a
waiver of such provision as to any other or subsequent instance.
ARTICLE XIII--BENEFITS FOR RETIRED WESTERN ATLAS EMPLOYEES
SECTION 13.1 BENEFIT PAYMENTS. If, as a result of the spin-off of
UNOVA, Inc. from Western Atlas, the parties agree that the Company will
assume the benefit obligations under the Western Atlas Plan with respect to
certain individuals who are in pay status under the Western Atlas Plan, such
benefit obligations shall be provided hereunder as if such benefits accrued
under this Supplemental Plan, as it may be amended from time to time.
IN WITNESS WHEREOF, the Company has caused this Supplemental Plan to be
executed by its duly authorized officers as of the ____ day of
___________________, 1997.
UNOVA, INC.
By: ________________________
Michael E. Keane
WITNESS: _________________
By: ________________________
Charles A. Cusumano
WITNESS: _________________
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Exhibit 10.K
EMPLOYMENT AGREEMENT
--------------------
Agreement made as of August, 1997 by and between UNOVA, Inc,. a Delaware
corporation ("UNOVA"), and CLAYTON A. WILLIAMS, an individual residing at 200
Riverfront Drive, Apt. P27K, Detroit, Michigan 48226 ("Executive").
Executive is presently employed by Western Atlas Inc. ("Western Atlas")
with the title Corporate Senior Vice President and Group Executive of Western
Atlas' Manufacturing Systems Operations. Western Atlas has formed UNOVA, a
wholly owned subsidiary, and adopted a plan to distribute 100% of the common
stock of UNOVA to the shareholders of Western Atlas, resulting in UNOVA being a
company separate from Western Atlas (the "Distribution"). The Industrial
Automation Systems Group will be included in UNOVA.
Executive has agreed to accept employment with UNOVA for the period
commencing on the effective date of the Distribution and ending on December 31,
1998 unless further extended by the parties, with the initial title of Corporate
Senior Vice President and Group Executive of the Industrial Automation Systems
Group (the "Group").
NOW, THEREFORE, in consideration of the premises and the mutual promises
made in this Agreement, intending to be legally bound, UNOVA and Executive do
hereby covenant, agree and understand as follows:
1. EMPLOYMENT. UNOVA hereby employs Executive, and Executive hereby
accepts such employment, and agrees to perform his duties and responsibilities
hereunder, in accordance with the terms and conditions hereinafter set forth.
1.1 EMPLOYMENT TERM. The employment term of this Agreement (the
"Employment Term") shall commence on the effective date of the Distribution, and
shall continue until and expire on December 31, 1998, unless terminated earlier
in accordance with Section 4 hereof, in which event the Employment Term shall
expire on such earlier termination date.
1.2 DUTIES AND RESPONSIBILITIES.
(a). During the Employment Term, Executive shall serve initially as
Corporate Senior Vice President of UNOVA and as Group Executive of the Group and
shall perform all duties and accept all responsibilities incidental to such
position as may be assigned to him by the Chief Executive Officer of UNOVA (the
"CEO") and the Board of Directors of UNOVA (the "Board"), and he shall cooperate
fully with the Board and the CEO.
(b). As Group Executive of the Group, Executive shall have general
supervision over and control of the ordinary course of the business of the
Group's operations and activities, subject in all cases to the supervision and
control by the Board and the CEO.
(c). Executive represents to UNOVA that he is not currently subject
or a party to, and agrees that he will not after the effective date hereof
become subject or a party to, any employment agreement, noncompetition covenant,
nondisclosure agreement or other agreement, covenant, understanding or
restriction which would prohibit Executive from executing this Agreement or
performing fully his duties and responsibilities hereunder, or which would in
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manner, directly or indirectly, limit or affect the duties and responsibilities
which may now or in the future be assigned to Executive by UNOVA.
1.3 EXTENT OF SERVICE. During the Employment Term, Executive shall use
his best efforts in the business of UNOVA, and he shall devote substantially his
full business time, attention and energy to the business of UNOVA and to the
performance of his services and the discharge of his duties and responsibilities
hereunder. Except as provided in the Intellectual Property Agreement and the
Restrictive Covenant, referred to in Section 3 hereof, the foregoing shall not
be construed as preventing Executive from making investments in other businesses
or enterprises, provided that Executive agrees not to become engaged in any
other business activity or investment which may interfere with his ability to
discharge, or which may conflict with, his duties and responsibilities hereunder
to UNOVA. Executive further agrees not to work on either a part-time or
independent contractor basis for any other business or enterprise during the
Employment Term without the prior written approval of the Board or the CEO.
1.4 BASE COMPENSATION.
(a). For all the services rendered and to be rendered by Executive
hereunder, UNOVA shall pay Executive an annual salary at the rate of $280,000,
less such withholding and other deductions as may be required by law or any
employee benefit plan in which Executive participates, payable in installments
at such times as the Group customarily pays its executive officers.
(b). During the Employment Term, Executive shall also be: (i)
entitled to three (3) weeks of paid vacation and to paid sick leave, as provided
for by the Group to senior executives, in each calendar year of the Employment
Term; (ii) provided the use of a new Chevrolet Caprice, Ford Crown Victoria, or
Chrysler LHS automobile, as selected by Executive, and reimbursement of all
reasonable expenses related thereto (but only one automobile for the Employment
Term); and (iii) permitted to participate in such life insurance, disability,
medical and other fringe benefit programs of the Group as may exist from time to
time for which Executive is eligible and subject to the terms of such programs.;
provided, however, that Executive hereby acknowledges that he will not be
eligible to participate in any Supplemental Executive Retirement Plan and in any
Supplemental Medical Plan of UNOVA unless specifically nominated by the CEO and
designated by the Compensation Committee of the Board of Directors of UNOVA (the
"Compensation Committee") for participation, which nomination is not expected.
1.5 INCENTIVE COMPENSATION.
(a). In addition to the base compensation described in Section 1.4(a)
above, for each calendar year included within the Employment Term, Executive
shall be entitled to participate in the UNOVA Bonus Plan, as the same may be
amended, modified, supplemented or replaced from time to time during the
Employment Term, for an annual maximum aggregate bonus under such Plans of up to
125% of base compensation and subject to the satisfaction of any performance
goals applicable to Executive recommended by the CEO and thereafter established
by the Compensation Committee for the relevant periods. To the extent that the
Employment Term ends before the end of a calendar year, Executive shall be paid,
upon determination of the annual bonus amount, a pro rata portion of the annual
bonus which would have been payable to Executive had the Employment Term not
ended prior to the end of the calendar year pursuant to
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such Plans for such calendar year determined by multiplying such annual bonus
amount by a fraction, the numerator of which is the number of full calendar
months in such calendar year ending on or prior to the date of termination and
the denominator of which is 12; and provided, however, that Executive shall not
be entitled to any further payments of any such incentive or performance bonus
in the event Executive's employment is terminated for "cause" pursuant to
Section 4.3.
2. EXPENSES.
(a). The Group will reimburse Executive for all ordinary and
necessary out-of-pocket business expenses incurred by him in connection with the
discharge of his duties and responsibilities hereunder during the Employment
Term in accordance with the Group's expense approval procedures then in effect,
and upon presentation to the Group of an itemized account and written proof of
such expenses. Extraordinary expenses, such as country club or other social
club memberships, shall be subject to the prior approval of the CEO.
3. PROPRIETARY AND INTELLECTUAL PROPERTY. Executive covenants to execute
the Employee Intellectual Property Agreement, in the form of Exhibit I attached
hereto (the "Intellectual Property Agreement") promptly upon the execution of
this Agreement by Executive. The parties each acknowledge that the Intellectual
Property Agreement as so executed is and shall be incorporated in this
Agreement, and is and shall be integrated with and form a part of this
Agreement, as if set forth herein. In addition to the covenants included in the
Intellectual Property Agreement, Executive covenants and agrees (the
"Restrictive Covenant") that, for the period of five (5) years following the
later of termination of the Employment Term or termination of Executive's
employment by UNOVA, Executive shall not: (1) interfere with any business
relationship between UNOVA, or any of its subsidiaries or affiliates, and any
customer, vendor, person or other firm; and (ii) directly or indirectly, own,
manage, operate, finance, join, control or participate in the ownership,
management, operation, financing or control of, or be connected as an officer,
director, employee, partner, principal, agent, representative, consultant or
otherwise with, or use or permit his name to be used in connection with, any
business or enterprise engaged in the business of the Group, as the same may be
constituted during the period of Executive's employment by UNOVA in any part of
the world where the Group conducts business during that period; provided,
however, that, notwithstanding the foregoing: (i) this provision shall not be
construed to prohibit the passive ownership by Executive of not more than one
percent (1%) of the capital stock of any corporation which is engaged in a
business competitive with the Group having a class of securities registered
pursuant to the Securities Exchange Act of 1934. In the event that the
provisions of the Restrictive Covenant should ever be adjudicated to exceed the
time, geographic, product or other limitations permitted by applicable law in
any jurisdiction, then such provisions shall be deemed reformed in such
jurisdiction to the maximum time, geographic, product or other limitations
permitted by applicable law. Executive irrevocably and unconditionally agrees
that, in the event of any violation of the Intellectual Property Agreement or
the Restrictive Covenant, UNOVA shall be irreparably harmed and money damages
shall not be an adequate remedy and, thus, that UNOVA shall be entitled to
preliminary and permanent injunctive relief and other equitable relief as
determined by the arbitrator referred to in Section 8 of this Agreement, which
may be enforced in any federal or state court of competent jurisdiction.
Executive agrees that effective service of process may be made upon him by mail
under the notice provisions contained in Section 6 hereof, and that all
pleadings, notices and other papers may be served upon him in the same manner.
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4. TERMINATION.
4.1 PARTIAL OR TOTAL DISABILITY. If, in the judgment of the Board or the
CEO, Executive is unable to perform his duties and responsibilities hereunder by
reason of illness, injury or incapacity for three consecutive months, or for
more than three months in the aggregate during any period of 12 calendar months,
during which time UNOVA shall continue to compensate Executive hereunder (with
such compensation to be reduced by the amount of any payments due Executive for
this time period under any applicable disability benefit programs, including
Social Security disability, workers' compensation and UNOVA-sponsored disability
benefits), the Employment Term may be terminated by UNOVA, in which event UNOVA
shall have no further liability or obligation to Executive except for: (i)
unpaid salary and benefits accrued to the date of his termination; (ii) any
additional disability or other benefits or payments (excluding any severance
benefits or payments) otherwise payable to Executive under any applicable formal
policy or plan of, or sponsored by, UNOVA which covers Executive at the time of
his termination; and (iii) a pro rata portion of the performance bonus, if any,
referred to in Section 1.5(a) hereof in respect of the period prior to the date
on which the Employment Term is terminated. Executive agrees, in the event of
any dispute under this Section 4.1 and if requested by UNOVA, to submit to a
physical examination by a licensed physician mutually agreed upon by UNOVA and
Executive, the cost of such examination to be paid by UNOVA.
4.2 DEATH. In the event that Executive dies during the Employment Term,
UNOVA shall pay to his executors, administrators or personal representatives, as
appropriate, an amount equal to the installment of his salary payable for the
month in which he dies. Thereafter, UNOVA shall have no further liability or
obligation to Executive's executors, administrators, personal representatives,
heirs, assigns or any other person claiming under or through him, except for:
(i) any benefits or other payments (excluding any severance benefits or
payments) otherwise payable to Executive under any applicable formal policy or
plan of, or sponsored by, UNOVA which covered Executive at the time of his
death; and (ii) a pro rata portion of the performance bonus, if any, referred to
in Section 1.5(a) hereof in respect of the period prior to the date on which
Executive died.
4.3 FOR CAUSE. Nothing in this Agreement shall be construed to prevent
the termination of the Employment Term by UNOVA at any time for "cause." For
purposes of this Agreement, "cause" shall mean: (i) the willful and continued
failure of Executive to perform substantially Executive's duties with UNOVA
(other than any such failure resulting from disability determined pursuant to
Section 4.1 above) after a written demand for substantial performance is
delivered to Executive by the Board or the CEO which specifically identifies the
manner in which the Board or the CEO believes that Executive has not
substantially performed Executive's duties; or (ii) the willful engaging by
Executive in illegal conduct or gross misconduct which is materially and
demonstrably injurious to UNOVA.
For purposes of this provision, no act or failure to act on the part of
Executive shall be considered "willful" unless it is done, or omitted to be
done, by Executive in bad faith or without reasonable belief that Executive's
action or omission was in the best interests of UNOVA. Any act, or failure to
act, based upon authority given pursuant to a resolution duly adopted by the
Board or upon the instructions of the CEO or an officer of UNOVA superior to
Executive, or based upon the advice of counsel for UNOVA, shall be conclusively
presumed to be done, or omitted to be done, by Executive in good faith and in
the best interests of UNOVA. Upon termination of the Employment Term for cause,
UNOVA shall have no further liability or
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obligation to Executive, except for the payment of unpaid salary and benefits
(excluding any performance bonus) accrued to the date of his termination.
4.4 WITHOUT CAUSE. UNOVA, by action of the Board or the CEO, may
terminate the Employment Term at any time without any cause upon 30 days' prior
written notice to Executive, in which event UNOVA shall only be obligated: (i)
to pay Executive an amount which equals the salary payments called for by
Section 1.4(a) hereof for the balance of the Employment Term specified in
Section 1.1 hereof, the same as if such termination of the Employment Term had
not occurred; (ii) to pay a pro rata portion of the performance bonus, if any,
referred to in Section 1.5(a) hereof in respect of the period prior to and
including the date of termination (calculated by taking the amount otherwise
payable for the calendar year in question and multiplying that sum by a
fraction, the numerator of which would be the number of full calendar months in
such calendar year ending on or prior to the date of termination of the
Employment Term, and the denominator of which would be 12; and (iii) to pay any
severance benefits or payments otherwise payable to Executive under any
applicable formal policy or plan of the Group which covers Executive at the time
of this termination. The above amounts are agreed to be in lieu of any and all
other liabilities or obligations which may in fact or law be due to Executive as
a result of a termination of the Employment Term without cause before its normal
expiration, provided, however, that the obligations of UNOVA under (i) through
(iii) above are subject to Executive's compliance with his obligations under
Section 3, Proprietary and Intellectual Property, and the Intellectual Property
Agreement.
5. SURVIVAL. Notwithstanding the termination of the Employment Term for
any reason whatsoever, the obligations of Executive under the Intellectual
Property Agreement and the Restrictive Covenant shall survive and remain in full
force and effect to the extent and for the periods therein provided, and the
provisions for equitable relief provided in Section 3 shall continue in force.
6. NOTICES. All notices and other communications hereunder shall be in
writing and deemed to have been given when hand delivered, in person or by a
recognized courier or delivery service, when telexed to the recipient's telefax
number (with receipt confirmed), or when mailed by registered or certified mail,
return receipt requested, as follows (provided that notice of change of address
shall be deemed given only when received):
If to UNOVA, to:
UNOVA, Inc.
360 North Crescent Drive
Beverly Hills, California 90210
ATTENTION: General Counsel
or to telefax no. (310) 888-2913
If to Executive, to:
Clayton A. Williams
200 Riverfront Drive, Apt. P27K
Detroit, MI 48226
or to telefax no. (______) ______________
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or to such other name, address or telefax number as any designated recipient
shall specify by notice to the other designated recipients in the manner
specified in this Section 6. Any communication delivered in another manner
shall be deemed given only when actually received by the intended recipient.
7. GOVERNING LAW. This Agreement and the Intellectual Property Agreement
shall be governed by and interpreted under the laws of the State of Michigan
without giving effect to any conflict of laws provisions.
8. ARBITRATION. In recognition of the fact that differences may arise
between UNOVA and Executive that may or may not relate to Executive's employment
with UNOVA, and in recognition of the fact that resolution of any differences in
the courts is rarely timely or cost effective for either party, UNOVA and
Executive hereby agree to arbitration in order to establish and gain the
benefits of a speedy, impartial and cost-effective dispute resolution procedure.
Arbitration of differences between UNOVA and Executive shall be in accordance
with, and pursuant to the terms of the Mutual Agreement to Arbitrate Claims, in
the form of Exhibit II attached hereto, which Executive agrees to execute.
9. CONTENTS OF AGREEMENT; AMENDMENT AND ASSIGNMENT.
(a). This Agreement, the Intellectual Property Agreement, and the Mutual
Agreement to Arbitrate Claims set forth the entire understanding of the parties
with respect to the subject matter hereof and may not be changed, modified or
terminated except by a written amendment executed by UNOVA and by Executive.
Furthermore, and without limitation, nothing in this Agreement shall be
construed as giving Executive any right to be retained in the employ of UNOVA
beyond the expiration of the Employment Term, and if employed thereafter,
Executive specifically acknowledges that unless UNOVA and Executive have either
extended this Agreement by a written instrument or entered into a new, written
employment agreement, he shall be an employee-at-will and, thus, subject to
discharge with or without cause and, in such event, without further compensation
of any nature.
(b). All of the provisions of this Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective heirs, executors,
administrators, personal representatives, successors and assigns of the parties
hereto, except that the duties and responsibilities of Executive hereunder are
of a personal nature and shall not be assignable or delegable in whole or in
part by Executive.
10. SEVERABILILY. If any provision of this Agreement or the application
thereof to anyone or any circumstance is held invalid or unenforceable in any
jurisdiction, the remainder of this Agreement and the application of such
provision to such person or entity or such circumstance in any other
jurisdiction or to other persons, entities or circumstances in any jurisdiction,
shall not be affected thereby, unless such invalidity or unforceability
substantially diminishes or substantially increases the rights and obligations
of a party, taken as a whole, and to this end the provisions of this Agreement
are severable.
11. REMEDIES CUMULATIVE; NO WAIVER. Except as provided for in Section 8
hereof, no remedy conferred upon any party by this Agreement is intended to be
exclusive of any other remedy, and each and every such remedy shall be
cumulative and in addition to any other remedy
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given hereunder or now or hereafter existing at law or in equity. No single
waiver by any party of any right, remedy or power under any provision hereof, or
existing at law or in equity, with respect to any event or circumstance shall be
construed as a waiver of such provision or right as to any other event or
circumstance, and any such right, remedy or power may be exercised by such party
from time to time, and as often as may be deemed expedient or necessary by such
party in its or his sole discretion.
12. COUNSEL TO EXECUTIVE. Executive represents and acknowledges that: (i)
he has been advised by UNOVA to consult his own legal counsel in respect of this
Agreement; and (ii) he has, prior to execution of this Agreement, reviewed this
Agreement thoroughly with his counsel to the extent Executive considers such
review necessary and appropriate.
13. MISCELLANEOUS. This Agreement may be executed in several
counterparts, each of which shall be an original. It shall not be necessary in
making proof of this Agreement or any counterpart hereof to produce or account
for any of the other counterparts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
UNOVA, INC.
By: ________________________________
Title: _______________________________
____________________________________
Clayton A. Williams
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Exhibit 10.L
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
This Supplemental Executive Retirement Agreement ("Agreement") made and
entered into by and between UNOVA, Inc., a Delaware corporation (the "Company")
and Alton J. Brann, ("Executive").
WHEREAS, the Executive is presently employed by the Company as its Chairman
and Chief Executive Officer; and
WHEREAS, the Executive was previously employed by Western Atlas Inc., which
corporation previously owned the Company and distributed its shares to the
shareholders of Western Atlas through a tax free spin-off pursuant to Section
355 of the Internal Revenue Code; and
WHEREAS, the Company and the Executive now desire to have the Company
assume the obligations of Western Atlas Inc. as they existed under the
Supplemental Executive Retirement Agreement between Western Atlas Inc. and
Executive (the "Western Atlas Agreement"); and
WHEREAS, the Company and the Executive desire to enter into this Agreement
in substitution for, and in place of, the Western Atlas Agreement and in release
of all rights of the Executive under the Western Atlas Agreement.
NOW THEREFORE, the Company and the Executive covenant, agree, represent,
warrant and understand, as follows:
ARTICLE I-- PURPOSE
-------------------
The purpose of this Agreement is to provide for supplemental retirement,
disability and death benefits to Executive, and thereby encourage Executive to
continue providing services to the Company. This Agreement is intended to
provide benefits solely for a management or highly compensated employee within
the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of Title I of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Payments
under this Agreement shall be made either from general assets of the Company or
from the assets of a trust which may be established hereunder. It is intended
that this Agreement remain at all times an unfunded plan for purposes of ERISA
and that the trust, if established, shall constitute a grantor trust under
Sections 671 through 679 of the Internal Revenue Code of 1986, as amended (the
"Code").
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Supplemental Executive Retirement Agreement
ARTICLE II--DEFINITIONS
-----------------------
SECTION 2.1 "ACTIVE PARTICIPANT" shall mean Executive so long as he
remains employed by the Company continuously from the date hereof, except as
provided for below as to Disability or death. Other than during a period of
Disability, Executive shall be treated as having terminated from employment
during any period of Leave of Absence, unless the Committee, in its sole and
absolute discretion, and subject to such terms and conditions as the Committee
may specify, decides otherwise. However, Executive, while Disabled or if
Executive dies while an Active Participant shall continue to be treated as an
Active Participant and, thus, continue to accrue additional Years of Service
until the earlier of the date that the Executive attains (or, if deceased, would
have attained) age 62, or the date that Executive is no longer Disabled. If
Executive returns to active employment with the Company when Disability ends, he
shall thereafter be an Active Participant, so long as such employment continues,
without further action. If Executive terminates employment with the Company
(other than for Disability) and is subsequently re-employed with the Company he
shall not be treated as an Active Participant unless the Committee determines
otherwise.
SECTION 2.2 "ACTUARIAL EQUIVALENT" shall mean the adjustment of an
amount or amounts using actuarial methods and factors identical with those
actuarial methods and factors then being used, at the time such calculations are
to be made hereunder, under the UNOVA Retirement Plan adopted by UNOVA, Inc. and
intended to be qualified under Section 401(a) of the Code, as such Plan may be
amended from time to time and any retirement plan intended to replace such Plan
(the "Qualified Plan").
SECTION 2.3 "AVERAGE EARNINGS" shall mean the average of gross base
salary payments plus Bonuses as defined in Section 2.6 from the Company (as used
in this Section 2.3 and hereinafter the term "Company" shall have the meaning
specified in Section 2.12) to the Executive in any three twelve consecutive
month periods (with no overlap), in which such Executive's gross base salary
payments plus gross Bonuses are the highest, in the Executive's final 60 months
of employment. For all purposes of calculating "Average Earnings" under this
Supplemental Plan "gross base salary" shall include all payments credited to
Executive related to base compensation before subtracting any amounts deferred
pursuant to Section 401(k) or 125 of the Code and does not include any amounts
credited as compensation to Executive relating to Bonuses or the exercise or
award under Company Stock-based option or award plans. .
(a). Average Earnings for purposes of calculating a Disability or
Death Benefit for or with respect to Executive shall be calculated using the 60
months that include and precede the month that his Disability commenced. If
Executive has returned to active employment with the Company after a period of
Disability but does not have a minimum of 36 consecutive calendar months of
employment with the Company after such return to active employment, then Average
Earnings shall be calculated by the Committee in accordance with subparagraph
(e).
(b). Average Earnings in the case Executive dies while employed
by the Company and prior to attaining age 62 shall be calculated using the 60
months that include and precede the month of Executive's death (or Disability,
in the case Executive dies while Disabled).
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Supplemental Executive Retirement Agreement
(c) For purposes of calculating a lump sum payment pursuant to Section
3.1(c) in the event of a Change of Control, with respect to Executive (other
than while Disabled or when deceased) and who is an Active Participant as of the
date of such calculation, Average Earnings shall be calculated as if Executive's
employment with the Company ended on such date or the date as revised pursuant
to the terms of any Change of Control Agreement existing between the Company and
the Executive ("Change of Control Agreement" shall mean any agreement between
the Company and the Executive which provides for the employment of Executive
and/or the payment of compensation to Executive upon or following a Change of
Control).
(d). For purposes of calculating Average Earnings, Executive's
gross base salary plus gross Bonuses received while employed by Western Atlas
or Litton, if and to the extent such Western Atlas or Litton employment is
included within the period of 60 months to be used in such calculation, shall be
taken into account to the extent Executive's benefits under the Western Atlas
retirement plans were transferred to the Company pursuant to the Employee
Benefits Agreement between Western Atlas and UNOVA, Inc. (the "Employee Benefits
Agreement").
(e). Notwithstanding the foregoing, the Committee may determine
Average Earnings for the purposes of this Section by another methodology, if
that method is more advantageous to Executive.
SECTION 2.4 "BENEFICIARY" or "BENEFICIARIES" shall mean those who are
designated under this Agreement to receive payment of a benefit on account of
Executive's death. If and to the extent the spouse of Executive is living at
the time of Executive's death, only the spouse may be the Beneficiary. Upon the
death of the spouse after the death of Executive but prior to commencement of
Retirement Benefit payments, the Dependent Children of the Participant may be
Beneficiaries, but only of the Death Benefit.
SECTION 2.5 "BOARD" shall mean the Board of Directors of UNOVA, Inc. or
of its Successor, as of the time in question, the succession of which did not
result from or constitute or follow a Change of Control ("Successor" or
"Successors").
SECTION 2.6 "BONUS" or "BONUSES" shall mean the full amount of the bonus
or similar cash incentive awarded with respect to any given fiscal year or
portion thereof and shall be taken into account for purposes of determining
Average Earnings (i.e. shall be deemed to have been paid to the Executive,
regardless whether the amount is actually paid or deferred to a later year)
during the month in which the Bonus is determined and awarded by the Committee
(or other body or individual having authority to award such Bonus) under
Company-sponsored, formal or informal incentive compensation or bonus plans,
excluding, however, any payments under Company Stock-based option or award
plans. Further, as determined by the Committee at or prior to the award, any
payment(s) related to accomplishment of a particular non-ordinary course,
transaction or circumstance shall not be included as a "Bonus or Bonuses".
SECTION 2.7 "BUSINESS COMBINATION" shall have the meaning specified in
Section 2.8(c).
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Alton J. Brann
Supplemental Executive Retirement Agreement
SECTION 2.8 "CHANGE OF CONTROL" shall mean:
(a). The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended [the "Exchange Act"] (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty
percent (30%) or more of either (1) the then outstanding shares of common stock
of the Company (the "Outstanding Company Common Stock") or (2) the combined
voting power of the then outstanding voting securities of the Company entitled
to vote generally in the election of Directors (the "Outstanding Company Voting
Securities"); excluding, however, the following acquisitions of Outstanding
Company Common Stock and Outstanding Company Voting Securities: (A) any
acquisition directly from the Company other than an acquisition by virtue of the
exercise of a conversion privilege unless the security being so converted was
itself acquired directly from the Company; (B) any acquisition by the Company;
(C) any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company; or (D)
any acquisition by any Person pursuant to a transaction which complies with
clauses (1), (2), and (3) of paragraph (c) below of this Section 2.8; or
(b). Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual who becomes a member of the
Board subsequent to such effective date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a vote of at least a
majority of the Directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
provided further that any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest (as such
terms are used in Regulation 14a-11 of Regulation 14A promulgated under The
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board shall not be so considered as a
member of the Incumbent Board; or
(c). The approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a "Business Combination"), or,
if such consummation of such Business Combination is subject, at the time of
such approval by shareholders to the consent of any government or governmental
agency, the obtaining of such consent (either explicitly or implicitly by
consummation), excluding, however, such Business Combination pursuant to which
(1) all or substantially all of the individuals and entities who are the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination will beneficially own, directly or indirectly, more than sixty
percent (60%) of, respectively, the outstanding shares of common stock and the
combined voting power of the outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be; (2) no
Person (other than any employee benefit plan (or related trust) sponsored or
maintained by the Company or any
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Alton J. Brann
Supplemental Executive Retirement Agreement
corporation controlled by the Company or such corporation resulting from such
Business Combination) will beneficially own, directly or indirectly, thirty
percent (30%) or more of, respectively, the outstanding shares of common stock
of the corporation resulting from such Business Combination or the combined
voting power of the outstanding voting securities of such corporation entitled
to vote generally in the election of directors except to the extent that such
ownership existed with respect to the Company prior to the Business Combination;
and (3) at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination will have been members of
the Incumbent Board at the time of the execution of the initial agreement, or of
the action of the Board, providing for such Business Combination; or
(d). Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
SECTION 2.9 "CHIEF EXECUTIVE OFFICER" shall mean the chief executive
officer of UNOVA, Inc. or of its Successor.
SECTION 2.10 "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
SECTION 2.11 "COMMITTEE" shall mean:
(a). The Compensation Committee of the UNOVA, Inc Board of
Directors.
(b). Notwithstanding Section 2.11(a), upon a Change of Control,
the Committee shall mean exclusively the "Special Administrators." The "Special
Administrators" shall be the individuals who constituted the Company's
Compensation Committee of the Board immediately prior to the Change of Control.
The "Special Administrators" shall constitute the Committee until the earlier of
the termination of this Agreement or the last day of the 18-month period
following the month in which the Change of Control occurred. The "Special
Administrators" shall have all rights and authority reserved to the Committee
under this Agreement, including, but not limited to, the rights specified in
Section 10.2.
(c). If a "Special Administrator" dies, becomes disabled, or resigns
as "Special Administrator" during the period that the "Special Administrators"
constitute the Committee, the remaining "Special Administrator(s)" shall
continue to serve as the Committee without interruption, and successor "Special
Administrator(s)" shall be designated, by the remaining "Special
Administrators". If at any time there are no remaining "Special
Administrators," the presiding Judge of the Superior Court of the State of
California for Los Angeles County shall designate three "Special
Administrators".
SECTION 2.12 "COMPANY" shall mean UNOVA, Inc., a Delaware corporation,
and its Successors, and their respective subsidiaries. Any reference to stock
or securities of the Company shall mean only the stock or securities of UNOVA,
Inc. or of its Successor.
SECTION 2.13 "DEATH BENEFIT" shall mean the benefit payable pursuant to
Article IV to the Executive's Beneficiary or Beneficiaries, if any.
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Supplemental Executive Retirement Agreement
SECTION 2.14 "DEPENDENT CHILDREN" shall mean a natural or legally adopted
son or daughter who either: (a) has not attained age 19; or (b) has attained age
19 but has not attained age 23 and is a full-time student at an accredited
educational institution.
SECTION 2.15 "DIRECTOR" shall mean a member of the Board of Directors of
UNOVA, Inc. or of its Successor.
SECTION 2.16 "DISABILITY" or "DISABLED" shall mean the condition of the
Executive, or the Executive, when it has been determined by the Committee that
the Executive is unable to perform the material and substantive duties of the
Executive's position or profession, to an extent which prevents the Executive
from engaging in the Executive's regular position or profession, due to injury
or sickness for which the person is receiving medical care from, or with respect
to which a current certification of disability is received by the Committee
from, a professional person appropriate for such injury or sickness.
SECTION 2.17 "DISABILITY BENEFIT" shall mean the benefit payable pursuant
to Article V to the Executive because of Disability.
SECTION 2.18 "EMPLOYEE BENEFITS AGREEMENT" shall have the meaning
specified in Section 2.3(d).
SECTION 2.19 "ERISA" shall have the meaning specified in Article I.
SECTION 2.20 "EXCHANGE ACT" shall have the meaning specified in Section
2.8(a).
SECTION 2.21 "LITTON" shall mean Litton Industries, Inc., a Delaware
corporation, and its subsidiaries at the time in question.
SECTION 2.22 "LEAVE OF ABSENCE," with respect to Executive, shall mean
and refer to a discontinuance of regular, full-time services by the Executive
for the Company resulting in the discontinuance, in whole or in part, of base
salary payments by the Company to Executive during such discontinuance of
service, provided, however, that, to the extent federal or state so-called
"Family Leave Acts" or "Maternity or Pregnancy Leave Acts" may make unlawful the
treatment of an absence or a portion of an absence as a termination for purposes
of this Agreement, such absence or portion shall not constitute a Leave of
Absence.
SECTION 2.23 "NORMAL FORM" shall mean the form of Retirement Benefit
payable under Section 3.5 to a Retired Participant.
SECTION 2.24 "OFFSET AMOUNT" shall mean the sum of the annual "primary
insurance amount" and the annual "Company-provided pension."
(a). The "primary insurance amount" shall mean the annual benefit
determined under the Social Security Act that is payable to the Executive as of
the calendar year that Retirement Benefits to the Executive, if any, would
commence under this Agreement. If no "primary insurance amount" is payable to
Executive, who is otherwise covered by the Social Security Act, as of the
calendar year in which Retirement Benefits to the Participant, if any, would
commence under this Agreement, then the "primary insurance amount" shall be
deemed to be the "primary insurance amount" that would be payable to the
Executive at the
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Alton J. Brann
Supplemental Executive Retirement Agreement
earliest date thereafter or would have been payable at the earliest date
thereafter, in the case the Executive is deceased; provided, however, that the
amount payable under the Social Security Act shall be determined without regard
to any election by the Executive or a Beneficiary to defer receipt of a benefit
and without regard to any reduction of the amount of the Social Security Act
benefit by virtue of the receipt of earned income by the Executive or a
Beneficiary. The "primary insurance amount" shall also include any annual
retirement benefit payable under any public retirement program of a foreign
country that the Committee determines is comparable in purpose to the benefits
payable under the Social Security Act.
(b). The "Company-provided pension" shall mean the annual amount
that would be payable to the Executive under any defined benefit or defined
contribution plan sponsored by the Company, which is either intended to qualify
under Section 401(a) of the Code or is intended to restore benefits under such
plan (excluding only this Agreement and Part II of the UNOVA or Western Atlas
FSSP and Restoration Plan). Any non-United States defined benefit or defined
contribution plan of the Company which is not subject to the Code but which is
comparable in purpose to plans which would qualify under Section 401(a) of the
Code shall be included within the meaning of "Company-provided pension." The
amount of the "Company-provided pension" shall be deemed to be the amount which
would have been payable if the Executive joined each such plan at the earliest
date on which the Executive was eligible to join such plan and participated in
the plan to the fullest extent possible and withdrew his actual and presumed
contributions, plus income thereon. The amount of the "Company-provided
pension" shall be calculated under the terms that were in effect during the
Executive's actual, if any, and presumed participation, except that a
subsequent, retroactive amendment to any of such plans shall be taken into
account only to the extent that it actually would have increased the Executive's
benefit under that plan. The "Company-provided pension" shall be computed as if
the Executive actually received the plan benefits under such "Company-provided
pension" as a single life annuity beginning on the date that Retirement Benefits
commence under this Agreement.
SECTION 2.25 "OUTSTANDING COMPANY COMMON STOCK" and "OUTSTANDING COMPANY
VOTING SECURITIES" shall have the meanings specified for those items in Section
2.8(a).
SECTION 2.26 "PERSON" shall have the meaning specified in Section 2.8(a).
SECTION 2.27 "QUALIFIED PLAN" shall have the meaning specified in Section
2.2.
SECTION 2.28 "RETIREMENT BENEFIT" shall mean the benefits payable to
Executive and, if applicable, the Beneficiary of Executive, as provided in
Article III.
SECTION 2.29 "SPECIAL ADMINISTRATORS" shall have the meaning specified in
Section 2.11(b).
SECTION 2.30 "SUCCESSOR" or "SUCCESSORS" shall have the meaning specified
in Section 2.5.
SECTION 2.31 "TRUST" shall mean a grantor trust under Section 671 through
679 of the Code, if and when established. The decision to establish a Trust
shall be in the sole and absolute discretion of the Company.
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Supplemental Executive Retirement Agreement
SECTION 2.32 "TRUSTEE" shall mean the trustee of the Trust.
SECTION 2.33 "TRUST AGREEMENT" shall mean the terms of the agreement,
entered into between UNOVA, Inc. or its Successor and the Trustee, that
establishes the Trust.
SECTION 2.34 "WESTERN ATLAS" shall mean Western Atlas Inc., a Delaware
Corporation, and its subsidiaries at the time in question.
SECTION 2.35 "YEARS OF SERVICE" shall mean the number resulting from:
(a). The division of twelve into the number of consecutive and
continuous calendar months of employment with the Company (or immediately prior
thereto, the number of consecutive and continuous calendar months of employment
with Western Atlas and Litton) that elapse from and include the month that
Executive commenced the period of employment with the Company and which ends:
(1) upon the Executive's death; or (2) upon termination of Executive's
employment with the Company other than by death, until and including the earlier
of the month of such death or termination; provided, however, that for an
Executive who dies or becomes Disabled while an Active Participant, Executive
shall continue to accrue Years of Service from the date of such death or
Disability until the earlier of the calendar month (x) in which Executive
attains or, if deceased, would have attained age 62, or (y) in which Executive
is no longer Disabled.
(b). For purposes of determining Executive's Years of Service
under the terms of Section 2.35(a), service with Litton and Western Atlas
immediately preceding the period of service with the Company referred to in
Section 2.35(a) which ends upon the Executive's death, or which ends upon the
termination of employment with the Company other than by death, shall be taken
into account.
(c). In its discretion, the Committee may: (1) compute
Executive's Years of Service by treating separate but not continuous periods of
employment with Litton, Western Atlas or the Company as continuous periods of
employment; (2) credit Executive with Years of Service in addition to the Years
of Service accrued while actually employed with Litton, Western Atlas or the
Company; and (3) credit Executive for Years of Service solely for purposes of
satisfying the vesting requirements of Sections 3.3.
(d). For purposes of calculating a lump sum payment pursuant to
Section 3.1(c) in the event of a Change of Control, with respect to Executive
while an Active Participant, Years of Service shall be determined as if the
Executive's employment with the Company ended on such date or, if that date is
adjusted pursuant to the terms of any Change of Control Agreement between the
Company and the Executive, then that later date.
ARTICLE III--RETIREMENT BENEFITS
--------------------------------
SECTION 3.1 ELIGIBILITY FOR RETIREMENT BENEFIT.
(a). GENERAL. Executive shall be eligible to begin receiving a
Retirement Benefit if Executive has (1) either attained age 62 or satisfied the
conditions in Section 3.1(b) below; (2) filed an election to receive payments
under Article VI; (3) satisfied the vesting requirement of Section 3.3; (4)
terminated employment with the Company; and, (5) except
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Alton J. Brann
Supplemental Executive Retirement Agreement
when Executive's employment with the Company is terminated in connection with a
Change of Control, the Executive agrees that for a period of five years after
commencement of receipt of Retirement Benefits under this Agreement, not to
engage in any activity which interferes with the economic or business interests,
or contractual relationships of UNOVA, Inc. or its Successors or of any of its
subsidiaries or affiliates with third parties in connection with which the
Participant worked for UNOVA, Inc. or its subsidiaries or affiliates or to
perform services for any entity in competition with a business of UNOVA, Inc. or
of its subsidiaries or affiliates for which the Executive worked and with
respect to which the Executive possesses trade secrets or business confidential
information of UNOVA, Inc. or of its subsidiaries or affiliates. In the event
that any provision of the covenant provided for in (5) immediately above shall
be held invalid or unenforceable by reason of the geographic or business matter
scope, or the duration thereof, such invalidity or unenforceability shall attach
only to such provisions and shall not affect or render invalid or unenforceable
any other provision of this Agreement, and this Agreement shall be construed as
if the geographic or subject matter scope, or the duration thereof, had been
more narrowly drafted so as not to be invalid or unenforceable.
(b). RETIREMENT BENEFITS PRIOR TO AGE 62. Executive shall not be
entitled to begin receiving a Retirement Benefit prior to attainment of age 62,
except in the sole and absolute discretion of the Committee, and subject to such
terms and conditions, including the imposition of Retirement Benefit reductions,
as the Committee may specify.
(c). CHANGE OF CONTROL. Except as otherwise provided in any Change of
Control Agreement between the Company and the Executive, notwithstanding
anything herein to the contrary, upon a Change of Control, if Executive is an
Active Participant or if Executive has satisfied the conditions of Section
3.1(a)(3) and (4), Executive shall be entitled to a lump sum payment equal to
the Actuarial Equivalent, at the age of such Participant at the date of the
Change of Control, of the Retirement Benefit which would be payable to such
Participant at the later of age 62 or the actual age of Executive as revised
pursuant to the terms of any Change of Control Agreement between the Company and
the Executive, assuming, for such purposes, that the Retirement Benefit is
payable in the form of a single life annuity. In addition, there shall be
waived any condition concerning eligibility for payment of a Retirement Benefit
that requires: (1) the filing of any election; (2) the attainment of a specified
age; (3) an agreement not to engage in competitive activities with the Company;
(4) satisfaction, as to the Executive, of the conditions of Section 3.1(a)(3) or
of any other terms or conditions or the application of any benefit reductions
described in Section 3.1(b); and (5) as to the Executive, termination of
employment with the Company, in order to begin receiving Retirement Benefits.
SECTION 3.2 RETIREMENT BENEFIT FORMULA. Executive's annual Retirement
Benefit shall be the amount resulting from multiplying Average Earnings by the
Percentage Factor set forth in Exhibit A attached hereto and made a part hereof
corresponding to the age of Executive at the earlier of the date of Executive's
retirement or the age of Executive upon Executive's termination of employment
for any reason other than a Change of Control or the age of Executive while an
Active Participant as of the date of a Change of Control except as such
Retirement Benefit is adjusted pursuant to Section 3.1(c) and Section 3.6 (c).
In the event of a Change of Control while the Executive is an Active Participant
the benefit shall be determined using the age for Executive which is adjusted
pursuant to Sections 3.1(c) and 3.6(c).
SECTION 3.3 VESTED RETIREMENT BENEFIT. Executive has a vested right to
a Retirement Benefit under this Agreement and shall be entitled to receive such
Retirement
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Benefit once Executive has reached age 62 even though Executive shall have
terminated employment with the Company for any reason prior to age 62.
SECTION 3.4 RETIREMENT BENEFIT FORMS.
(a). GENERAL RULE. Unless Executive had made an election to receive
payment of Retirement Benefits in an available alternative form, Executive shall
be deemed to have elected the Normal Form.
(b). ACTUARIAL EQUIVALENT. In the event the Committee permits the
Executive to draw a Retirement Benefit before reaching age 62, then all forms of
payment of Retirement Benefits shall be the Actuarial Equivalent of a single
life annuity payable at age 62.
SECTION 3.5 NORMAL FORM OF RETIREMENT BENEFIT.
(a). SINGLE LIFE ANNUITY. The Normal Form of payment of a Retirement
Benefit for Executive who is living at the time payment commences and who is
unmarried on such date shall be a single life annuity. Under a single life
annuity, Executive shall receive a monthly benefit for life equal to 1/12 of his
Retirement Benefit and all payments shall cease upon Executive's death.
(b). JOINT AND SURVIVOR ANNUITY. If Executive is married at the time
that payment of the Retirement Benefit commences, the Normal Form of Retirement
Benefit shall be a 100% joint and survivor annuity (which shall be the Actuarial
Equivalent of a single life annuity) for the benefit of the Executive's spouse
as of the date that payment of the Retirement Benefit commences. Under the
Normal Form of a joint and survivor annuity, Executive shall receive a monthly
benefit for life and, upon the Executive's death, the spouse, if living, shall
receive a monthly benefit for life equal to 100% of the monthly benefit that was
payable to the Executive. If Executive, who has satisfied the conditions of
Section 3.1(a)(3) (including consideration of Years of Service accrued for
Disabled or deceased Participants pursuant to Section 2.1), dies prior to the
commencement of the payment of Retirement Benefits, and was married at the date
of death, the spouse Beneficiary of Executive shall have the right to a survivor
Retirement Benefit, commencing at the date Executive would have attained age 62,
except for the fact that the Participant died prior to attaining age 62, or
commencing on the first day of the month following the month in which the
Executive died, if the Executive continued in continuous employment with the
Company after attaining age 62 and until the date of Executive's Participant's
death, calculated under Section 3.2 as if the Executive had survived to such
entitlement date and begun receiving payment of the Retirement Benefit at such
entitlement date as a joint and 100% survivor annuity and then died on the
following date.
SECTION 3.6 ALTERNATIVE FORMS OF BENEFIT.
(a). ELECTION OF FORMS OF BENEFIT. Prior to the commencement of
payment of a Retirement Benefit, Executive may file an election designating a
payment form other than the Normal Form of Retirement Benefit; provided,
however, that any such alternate payment form is a payment form available under
the Qualified Plan and, if Executive is entitled to a benefit under such
Qualified Plan, is the same as the payment form elected under such Qualified
Plan. If Executive is married, an election to receive a Retirement Benefit in a
form other than the Normal Form shall be valid only if such election includes
the written consent of
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the Executive's spouse in the form and manner specified by the Committee.
However, a joint and survivor annuity shall not be available under this
Agreement with respect to any Beneficiary other than the spouse of the Executive
as of the date that the Retirement Benefit commences.
(b). ADDITIONAL FORMS OF BENEFIT. From time to time, the
Committee may, in its sole discretion, make other forms of payment of Retirement
Benefits available; provided, however, that once Executive or Executive's
Beneficiary begins receiving Retirement Benefit payments, no change may be made
in the form of payment except as provided for in Section 3.6(c) below.
(c). FORM OF BENEFIT ON CHANGE OF CONTROL. Notwithstanding the
other provisions of this Section, upon a Change of Control, all Retirement
Benefits including, without limitation, benefits payable to Active Participants
who remain employed by the Company, shall be paid in a single sum payment that
is the Actuarial Equivalent at the age of the Executive as of the date of Change
of Control of a single life annuity payable at the later of age 62 or, if the
Executive had remained in continuous employment with the Company after attaining
age 62, the age of the Executive at the date of Change of Control as adjusted
under the provisions of any Change of Control Agreement between the Company and
the Executive.
ARTICLE IV--BENEFITS UPON EXECUTIVE'S DEATH
SECTION 4. 1 ELIGIBILITY FOR DEATH BENEFIT. The Beneficiary or
Beneficiaries of Executive in the event Executive dies while an Active
Participant or while Disabled and prior to attaining age 62 and prior to the
time Retirement Benefits to Executive commence, shall be eligible to begin
receiving a Death Benefit if the Beneficiary or Beneficiaries have filed a claim
under Article VI. The Beneficiary or Beneficiaries of Executive shall not be
eligible for a Death Benefit, if the Executive's employment with the Company
terminated prior to Executive's death other than by reason of Disability. If
there are no Beneficiaries at the date of the Executive's death, no Death
Benefit shall be payable. The class of individuals who are eligible to be
Beneficiaries of the Death Benefit is limited to the Executive's spouse, as of
the date of the Executive's death, and the Executive's Dependent Children as of
the date of Executive's death; provided, however, that such term also shall
include any natural children of Executive born after Executive's death and any
child who is in the process of being adopted by the Executive at the date of
Executive's death and the adoption of whom is completed by the spouse of
Executive after the date of Executive's death. If there is both a living spouse
and Dependent Children as of the date of Executive's death, the Beneficiary
shall be the spouse. The Dependent Children shall become the Beneficiaries of
the Death Benefit, but only upon the death of Executive's spouse prior to the
earlier of the date the Executive would have attained age 62, or the date the
Participant's spouse commences to receive a Retirement Benefit.
SECTION 4.2 DEATH BENEFIT.
(a). SPOUSAL BENEFIT. The Death Benefit for the surviving spouse of
Executive shall be an annual amount equal to 40% of Executive's Average
Earnings. The spouse Beneficiary shall receive the Death Benefit as a monthly
benefit equal to 1/12 of the Death Benefit. The Death Benefit for the spouse
Beneficiary shall cease on the earlier of: (1)
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the death of the spouse Beneficiary; or (2) the date at which the Executive
would have attained age 62.
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(b). DEPENDENT CHILDREN BENEFIT. If there is no spouse Beneficiary or
a spouse Beneficiary of Executive dies prior to the death of Executive and the
Executive dies prior to attaining age 62 while an Active Participant or while
Disabled, then a Death Benefit shall be paid to any then Dependent Children for
so long as any such remain Dependent Children. The aggregate amount of any
Death Benefit payable to Dependent Children for each month is the amount equal
to the monthly Death Benefit that would be payable to a spouse Beneficiary
multiplied by a fraction (not greater than one), the numerator of which is the
number of Dependent Children at the time of each monthly payment and the
denominator of which is three. If there are no remaining living Dependent
Children Beneficiaries, no further Death Benefit shall be paid.
(c). VESTING IN DEATH BENEFIT. While an Active Participant or
Disabled, Executive shall at all times be vested in his right to a Death
Benefit.
SECTION 4.3 SPOUSE RETIREMENT BENEFIT. To the extent that a spouse
Beneficiary is receiving a Death Benefit on the date the Executive would have
attained age 62, the spouse Beneficiary thereafter shall receive a Retirement
Benefit pursuant to Article III, if eligible, in the amount calculated pursuant
to Article III, and no further Death Benefit payments shall be payable to the
spouse Beneficiary or to any Dependent Children Beneficiaries or otherwise.
SECTION 4.4 CHANGE OF CONTROL. Upon a Change of Control, after the
Executive's death while an Active Participant or after the Executive's death
while Disabled but in either case prior to the date the Executive would have
attained age 62, the Executive's spouse, if then living, shall receive a single
sum payment that is the Actuarial Equivalent, at the date of such lump sum
payment, of the Death Benefit, calculated through the date that Executive would
have attained age 62. The spouse Beneficiary, if then living, shall also be
entitled to the lump sum payment of the Retirement Benefit, if any, pursuant to
Section 3.1. Upon a Change of Control occurring after commencement of the
payment of Death Benefits to the Dependent Children Beneficiaries pursuant to
Section 4.2(b), the Dependent Children shall receive a single sum payment that
is the Actuarial Equivalent, based upon the ages of the Dependent Children, of
the Death Benefit calculated without regard to the date the Executive would have
attained age 62.
ARTICLE V--BENEFITS OF DISABLED EXECUTIVE
-----------------------------------------
SECTION 5.1 ELIGIBILITY FOR DISABILITY BENEFIT. If while an Active
Participant, Executive becomes Disabled prior to attaining age 62, Executive
shall be eligible to begin receiving a Disability Benefit. The Disability
Benefit shall cease on the earlier of: (1) the first day of the calendar month
following the Executive's attainment of age 62; (at which time a Retirement
Benefit may be payable under Article III), (2) the date on which the Committee
determines that the Executive is no longer Disabled; or (3) the date of the
Executive's death (in which case a Death Benefit may be payable under Article
IV).
SECTION 5.2 DISABILITY FORMULA. A Disability Benefit shall be a monthly
amount equal to 1/12 of 40% of the Executive's Average Earnings, offset by the
sum of: (a) any other payment to the Executive that would be made by or on
behalf of the Company on account of the Disability (including, without
limitation, a Company-sponsored disability insurance plan or
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any other benefit plan of the Company, any amounts payable as sick pay, and any
amounts payable under so-called Workers Compensation Acts or similar laws of
foreign governments other than lump sum amounts for the loss of an organ or
other body member and other than amounts paid for medical expenses), calculated
as if the Executive participated to the fullest extent possible in such
disability programs; and (b) the Social Security disability benefits received by
the Executive. For purposes of determining any offset under the preceding
sentence, any payments that are not made on a monthly basis shall be converted
to monthly payments under a methodology approved by the Committee.
SECTION 5.3 VESTING DISABILITY BENEFIT. Executive, while an Active
Participant shall at all times be vested in his right to a Disability Benefit.
SECTION 5.4 DISABLED EXECUTIVE'S RETIREMENT BENEFIT. If Executive
attains age 62 while Disabled, then he may be eligible to receive a Retirement
Benefit subject to the rules of Article III, as if Executive continued his or
her employment until age 62 with Average Earnings calculated as provided for in
Section 2.3(a).
ARTICLE VI--ELECTIONS, CLAIMS, COMMENCEMENT OF
PAYMENTS AND BENEFICIARY DESIGNATIONS
----------------------------------------------
SECTION 6.1 GENERAL. All elections to receive benefits under this
Agreement must be made in writing to the Committee in the form specified by the
Committee and include the information or documentation that the Committee deems
necessary. The Committee, in its discretion, may request additional information
or reasonable documentation from time to time in order to determine whether
Executive receiving a Disability Benefit continues to be Disabled, and in order
to determine whether any Beneficiary who is receiving a Death Benefit is
entitled hereunder to continue receiving a Death Benefit or the amount thereof.
SECTION 6.2 COMMENCEMENT OF PAYMENTS. Payment of benefits under this
Agreement shall begin as soon as administratively feasible after the Executive
(or Beneficiary, if applicable) has provided a claim for benefits in writing to
the Committee, including any supporting documentation required by the Committee,
and the Committee has determined that the Executive (or Beneficiary, if
applicable) satisfies the requirements for payment. Retirement Benefits shall
be payable on the later of:
(a) the first day of the month following the month in which the Executive
satisfies all of the conditions set forth in Section 3.1(a), or
(b) if later, the first day of the month following the month in which the
Executive attains the earlier of age 62, or the age, below 62, elected by the
Participant pursuant to and in accordance with the conditions of Section 3.1(b),
provided, however, that in the event Executive has satisfied the conditions of
Section 3.1(a)(1), (3) and (4) in or as of a particular month (the "Termination
Month") and satisfies the conditions of Section 3.1(a)(2) and (5) (effective as
of the date of termination of employment) either subsequently or
contemporaneously with the Termination Month, and provided that the Executive
has attained during the Termination Month age 62 or an age less than 62 with
respect to which the Committee has approved retirement pursuant to Section
3.1(b), Retirement
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Benefits shall be payable to the Executive as of the first day of the month
following the Termination Month and, in the case of retirement pursuant to
Section 3.1(b), on such terms and conditions as specified by the Committee.
Disability and Death Benefits shall be payable from the first day of the month
following the month in which the Executive becomes disabled or dies, as the case
may be. In the event of any administrative delay in actual payments, payments
shall be made retroactively to the first day of the month following the month in
which the event which is the basis for the payment occurs but without any
payment of interest or other compensation for such delay in payment.
Notwithstanding any provision of this Agreement, upon a Change of Control the
Committee may, in its sole discretion, determine to postpone the lump sum
payment of Retirement, Death and Disability Benefits payable upon a Change of
Control, in which case such Benefit payments shall be made as otherwise provided
in this Agreement, without regard to the Change of Control, provided however,
that if Executive is party to a Change of Control Agreement, such Benefit
payments shall be calculated using the age of Executive as adjusted pursuant to
the Change of Control Agreement. In the event the Committee later determines,
in its sole discretion, to effect such a lump sum payment of the remainder of
such Benefits, it shall have the power and authority to do so.
SECTION 6.3 FORM OF BENEFIT ELECTIONS. An election to receive payment
of Retirement Benefits in a form other than the Normal Form must be submitted to
the Committee in writing at any time prior to the commencement of payments. An
election must be made in the form specified by the Committee and include the
information or documentation that the Committee deems necessary, including
written consent of the spouse in the case Executive is married and elects a
Retirement Benefit in a form other than the Normal Form. The filing of an
election as to the form of Retirement Benefits shall revoke any pre-existing
election, except that a revocation of an election by Executive while married
shall be valid only if accompanied by the spouse's written consent to the
subsequent election (other than a subsequent election to receive payments in the
Normal Form), and except that once Retirement Benefits have commenced under this
Agreement, the form of the Retirement Benefit payable is irrevocable.
SECTION 6.4 BENEFICIARIES. If the Committee makes available alternative
benefit forms that provide for payments after an Executive's death, the
Executive shall designate the Beneficiary under such payment form in accordance
with the procedures set forth by the Committee.
SECTION 6.5 FAILURE TO CLAIM. If Executive whose employment with the
Company terminated on or before attaining age 62 fails to claim payment of
Retirement Benefits until after attaining age 62, the Retirement Benefits
payable to or with respect to Executive shall be the monthly amount which would
have been payable to Executive at age 62, and Executive shall be entitled to
receive Retirement Benefit payments retroactive to the month such payments would
have first accrued following attainment of age 62, but without interest or other
payment on account of such deferred receipt. Similarly, if Executive remains
employed by the Company after attaining age 62 but, upon termination of
employment by the Company after attaining age 62, fails to claim payment of
Retirement Benefits until a date after such termination of employment, the
Retirement Benefits payable to or with respect to Executive shall, nevertheless,
be the monthly amount which would have been payable to Executive upon
termination of employment with the Company, and Executive shall be entitled to
receive Retirement Benefit payments retroactive to the month such payments would
have first accrued following termination of employment, but without interest or
other payment on account of such
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deferred payment. Executive does not have the right to defer payment of
Retirement Benefits beyond the date Executive is otherwise eligible to begin
receiving Retirement Benefits.
ARTICLE VII--ADMINISTRATION
---------------------------
The Committee shall administer the Agreement in accordance with its terms
and purposes. The Committee shall have full authority and discretion to
interpret the Agreement, to determine benefits pursuant to the terms of the
Agreement, to establish rules and procedures necessary to carry out the terms of
the Agreement, and to waive or modify any requirements or conditions on the
receipt or calculation of benefits under the Agreement where the Committee
determines that such a waiver or modification is appropriate. In the event
Executive is or was also a participant in a similar supplemental retirement plan
for highly-compensated employees within the meaning of Sections 201(2), 301(a),
and 401(a)(1) of Title I of ERISA and maintained by UNOVA, Inc. or one of its
subsidiaries or affiliates (a "Subsidiary Plan"), the Committee shall have the
power and authority to modify and integrate the benefits payable under this
Agreement with the benefits payable under the Subsidiary Plan. All decisions by
the Committee shall be final and binding on all parties. The Committee may
appoint one or more officers or employees of the Company to act on the
Committee's behalf with respect to administrative matters related to the
Agreement.
ARTICLE VIII--SOURCE OF PAYMENTS
--------------------------------
SECTION 8.1 GENERAL ASSETS OF COMPANY. Benefits payable under this
Agreement shall be paid directly to the Executive, or to the Executive's
Beneficiary, as applicable, from the general assets of the Company, including
the assets of the grantor Trust to the extent that such a trust is created and
so provides. If any person acquires a right to receive payments from the
Company under this Agreement, such right shall be no greater than the right of
any unsecured general creditor of the Company notwithstanding the fact that the
Company may establish an advance accrual reserve on its books against its future
liability under this Agreement.
ARTICLE IX--CLAIMS AND ENFORCEMENT
----------------------------------
SECTION 9.1 ADMINISTRATIVE PROCEDURES.
(a). NOTICE OF DENIAL. If the Committee determines that any
person who has submitted a claim for payment of benefits under this Agreement is
not eligible for payment of benefits or, if applicable, is not eligible for
payment of benefits in the form or amount requested, then the Committee shall,
within a reasonable period of time, but no later than 90 days after receipt of
the written claim, notify the claimant of the denial of the claim. Such notice
of denial: (1) shall be in writing; (2) shall be written in a manner calculated
to be understood by the claimant; and (3) shall contain: (A) the specific reason
or reasons for denial of the claim; (B) a specific reference to the pertinent
Agreement provisions or administrative rules and regulations upon which the
denial is based; (C) a description of any additional material or information
necessary for the claimant to perfect the claim; and (D) an explanation of the
Agreement's appeal procedures.
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(b). RECONSIDERATION PROCEDURES. Within 90 days of the receipt
by the claimant of the written notice of denial of the claim, the claimant may
file a written request with the Committee that it conduct a full and fair review
of the denial of the claimant's claim for benefits. The claimant's written
request must include a statement of the grounds on which the claimant appeals
the original claim denial. The Committee shall deliver to the claimant a
written decision on the claim promptly, but not later than 60 days after the
receipt of the claimant's request for review, except that if there are special
circumstances that require an extension of time for processing, the 60-day
period shall be extended to 120 days, in which case written notice of the
extension shall be furnished to the claimant prior to the end of the 60-day
period.
SECTION 9.2 ENFORCEMENT.
(a). RIGHT TO ENFORCE. Within 90 days after exhaustion of the review
and appeal procedures provided for in Section 9.1 or, if the Committee fails to
grant or deny the claim within 120 days after the claimant's original claim or
fails to provide the written decision of the Committee on any written request
for reconsideration within the time period in Section 9.1(b), within 90 days
after such failure, the Company's obligations under the Agreement may be
enforced only through binding arbitration as provided for hereinafter, initiated
by Executive or, upon the death of Executive, by Executive's surviving spouse,
Dependent Child, or personal representative (as the case may be, the
"Claimant").
(b). ATTORNEYS' FEES AND COSTS. If, prior to a Change of Control, any
Claimant is denied a claim, in whole or in part, for benefits under this
Agreement and the Claimant requests reconsideration under the procedures
described in Section 9.1(b), or initiates any other legal proceeding (other than
binding arbitration pursuant to the following provisions of this Article IX)
with respect to such alleged claim, the Company shall have no obligation to pay
or reimburse the Claimant for attorneys' fees and costs. If, on or after a
Change of Control, any Claimant is denied a claim for benefits under this
Agreement and the Claimant has requested reconsideration under the procedures
described in Section 9.1(b), or initiates binding arbitration or both
reconsideration and binding arbitration, to enforce any obligation of the
Company under this Agreement the basis of which is alleged failure of the
Committee to administer this Agreement in accordance with its terms or, if
following a Change of Control, the Company fails to make payment of Benefits as
determined by the Committee, the Company shall pay such Claimant's attorneys'
fees and costs incurred in connection with the review and binding arbitration
proceedings, provided that the arbitrator determines that the claim is not
frivolous. All attorneys' fees and costs payable under this Section 9.2(b)
shall be paid by the Company as they are incurred by the Claimant, but no later
than 30 days from the date that the Claimant submits a bill or other statement
to the Company.
(c). INTEREST. If any Claimant prevails in a reconsideration
procedure described in Section 9.1(b), or if a Claimant prevails in the binding
arbitration proceeding pursuant to Section 9.3(a) to enforce the payment of
benefits under this Agreement, the Company shall pay interest to the Claimant on
any unpaid benefits accruing from the date that benefit payments should have
commenced and continuing until the date that such owed and unpaid benefits are
paid to the Claimant in full. For purposes of the preceding sentence, interest
shall accrue at an annual rate equal to one percent, plus the prime rate
reported by THE WALL STREET JOURNAL as in effect from time to time, each change
in the prime rate to be effective
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for purposes of any interest computation on the date of publication of such
changed prime rate in THE WALL STREET JOURNAL.
SECTION 9.3 ARBITRATION. The rights of Executive hereunder are
conditional upon the acceptance by Executive, on the Executive's behalf and on
behalf of the Claimants, of all of the terms and conditions of this Agreement
including specifically and without limitation this Article IX. Any controversy
or claim arising out of or under the Agreement which is not resolved by the
reconsideration referred to in Section 9.1(b) shall be settled by arbitration in
accordance with the National Rules for the Resolution of Employment Disputes of
the American Arbitration Association ("AAA") or the Employment Arbitration Rules
of the Judicial Arbitration and Mediation Services/Endispute ("JAMS"), subject
to the further provisions of this Section 9.3. Hereinafter the term "Rules"
means and refers to the aforesaid AAA Rules or the JAMS Rules, as the case may
be. Judgment upon the award rendered by the arbitrator may be rendered in any
court having jurisdiction. The Rules are modified or supplemented as follows:
(a). There shall be one arbitrator, unless the parties agree to
more than one arbitrator;
(b). The arbitrator shall be a retired judge or attorney with
professional experience and expertise in designing or administering corporate
retirement benefits and plans, and resident in the Southern California area,
unless the parties agree otherwise;
(c). The arbitration shall be conducted within Los Angeles
County, California, unless the parties agree otherwise;
(d). The party desiring to initiate the arbitration shall advise
the other party in writing of such desire;
(e) Within 10 days of receipt of a notice pursuant to subparagraph
(d) above the party receiving the notice shall designate either the AAA or JAMS
as the arbitration agency, but in the event such party fails to designate within
such period the initiating party shall have the right to designate the AAA or
JAMS;
(f). All claims arising under this Agreement known or which
should be known to the party initiating the arbitration shall be included in the
issues presented to the AAA or JAMS, as the case may be, for arbitration and
any which are not included shall be effectively waived;
(g). The expedited procedures of the AAA or JAMS, as the case may
be, shall be applied in any case where no disclosed claim or counterclaim
exceeds the amount then established by the AAA or JAMS for use of expedited
procedures, exclusive of interest and arbitration costs;
(h). The decision of the arbitrator shall be rendered within 60 days
after the close of hearings;
(i). The Company and the Claimant shall furnish to the other, 30
days prior to the first hearing, a list and identification of all witnesses, and
copies of all exhibits intended
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to be submitted by that party. Ten days prior to the first hearing, each party
shall have the right to supplement their intended list of witnesses and provide
additional exhibits. Only such witnesses and such exhibits identified by one
party or the other may be offered in the arbitration hearings; and
(j). Any documents, affidavits or other evidence requested by the
arbitrator must be submitted within ten days after conclusion of the arbitration
hearings, unless the arbitrator grants additional time;
ARTICLE X--MISCELLANEOUS
------------------------
SECTION 10.1 EMPLOYMENT RIGHTS. Nothing contained in this Agreement
shall be construed as a contract of employment between the Company and the
Executive, or as a right to continued employment with the Company, or as a
limitation of the right of the Company to discharge Executive, with or without
cause.
SECTION 10.2 RIGHTS OF THE COMMITTEE. To the extent permitted by law,
the Company shall indemnify the Committee (including any officers and employees
of the Company appointed to act on behalf of the Committee) and hold such
individuals harmless from and against any damages, losses, costs, and expenses
incurred (including, without limitation, expenses of investigation and the fees
and expenses of counsel) in the course of administering this Agreement. The
Company shall bear all expenses of the Committee incurred in the course of
administering this Agreement.
SECTION 10.3 ASSIGNMENT. The benefits payable under this Agreement may
not be assigned or alienated.
SECTION 10.4 APPLICABLE LAW. This Agreement shall be governed by the
laws of Delaware.
SECTION 10.5 ENTIRE AGREEMENT. This writing is the final expression of
this Agreement and a complete and exclusive statement of its terms, except that
to the extent that this Agreement refers to the Trust, the terms of the Trust
Agreement, as of the date immediately preceding a Change of Control, shall be
deemed to be incorporated herein.
SECTION 10.6 TERMS. Except as required otherwise by the context,
capitalized terms that are used in this Agreement shall have the meaning
assigned to them in Article II or elsewhere in this Agreement. Feminine or
neuter pronouns shall be substituted for those of the masculine form and the
plural shall be substituted for the singular, in any place or places herein
where the context may require such substitution or substitutions. The title and
headings of the Sections of this Agreement are for convenience only, and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
SECTION 10.7 WAIVER. Any waiver of or failure to enforce any provision
of this Agreement in any instance shall not be deemed a waiver of such provision
as to any other or subsequent instance.
19
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Alton J. Brann
Supplemental Executive Retirement Agreement
SECTION 10.8 RELEASE. Executive agrees that this Agreement is in
substitution for, and in place of, the similar Supplemental Executive Retirement
Agreement between Executive and Western Atlas Inc. and is full release of all
rights of the Executive under the Western Atlas Agreement.
In Witness Whereof, intending to be legally bound, the parties hereto have
executed this Agreement or caused this Agreement to be executed on their
respective behalfs on and as of October __, 1997.
UNOVA, INC.
By:
-------------------------------
Virginia S. Young
Vice President and Secretary
EXECUTIVE
By:
-------------------------------
Alton J. Brann
20
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Exhibit 10.M
EXECUTION COPY
$400,000,000
CREDIT AGREEMENT
dated as of
September 24, 1997
among
UNOVA, Inc.
The Banks Listed Herein
and
Morgan Guaranty Trust Company of New York,
as Agent
_______________________________________________________
J.P. Morgan Securities Inc.,
Arranger
Bank of America National Trust and Savings Association
The Bank of New York
The Chase Manhattan Bank
CIBC Inc.
The First National Bank of Chicago
and
NationsBank of Texas, N.A.,
Co-Agents
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions.............................................. 1
SECTION 1.02. Accounting Terms and Determinations...................... 17
SECTION 1.03. Types of Borrowings...................................... 17
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments to Lend...................................... 18
SECTION 2.02. Notice of Committed Borrowings........................... 18
SECTION 2.03. Money Market Borrowings.................................. 19
SECTION 2.04. Notice to Banks; Funding of Loans........................ 23
SECTION 2.05. Notes.................................................... 24
SECTION 2.06. Maturity of Loans........................................ 25
SECTION 2.07. Interest Rates........................................... 25
SECTION 2.08. Facility Fee............................................. 28
SECTION 2.09. Optional Termination or Reduction of Commitments......... 29
SECTION 2.10. Scheduled Termination or Reduction of Commitments........ 29
SECTION 2.11. Optional Prepayments..................................... 29
SECTION 2.12. General Provisions as to Payments........................ 30
SECTION 2.13. Funding Losses........................................... 30
SECTION 2.14. Computation of Interest and Fees......................... 31
SECTION 2.15. Regulation D Compensation................................ 31
SECTION 2.16. Increased Commitments; Additional Banks.................. 32
ARTICLE III
CONDITIONS
SECTION 3.01. Effectiveness............................................ 33
SECTION 3.02. Borrowings............................................... 34
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Corporate Existence and Power............................ 35
SECTION 4.02. Corporate and Governmental Authorization; No
Contravention...................................................... 35
SECTION 4.03. Binding Effect........................................... 35
SECTION 4.04. Financial Information.................................... 36
SECTION 4.05. Litigation............................................... 36
2
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SECTION 4.06. Compliance with ERISA.................................... 37
SECTION 4.07. Environmental Matters.................................... 37
SECTION 4.08. Taxes.................................................... 37
SECTION 4.09. Material Subsidiaries.................................... 38
SECTION 4.10. Not an Investment Company................................ 38
SECTION 4.11. Use of Proceeds.......................................... 38
SECTION 4.12. Full Disclosure.......................................... 38
ARTICLE V
COVENANTS
SECTION 5.01. Information.............................................. 39
SECTION 5.02. Maintenance of Property; Insurance....................... 41
SECTION 5.03. Conduct of Business and Maintenance of Existence......... 41
SECTION 5.04. Compliance with Laws..................................... 42
SECTION 5.05. Leverage Ratio........................................... 42
SECTION 5.06. Maintenance of Certain Operations........................ 42
SECTION 5.07. Limitation on Subsidiary Debt............................ 42
SECTION 5.08. Negative Pledge.......................................... 42
SECTION 5.09. Consolidations, Mergers and Sales of Assets.............. 43
ARTICLE VI
DEFAULTS
SECTION 6.01. Events of Default........................................ 44
SECTION 6.02. Notice of Default........................................ 46
ARTICLE VII
THE AGENT
SECTION 7.01. Appointment and Authorization............................ 46
SECTION 7.02. Agent and Affiliates..................................... 47
SECTION 7.03. Action by Agent.......................................... 47
SECTION 7.04. Consultation with Experts................................ 47
SECTION 7.05. Liability of Agent....................................... 47
SECTION 7.06. Indemnification.......................................... 48
SECTION 7.07. Credit Decision.......................................... 48
SECTION 7.08. Successor Agent.......................................... 48
SECTION 7.09. Agent's Fees............................................. 49
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate or
Unfair............................................................ 49
SECTION 8.02. Illegality............................................... 50
SECTION 8.03. Increased Cost and Reduced Return........................ 50
SECTION 8.04. Taxes.................................................... 52
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SECTION 8.05. Base Rate Loans Substituted for Affected Fixed Rate
Loans............................................................. 54
SECTION 8.06. Substitution of Bank..................................... 54
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices.................................................. 55
SECTION 9.02. No Waivers............................................... 55
SECTION 9.03. Expenses; Indemnification................................ 55
SECTION 9.04. Sharing of Set-Offs...................................... 56
SECTION 9.05. Amendments and Waivers................................... 56
SECTION 9.06. Successors and Assigns................................... 57
SECTION 9.07. Collateral............................................... 59
SECTION 9.08. Governing Law; Submission to Jurisdiction................ 59
SECTION 9.09. Counterparts; Integration................................ 59
SECTION 9.10. WAIVER OF JURY TRIAL..................................... 59
4
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Schedule I - Pricing Schedule
Exhibit A - Note
Exhibit B - Money Market Quote Request
Exhibit C - Invitation for Money Market Quotes
Exhibit D - Money Market Quote
Exhibit E - Opinion of Counsel for the Borrower and
the Guarantors
Exhibit F - Opinion of Special Counsel for the
Agent
Exhibit G - Assignment and Assumption Agreement
Exhibit H - Subsidiary Guarantee Agreement
5
<PAGE>
CREDIT AGREEMENT
AGREEMENT dated as of September 24, 1997 among UNOVA, INC., the BANKS
party hereto and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent.
W I T N E S S E T H:
WHEREAS, Western Atlas Inc. ("Western Atlas") has announced its
intention to distribute to its shareholders 100% of the capital stock of UNOVA,
Inc. (the "Spin-Off"); and
WHEREAS, in anticipation of the Spin-Off, the parties hereto wish to
enter into this agreement to provide UNOVA, Inc. with a committed credit
facility to enable it to repay certain inter-company indebtedness owed to
Western Atlas and otherwise to provide financing for its general corporate
purposes;
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. The following terms, as used herein, have
the following meanings:
"Absolute Rate Auction" means a solicitation of Money Market Quotes
setting forth Money Market Absolute Rates pursuant to Section 2.03.
"Additional Bank" has the meaning set forth in Section 2.16(b).
"Adjusted CD Rate" has the meaning set forth in Section 2.07(b).
"Administrative Questionnaire" means, with respect to each Bank, an
administrative questionnaire in the form prepared by the Agent and submitted to
the Agent (with a copy to the Borrower) duly completed by such Bank.
"Affiliate" means any Person (other than a Subsidiary) directly or
indirectly controlling or controlled
<PAGE>
by or under direct or indirect common control with the Borrower. For the
purposes of this definition, "control" when used with respect to any specified
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Agent" means Morgan Guaranty Trust Company of New York in its
capacity as agent for the Banks under the Financing Documents, and its
successors in such capacity.
"Applicable Lending Office" means, with respect to any Bank, (i) in
the case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of
its Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of
its Money Market Loans, its Money Market Lending Office.
"Assessment Rate" has the meaning set forth in Section 2.07(b).
"Assignee" has the meaning set forth in Section 9.06(c).
"Bank" means each financial institution listed on the signature pages
hereof, each Additional Bank which becomes a Bank pursuant to Section 2.16, each
Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective
successors.
"Base Rate" means, for any day, a rate per annum equal to the higher
of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the
Federal Funds Rate for such day.
"Base Rate Loan" means a Committed Loan made or to be made by a Bank
as a Base Rate Loan in accordance with the applicable Notice of Committed
Borrowing or pursuant to Article VIII.
"Benefit Arrangement" means at any time an employee benefit plan
within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"Borrower" means UNOVA, Inc., a Delaware corporation, and its
successors.
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<PAGE>
"Borrower's Form 10" means the Borrower's Registration Statement on
Form 10, as filed with the Securities and Exchange Commission on August 18, 1997
pursuant to the Securities Exchange Act of 1934.
"Borrowing" has the meaning set forth in Section 1.03.
"Capital Lease" means a lease that would be capitalized on a balance
sheet of the lessee prepared in accordance with generally accepted accounting
principles.
"CD Base Rate" has the meaning set forth in Section 2.07(b).
"CD Loan" means a Committed Loan made or to be made by a Bank as a CD
Loan in accordance with the applicable Notice of Committed Borrowing.
"CD Margin" has the meaning set forth in Section 2.07(b).
"CD Reference Banks" means The Chase Manhattan Bank, CIBC Inc. and
Morgan Guaranty Trust Company of New York, or such other bank or banks as the
Borrower and the Agent may from time to time mutually designate.
"Change of Control" means any of the following:
(a) An acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30 percent or
more of either (i) the then outstanding shares of common stock of the Borrower
(the "Outstanding Borrower Common Stock") or (ii) the combined voting power of
the then outstanding voting securities of the Borrower entitled to vote
generally in the election of directors (the "Outstanding Borrower Voting
Securities"); excluding, however, the following acquisitions of Outstanding
Borrower Common Stock and Outstanding Borrower Voting Securities: (i) any
acquisition by the Borrower, (ii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Borrower or any corporation
controlled by the Borrower, or (iii) any acquisition by any Person pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of
this definition; or
3
<PAGE>
(b) Individuals who, as of the Effective Date, constitute the Board
of Directors of the Borrower (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; PROVIDED, however, that any
individual who becomes a member of the Board subsequent to the Effective Date
whose election, or nomination for election by the Borrower's shareholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a member of
the Incumbent Board, but provided further that any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board shall
not be so considered as a member of the Incumbent Board; or
(c) The approval by the shareholders of the Borrower of a
reorganization, merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Borrower (a "Business Combination"), or
if consummation of such Business Combination is subject, at the time of such
approval by shareholders, to the consent of any government or governmental
agency, obtaining of such consent (either explicitly or implicitly by
consummation); excluding, however, such a Business Combination pursuant to which
(i) all or substantially all of the individuals and entities who are the
beneficial owners, respectively, of the Outstanding Borrower Common Stock and
Outstanding Borrower Voting Securities immediately prior to such Business
Combination will beneficially own, directly or indirectly, more than 60 percent
of, respectively, the then outstanding shares of common stock, and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Borrower or all or
substantially all of the Borrower's assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Borrower
Common Stock and Outstanding Borrower Voting Securities, as the case may be,
(ii) no Person (other than any employee benefit plan (or related trust)
sponsored or maintained by the Borrower or any corporation controlled by the
Borrower or such corporation resulting from such Business Combination) will
beneficially own, directly or indirectly, 30 percent or more of, respectively,
the outstanding shares of common
4
<PAGE>
stock of the corporation resulting from such Business Combination or the
combined voting power of the outstanding voting securities of such corporation
entitled to vote generally in the election of directors except to the extent
that such ownership existed with respect to the Borrower prior to the Business
Combination and (iii) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination will have
been members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(d) The approval by the shareholders of the Borrower of a complete
liquidation or dissolution of the Borrower.
"Commitment" means (i) with respect to each Bank listed on the
signature pages hereof, the amount set forth opposite the name of such Bank on
the signature pages of this Agreement and (ii) with respect to each Additional
Bank or Assignee which becomes a Bank pursuant to Section 2.16 or 9.06(c), the
amount of the Commitment thereby assumed by it, in each case as such amount may
be changed from time to time pursuant to Sections 2.09, 2.10, 2.16 and 9.06(c).
"Committed Loan" means a loan made or to be made by a Bank pursuant to
Section 2.01.
"Consolidated Current Liabilities" means at any date the consolidated
current liabilities of the Borrower and its Consolidated Subsidiaries determined
as of such date.
"Consolidated Debt" means, at any date, the Debt of the Borrower and
its Consolidated Subsidiaries, determined on a consolidated basis as of such
date.
"Consolidated EBITDA" means, for any period, Consolidated Net Income
for such period plus, to the extent deducted in the determination of such
Consolidated Net Income, (i) interest expense for such period, (ii) the
provision for income taxes for such period, (iii) depreciation and amortization
expense for such period and (iv) non-cash write-offs of in-process research and
development costs during such period in connection with acquisitions; PROVIDED
that the aggregate amount of such write-offs subsequent to the date of this
Agreement added pursuant to this clause (iv) during the term of this Agreement
shall not exceed $250,000,000.
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<PAGE>
"Consolidated Net Assets" means at any date Consolidated Total Assets
less Consolidated Current Liabilities, all determined as of such date.
"Consolidated Net Income" means, for any period, the net income of the
Borrower and its Consolidated Subsidiaries for such period, determined on a
consolidated basis.
"Consolidated Net Worth" means at any date the shareholders'
investment in the Borrower and its Consolidated Subsidiaries determined on a
consolidated basis of such date.
"Consolidated Subsidiary" means at any date any Subsidiary or other
entity the accounts of which would be consolidated with those of the Borrower in
its consolidated financial statements if such statements were prepared as of
such date.
"Consolidated Total Assets" means at any date the total assets of the
Borrower and its Consolidated Subsidiaries, determined on a consolidated basis
as of such date.
"D&P" means Duff & Phelps Credit Rating Co., and its successors.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable and deferred employee compensation
obligations arising in the ordinary course of business, (iv) all obligations of
such Person as lessee which are capitalized in accordance with generally
accepted accounting principles, (v) all unpaid reimbursement obligations of such
Person in respect of letters of credit or similar instruments but only to the
extent that either (x) the issuer has honored a drawing thereunder or (y)
payment of such obligation is otherwise due under the terms thereof, (vi) all
Debt secured by a Lien on any asset of such Person, whether or not such Debt is
otherwise an obligation of such Person, and (vii) all Debt of others Guaranteed
by such Person.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of
6
<PAGE>
notice or lapse of time or both would, unless cured or waived, become an Event
of Default.
"Derivatives Obligations" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction (including any option with respect to any of
the foregoing transactions) or any combination of the foregoing transactions.
"Domestic Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or required
by law to close.
"Domestic Lending Office" means, as to each Bank, its office located
at its address set forth in its Administrative Questionnaire (or identified in
its Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Agent; PROVIDED that any Bank may so designate
separate Domestic Lending Offices for its Base Rate Loans, on the one hand, and
its CD Loans, on the other hand, in which case all references herein to the
Domestic Lending Office of such Bank shall be deemed to refer to either or both
of such offices, as the context may require.
"Domestic Loans" means CD Loans or Base Rate Loans or both.
"Domestic Reserve Percentage" has the meaning set forth in Section
2.07(b).
"Effective Date" means the date the Commitments become effective in
accordance with Section 3.01.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and other governmental restrictions relating to
the environment, the effect of the environment on human health or to emissions,
discharges or releases of pollutants, contaminants, Hazardous Substances or
wastes into the environment including, without limitation, ambient air, surface
water, ground water, or
7
<PAGE>
land, or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants, contaminants,
Hazardous Substances or wastes or the clean-up or other remediation thereof.
"Equity Security" means any capital stock or other equity security, or
any warrant or other right to purchase such an equity security.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Borrower, any Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Borrower or any
Subsidiary, are treated as a single employer under Section 414 of the Internal
Revenue Code.
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to
each Bank, its office, branch or affiliate located at
its address set forth in its Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Euro-Dollar Lending Office) or such other
office, branch or affiliate of such Bank as it may hereafter designate as its
Euro-Dollar Lending Office by notice to the Borrower and the Agent.
"Euro-Dollar Loan" means a Committed Loan made or to be made by a Bank
as a Euro-Dollar Loan in accordance with the applicable Notice of Committed
Borrowing.
"Euro-Dollar Margin" has the meaning set forth in Section 2.07(c).
"Euro-Dollar Reference Banks" means the principal London offices of
The Chase Manhattan Bank, CIBC Inc. and Morgan Guaranty Trust Company of New
York, or such other bank or banks as the Borrower and the Agent may from time to
time mutually designate.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining
8
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the maximum reserve requirement for a member bank of the Federal Reserve System
in New York City with deposits exceeding five billion dollars in respect of
"Eurocurrency liabilities" (or in respect of any other category of liabilities
which includes deposits by reference to which the interest rate on Euro-Dollar
Loans is determined or any category of extensions of credit or other assets
which includes loans by a non-United States office of any Bank to United States
residents).
"Event of Default" has the meaning set forth in Section 6.01.
"Federal Funds Rate" means, for any day (the "accrual date"), the rate
per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to
the weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on the
accrual date, as published by the Federal Reserve Bank of New York on the
Domestic Business Day next succeeding such day, PROVIDED that (i) if the accrual
date is not a Domestic Business Day, the Federal Funds Rate for the accrual date
shall be such rate on such transactions on the next preceding Domestic Business
Day as so published on the next succeeding Domestic Business Day, and (ii) if no
such rate is so published on such next succeeding Domestic Business Day, the
Federal Funds Rate for the accrual date shall be the average rate quoted to
Morgan Guaranty Trust Company of New York on the accrual date (or next preceding
Domestic Business Day) on such transactions as determined by the Agent.
"Financing Documents" means this Agreement, the Notes and the
Subsidiary Guarantee Agreement.
"Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or Money Market
Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate
pursuant to Section 8.01(a)) or any combination of the foregoing.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt (whether arising by virtue of partnership arrangements, by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise) or (ii) entered into
for the
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<PAGE>
purpose of assuring in any other manner the holder of such Debt of the payment
thereof or to protect such holder against loss in respect thereof (in whole or
in part), PROVIDED that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Guarantor" means each Subsidiary from time to time party to the
Subsidiary Guarantee Agreement.
"Hazardous Substances" means any toxic, radioactive, caustic or
otherwise hazardous substance, including petroleum, its derivatives, by-products
and other hydrocarbons, or any substance having any constituent elements
displaying any of the foregoing characteristics.
"Increased Commitments" has the meaning set forth in Section 2.16(a).
"Indemnitee" has the meaning set forth in Section 9.03(b).
"Interest Period" means: (1) with respect to each Euro-Dollar
Borrowing, the period commencing on the date of such Borrowing and ending one,
two, three or six months thereafter, as the Borrower may elect in the applicable
Notice of Borrowing; PROVIDED that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to clause (c) below, end on the last Euro-Dollar Business
Day of a calendar month; and
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date;
(2) with respect to each CD Borrowing, the period commencing on the date of
such Borrowing and ending 30, 60,
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90 or 180 days thereafter, as the Borrower may elect in the applicable Notice of
Borrowing; PROVIDED that:
(a) any Interest Period (other than an Interest Period determined
pursuant to clause (b) below) which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date;
(3) with respect to each Base Rate Borrowing, the period
commencing on the date of such Borrowing and ending 30 days thereafter; PROVIDED
that:
(a) any Interest Period (other than an Interest Period determined
pursuant to clause (b) below) which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date;
(4) with respect to each Money Market LIBOR Borrowing, the period commencing on
the date of such Borrowing and ending such whole number of months thereafter as
the Borrower may elect in accordance with Section 2.03; PROVIDED that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to clause (c) below, end on the last Euro-Dollar Business
Day of a calendar month; and
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date;
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<PAGE>
(5) with respect to each Money Market Absolute Rate Borrowing, the period
commencing on the date of such Borrowing and ending such number of days
thereafter (but not less than 7 days) as the Borrower may elect in accordance
with Section 2.03; PROVIDED that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"Leverage Ratio" means, at any date, the ratio of Consolidated Debt at
such date to Consolidated EBITDA for the period of four consecutive fiscal
quarters most recently ended on or prior to such date.
"LIBOR Auction" means a solicitation of Money Market Quotes setting
forth Money Market Margins based on the London Interbank Offered Rate pursuant
to Section 2.03.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, the Borrower or any Subsidiary shall be
deemed to own subject to a Lien any asset which it has acquired or holds subject
to the interest of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement relating to such asset.
"Litton" means Litton Industries, Inc., a Delaware corporation.
"Loan" means a Domestic Loan or a Euro-Dollar Loan or a Money Market
Loan and "Loans" means Domestic Loans or Euro-Dollar Loans or Money Market Loans
or any combination of the foregoing.
"London Interbank Offered Rate" has the meaning set forth in Section
2.07(c).
"Material Debt" means Debt (other than the Notes) of the Borrower
and/or one or more of its Subsidiaries, arising in one or more related or
unrelated transactions, in an aggregate principal amount exceeding $25,000,000.
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"Material Financial Obligations" means a principal amount of Debt
and/or payment or collateralization obligations in respect of Derivatives
Obligations of the Borrower and/or one or more of its Subsidiaries, arising in
one or more related or unrelated transactions, exceeding in the aggregate
$25,000,000.
"Material Plan" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $25,000,000.
"Material Subsidiary" means (i) any Guarantor and (ii) any other
Subsidiary, including its Subsidiaries, which meets any of the following
conditions:
(1) the Borrower's and its other Subsidiaries' investments in and
advances to such Subsidiary exceed 5 percent of the total assets of the Borrower
and its Subsidiaries consolidated as of the end of the most recently completed
fiscal year; or
(2) the Borrower's and its other Subsidiaries' proportionate share of
the total assets (after intercompany eliminations) of such Subsidiary exceeds 5
percent of the total assets of the Borrower and its Subsidiaries consolidated as
of the end of the most recently completed fiscal year; or
(3) the Borrower's and its other Subsidiaries' equity in the income
from continuing operations before income taxes, extraordinary items and
cumulative effect of a change in accounting principle of such Subsidiary exceeds
5 percent of such income of the Borrower and its Subsidiaries consolidated for
the most recently completed fiscal year.
Computational note: For purposes of making the prescribed income test
the following guidance should be applied:
1. When a loss has been incurred by either the Borrower and its
Subsidiaries consolidated or the tested Subsidiary, but not both, the equity in
the income or loss of the tested Subsidiary should be excluded from the income
of the Borrower and its Subsidiaries consolidated for purposes of the
computation.
2. If income of the Borrower and its Subsidiaries consolidated for
the most recent fiscal year is at least 5 percent lower than the average of the
income for the last five fiscal years, such average income should be substituted
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for purposes of the computation. Any loss years should be omitted for purposes
of computing average income.
"Money Market Absolute Rate" has the meaning set forth in Section
2.03(d).
"Money Market Absolute Rate Loan" means a loan made or to be made by a
Bank pursuant to an Absolute Rate Auction.
"Money Market Lending Office" means, as to each Bank, its Domestic
Lending Office or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Money Market Lending Office by notice to the Borrower
and the Agent; PROVIDED that any Bank may from time to time by notice to the
Borrower and the Agent designate separate Money Market Lending Offices for its
Money Market LIBOR Loans, on the one hand, and its Money Market Absolute Rate
Loans, on the other hand, in which case all references herein to the Money
Market Lending Office of such Bank shall be deemed to refer to either or both of
such offices, as the context may require.
"Money Market LIBOR Loan" means a loan made or to be made by a Bank
pursuant to a LIBOR Auction (including such a loan bearing interest at the Base
Rate pursuant to Section 8.01(a)).
"Money Market Loan" means a Money Market LIBOR Loan or a Money Market
Absolute Rate Loan.
"Money Market Margin" has the meaning set forth in Section 2.03(d).
"Money Market Quote" means an offer by a Bank to make a Money Market
Loan in accordance with Section 2.03.
"Moody's" means Moody's Investors Service, Inc., and its successors.
"Multiemployer Plan" means at any time an employee pension benefit
plan within the meaning of Section 4001(a)(3) of ERISA to which any member of
the ERISA Group is then making or accruing an obligation to make contributions
in an amount exceeding $1,000,000 per annum or has within the preceding five
plan years made such contributions, including for these purposes any Person
which ceased to be a member of the ERISA Group during such five year period.
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"Notes" means promissory notes of the Borrower, substantially in the
form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the
Loans, and "Note" means any one of such promissory notes issued hereunder.
"Notice of Borrowing" means a Notice of Committed Borrowing (as
defined in Section 2.02) or a Notice of Money Market Borrowing (as defined in
Section 2.03(f)).
"Obligors" means the Borrower and the Guarantors.
"Parent" means, with respect to any Bank, any Person controlling such
Bank.
"Participant" has the meaning set forth in Section 9.06(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Plan" means at any time an employee pension benefit plan (other than
a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person which
was at such time a member of the ERISA Group for employees of any Person which
was at such time a member of the ERISA Group.
"Pricing Schedule" means the Schedule attached hereto identified as
such.
"Prime Rate" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate.
"Rating Agencies" means D&P, Moody's and S&P.
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"Reference Banks" means the CD Reference Banks or the Euro-Dollar
Reference Banks, as the context may require, and "Reference Bank" means any one
of such Reference Banks.
"Refunding Borrowing" means a Committed Borrowing which, after
application of the proceeds thereof, results in no net increase in the
outstanding principal amount of Committed Loans made by any Bank.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Required Banks" means at any time Banks having at least 60% of the
aggregate amount of the Commitments or, if the Commitments shall have been
terminated, holding Notes evidencing at least 60% of the aggregate unpaid
principal amount of the Loans.
"Revolving Credit Period" means the period from and including the
Effective Date to but not including the Termination Date.
"S&P" means Standard & Poor's Ratings Services, and its successors.
"Spin-Off" has the meaning set forth in the recitals hereto.
"Subsidiary" means any corporation or other entity of which securities
or other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are at the
time directly or indirectly owned by the Borrower (or, if such term is used with
reference to another Person, by such other Person).
"Subsidiary Guarantee Agreement" means the Subsidiary Guarantee
Agreement among the Borrower, the Agent and the Subsidiaries of the Borrower
from time to time parties thereto, substantially in the form of Exhibit H, as
the same may be amended from time to time in accordance with the terms thereof.
"Termination Date" means September 24, 2002 (or if such date is not a
Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day).
"Unfunded Liabilities" means, with respect to any Plan at any time,
the amount (if any) by which (i) the value of all benefit liabilities under such
Plan, determined on a
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plan termination basis using the assumptions prescribed by the PBGC for purposes
of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets
allocable to such liabilities under Title IV of ERISA (excluding any accrued but
unpaid contributions), all determined as of the then most recent valuation date
for such Plan, but only to the extent that such excess represents a potential
liability of a member of the ERISA Group to the PBGC or any other Person under
Title IV of ERISA.
"United States" means the United States of America, including the
States and the District of Columbia, but excluding its territories and
possessions.
"Western Atlas" has the meaning set forth in the recitals hereto.
"Wholly-Owned Consolidated Subsidiary" means any Consolidated
Subsidiary all of the shares of capital stock or other ownership interests of
which (except directors' qualifying shares) are at the time directly or
indirectly owned by the Borrower.
SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a basis consistent (except for changes concurred in by the Borrower's
independent public accountants) with the most recent audited consolidated
financial statements of the Borrower and its Consolidated Subsidiaries delivered
to the Banks; PROVIDED that, if the Borrower notifies the Agent that the
Borrower wishes to amend any covenant in Article V to eliminate the effect of
any change in generally accepted accounting principles on the operation of such
covenant (or if the Agent notifies the Borrower that the Required Banks wish to
amend Article V for such purpose), then the Borrower's compliance with such
covenant shall be determined on the basis of generally accepted accounting
principles in effect immediately before the relevant change in generally
accepted accounting principles became effective, until either such notice is
withdrawn or such covenant is amended in a manner satisfactory to the Borrower
and the Required Banks.
SECTION 1.03. TYPES OF BORROWINGS. The term "Borrowing" denotes the
aggregation of Loans of one or more Banks made or to be made to the Borrower
pursuant to Article
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II on a single date and for a single Interest Period. Borrowings are classified
for purposes of this Agreement either by reference to the pricing of Loans
comprising such Borrowing (E.G., a "Euro-Dollar Borrowing" is a Borrowing
comprised of Euro-Dollar Loans) or by reference to the provisions of Article II
under which participation therein is determined (I.E., a "Committed Borrowing"
is a Borrowing under Section 2.01 in which all Banks participate in proportion
to their Commitments, while a "Money Market Borrowing" is a Borrowing under
Section 2.03 in which the Bank participants are determined on the basis of their
bids in accordance therewith).
ARTICLE II
THE CREDITS
SECTION 2.01. COMMITMENTS TO LEND. Subject to the terms and
conditions set forth in this Agreement, each Bank severally agrees to make loans
to the Borrower from time to time during the Revolving Credit Period in an
aggregate principal amount at any time outstanding not to exceed the amount of
such Bank's Commitment. Each Borrowing under this Section 2.01 shall be in an
aggregate principal amount of $10,000,000 or any larger multiple of $1,000,000
(except that any such Borrowing may be in an aggregate amount equal to the
amount available in accordance with Section 3.02(b) and shall be made from the
several Banks ratably in proportion to their respective Commitments. Within the
foregoing limits, the Borrower may borrow under this Section, repay, or to the
extent permitted by Section 2.11, prepay loans and reborrow under this Section
at any time during the Revolving Credit Period.
SECTION 2.02. NOTICE OF COMMITTED BORROWINGS. The Borrower shall
give the Agent notice (a "Notice of Committed Borrowing") not later than 10:30
A.M. (New York City time) on (x) the date of each Base Rate Borrowing, (y) the
second Domestic Business Day before each CD Borrowing and (z) the third
Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying:
(a) the date of such Borrowing, which shall be a Domestic Business
Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day in
the case of a Euro-Dollar Borrowing,
(b) the aggregate amount of such Borrowing,
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(c) whether the Loans comprising such Borrowing are to be CD Loans,
Base Rate Loans or Euro-Dollar Loans, and
(d) in the case of a Committed Fixed Rate Borrowing, the duration of
the Interest Period applicable thereto, subject to the provisions of the
definition of Interest Period.
SECTION 2.03. MONEY MARKET BORROWINGS.
(a) THE MONEY MARKET OPTION. In addition to Committed Borrowings
pursuant to Section 2.01, the Borrower may, as set forth in this Section,
request the Banks during the Revolving Credit Period to make offers to make
Money Market Loans to the Borrower. The Banks may, but shall have no obligation
to, make such offers and the Borrower may, but shall have no obligation to,
accept any such offers in the manner set forth in this Section.
(b) MONEY MARKET QUOTE REQUEST. When the Borrower wishes to request
offers to make Money Market Loans under this Section, it shall transmit to the
Agent by telex or facsimile transmission a Money Market Quote Request
substantially in the form of Exhibit B hereto so as to be received no later than
10:30 A.M. (New York City time) on (x) the fifth Euro-Dollar Business Day prior
to the date of Borrowing proposed therein, in the case of a LIBOR Auction or (y)
the Domestic Business Day next preceding the date of Borrowing proposed therein,
in the case of an Absolute Rate Auction (or, in either case, such other time or
date as the Borrower and the Agent shall have mutually agreed and shall have
notified to the Banks not later than the date of the Money Market Quote Request
for the first LIBOR Auction or Absolute Rate Auction for which such change is to
be effective) specifying:
(i) the proposed date of Borrowing, which shall be a Euro-Dollar
Business Day in the case of a LIBOR Auction or a Domestic Business Day in
the case of an Absolute Rate Auction,
(ii) the aggregate amount of such Borrowing, which shall be
$10,000,000 or a larger multiple of $1,000,000,
(iii) the duration of the Interest Period applicable thereto, subject
to the provisions of the definition of Interest Period, and
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(iv) whether the Money Market Quotes requested are to set forth a
Money Market Margin or a Money Market Absolute Rate.
The Borrower may request offers to make Money Market Loans for more than one
Interest Period in a single Money Market Quote Request. No Money Market Quote
Request shall be given within five Euro-Dollar Business Days (or such other
number of days as the Borrower and the Agent may agree) of any other Money
Market Quote Request.
(c) INVITATION FOR MONEY MARKET QUOTES. Promptly upon receipt of a
Money Market Quote Request, the Agent shall send to the Banks by telex or
facsimile transmission an Invitation for Money Market Quotes substantially in
the form of Exhibit C hereto, which shall constitute an invitation by the
Borrower to each Bank to submit Money Market Quotes offering to make the Money
Market Loans to which such Money Market Quote Request relates in accordance with
this Section.
(d) SUBMISSION AND CONTENTS OF MONEY MARKET QUOTES.
(i) Each Bank may submit a Money Market Quote containing an offer or
offers to make Money Market Loans in response to any Invitation for Money Market
Quotes. Each Money Market Quote must comply with the requirements of this
subsection (d) and must be submitted to the Agent by telex or facsimile
transmission at its offices specified in or pursuant to Section 9.01 not later
than (x) 2:00 P.M. (New York City time) on the fourth Euro-Dollar Business Day
prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y)
9:30 A.M. (New York City time) on the proposed date of Borrowing, in the case of
an Absolute Rate Auction (or, in either case, such other time or date as the
Borrower and the Agent shall have mutually agreed and shall have notified to the
Banks not later than the date of the Money Market Quote Request for the first
LIBOR Auction or Absolute Rate Auction for which such change is to be
effective); PROVIDED that Money Market Quotes submitted by the Agent (or any
affiliate of the Agent) in the capacity of a Bank may be submitted, and may only
be submitted, if the Agent or such affiliate notifies the Borrower of the terms
of the offer or offers contained therein not later than (x) 1:00 P.M. (New York
City time) on the fourth Euro-Dollar Business Day prior to the proposed date of
Borrowing, in the case of a LIBOR Auction or (y) 9:15 A.M. (New York City time)
on the proposed date of Borrowing, in the case of an Absolute Rate Auction.
Subject to Articles III and VI, any Money Market Quote so made shall be
irrevocable except with
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the written consent of the Agent given on the instructions of the Borrower.
(ii) Each Money Market Quote shall be in substantially the form of
Exhibit D hereto and shall in any case specify:
(A) the proposed date of Borrowing,
(B) the principal amount of the Money Market Loan for which each such
offer is being made, which principal amount (w) may be greater than or less
than the Commitment of the quoting Bank, (x) must be $5,000,000 or a larger
multiple of $1,000,000, (y) may not exceed the principal amount of Money
Market Loans for which offers were requested and (z) may be subject to an
aggregate limitation as to the principal amount of Money Market Loans for
which offers being made by such quoting Bank may be accepted,
(C) in the case of a LIBOR Auction, the margin above or below the
applicable London Interbank Offered Rate (the "Money Market Margin")
offered for each such Money Market Loan, expressed as a percentage
(specified to the nearest 1/10,000th of 1%) to be added to or subtracted
from such base rate,
(D) in the case of an Absolute Rate Auction, the rate of interest per
annum (specified to the nearest 1/10,000th of 1%) (the "Money Market
Absolute Rate") offered for each such Money Market Loan, and
(E) the identity of the quoting Bank.
A Money Market Quote may set forth up to five separate offers by the quoting
Bank with respect to each Interest Period specified in the related Invitation
for Money Market Quotes.
(iii) Any Money Market Quote shall be disregarded if it:
(A) is not substantially in conformity with Exhibit D hereto or does
not specify all of the information required by subsection (d)(ii);
(B) contains qualifying, conditional or similar language (other than
the limitation set forth in clause (ii)(B)(z) above);
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(C) proposes terms other than or in addition to those set forth in
the applicable Invitation for Money Market Quotes; or
(D) arrives after the time set forth in subsection (d)(i).
(e) NOTICE TO BORROWER. The Agent shall promptly notify the Borrower
of the terms (x) of any Money Market Quote submitted by a Bank that is in
accordance with subsection (d) and (y) of any Money Market Quote that amends,
modifies or is otherwise inconsistent with a previous Money Market Quote
submitted by such Bank with respect to the same Money Market Quote Request. Any
such subsequent Money Market Quote shall be disregarded by the Agent unless such
subsequent Money Market Quote is submitted solely to correct a manifest error in
such former Money Market Quote. The Agent's notice to the Borrower shall
specify (A) the aggregate principal amount of Money Market Loans for which
offers have been received for each Interest Period specified in the related
Money Market Quote Request, (B) the respective principal amounts and Money
Market Margins or Money Market Absolute Rates, as the case may be, so offered
and (C) if applicable, limitations on the aggregate principal amount of Money
Market Loans for which offers in any single Money Market Quote may be accepted.
(f) ACCEPTANCE AND NOTICE BY BORROWER. Not later than 10:30 A.M.
(New York City time) on (x) the third Euro-Dollar Business Day prior to the
proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed
date of Borrowing, in the case of an Absolute Rate Auction (or, in either case,
such other time or date as the Borrower and the Agent shall have mutually agreed
and shall have notified to the Banks not later than the date of the Money Market
Quote Request for the first LIBOR Auction or Absolute Rate Auction for which
such change is to be effective), the Borrower shall notify the Agent of its
acceptance or non-acceptance of the offers so notified to it pursuant to
subsection (e). In the case of acceptance, such notice (a "Notice of Money
Market Borrowing") shall specify the aggregate principal amount of offers for
each Interest Period that are accepted. The Borrower may accept any Money
Market Quote in whole or in part; PROVIDED that:
(i) the aggregate principal amount of each Money Market Borrowing may
not exceed the applicable amount set forth in the related Money Market
Quote Request,
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(ii) the principal amount of each Money Market Borrowing must be
$10,000,000 or a larger multiple of $1,000,000,
(iii) acceptance of offers may only be made on the basis of ascending
Money Market Margins or Money Market Absolute Rates, as the case may be,
and
(iv) the Borrower may not accept any offer that is described in
subsection (d)(iii) or that otherwise fails to comply with the requirements
of this Agreement.
(g) ALLOCATION BY AGENT. If offers are made by two or more Banks
with the same Money Market Margins or Money Market Absolute Rates, as the case
may be, for a greater aggregate principal amount than the amount in respect of
which such offers are accepted for the related Interest Period, the principal
amount of Money Market Loans in respect of which such offers are accepted shall
be allocated by the Agent among such Banks as nearly as possible (in multiples
of $1,000,000, as the Agent may deem appropriate) in proportion to the aggregate
principal amounts of such offers. Determinations by the Agent of the amounts of
Money Market Loans shall be conclusive in the absence of manifest error.
SECTION 2.04. NOTICE TO BANKS; FUNDING OF LOANS.
(a) Upon receipt of a Notice of Borrowing, the Agent shall promptly
notify each Bank of the contents thereof and of such Bank's share (if any) of
such Borrowing and such Notice of Borrowing shall not thereafter be revocable by
the Borrower.
(b) Not later than 12:00 Noon (New York City time) on the date of
each Borrowing, each Bank participating therein shall (except as provided in
subsection (c) of this Section) make available its share of such Borrowing, in
Federal or other funds immediately available in New York City, to the Agent at
its address referred to in Section 9.01. Unless the Agent determines that any
applicable condition specified in Article III has not been satisfied, the Agent
will make the funds so received from the Banks available to the Borrower at the
Agent's aforesaid address.
(c) If any Bank makes a new Loan hereunder on a day on which the
Borrower is to repay all or any part of an outstanding Loan from such Bank, such
Bank shall apply the proceeds of its new Loan to make such repayment and only an
amount equal to the difference (if any) between the amount
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being borrowed and the amount being repaid shall be made available by such Bank
to the Agent as provided in subsection (b), or remitted by the Borrower to the
Agent as provided in Section 2.12, as the case may be.
(d) Unless the Agent shall have received notice from a Bank prior to
the date of any Borrowing that such Bank will not make available to the Agent
such Bank's share of such Borrowing, the Agent may assume that such Bank has
made such share available to the Agent on the date of such Borrowing in
accordance with subsections (b) and (c) of this Section 2.04 and the Agent may,
in reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have so
made such share available to the Agent, such Bank and, if such Bank shall fail
to do so within one Domestic Business Day, the Borrower severally agree to repay
to the Agent forthwith on demand such corresponding amount together with
interest thereon, for each day from the date such amount is made available to
the Borrower until the date such amount is repaid to the Agent, at the Federal
Funds Rate. If such Bank shall repay to the Agent such corresponding amount,
such amount so repaid shall constitute such Bank's Loan included in such
Borrowing for purposes of this Agreement.
SECTION 2.05. NOTES. (a) The Loans of each Bank shall be evidenced
by a single Note payable to the order of such Bank for the account of its
Applicable Lending Office in an amount equal to the aggregate unpaid principal
amount of such Bank's Loans.
(b) Each Bank may, by notice to the Borrower and the Agent, request
that its Loans of a particular type be evidenced by a separate Note in an amount
equal to the aggregate unpaid principal amount of such Loans. Each such Note
shall be in substantially the form of Exhibit A hereto with appropriate
modifications to reflect the fact that it evidences solely Loans of the relevant
type. Each reference in this Agreement to the "Note" of such Bank shall be
deemed to refer to and include any or all of such Notes, as the context may
require.
(c) Upon receipt of each Bank's Note pursuant to Section 3.01(b), the
Agent shall forward such Note to such Bank. Each Bank shall record the date,
amount, type and maturity of each Loan made by it, and the date and amount of
each payment of principal made by the Borrower with respect thereto, and may, if
such Bank so elects in connection with any transfer or enforcement of its Note,
endorse on the schedule forming a part thereof appropriate notations to evidence
the foregoing information with respect to each such
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Loan then outstanding; PROVIDED that the failure of any Bank to make any such
recordation or endorsement shall not affect the obligations of any Obligor under
any Financing Document. Each Bank is hereby irrevocably authorized by the
Borrower so to endorse its Note and to attach to and make a part of its Note a
continuation of any such schedule as and when required.
SECTION 2.06. MATURITY OF LOANS. Each Loan included in any Borrowing
shall mature, and the principal amount thereof shall be due and payable, on the
last day of the Interest Period applicable to such Borrowing.
SECTION 2.07. INTEREST RATES. (a) Each Base Rate Loan shall bear
interest on the outstanding principal amount thereof, for each day from the date
such Loan is made until it becomes due, at a rate per annum equal to the Base
Rate for such day. Such interest shall be payable for each Interest Period on
the last day thereof. Any overdue principal of or interest on any Base Rate
Loan shall bear interest, payable on demand, for each day until paid at a rate
per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate
Loans for such day.
(b) Each CD Loan shall bear interest on the outstanding principal
amount thereof, for each day during the Interest Period applicable thereto, at a
rate per annum equal to the sum of the CD Margin for such day plus the Adjusted
CD Rate applicable to such Interest Period; PROVIDED that if any CD Loan shall,
as a result of clause (2)(b) of the definition of Interest Period, have an
Interest Period of less than 30 days, such CD Loan shall bear interest during
such Interest Period at the rate applicable to Base Rate Loans during such
period. Such interest shall be payable for each Interest Period on the last day
thereof and, if such Interest Period is longer than 90 days, at intervals of 90
days after the first day thereof. Any overdue principal of or interest on any
CD Loan shall bear interest, payable on demand, for each day until paid at a
rate per annum equal to the sum of 2% plus the higher of (i) the sum of the CD
Margin for such day plus the Adjusted CD Rate applicable to such Loan and (ii)
the rate applicable to Base Rate Loans for such day.
"CD Margin" means a rate per annum determined in accordance with the
Pricing Schedule.
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The "Adjusted CD Rate" applicable to any Interest Period means a rate
per annum determined pursuant to the following formula:
[ CDBR ]*
ACDR = [ ---------- ] + AR
[ 1.00 - DRP ]
ACDR = Adjusted CD Rate
CDBR = CD Base Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate
-------------------
* The amount in brackets being rounded upward, if
necessary, to the next higher 1/100 of 1%
The "CD Base Rate" applicable to any Interest Period is the rate of
interest determined by the Agent to be the average (rounded upward, if
necessary, to the next higher 1/100 of 1%) of the prevailing rates per annum bid
at 10:00 A.M. (New York City time) (or as soon thereafter as practicable) on the
first day of such Interest Period by two or more New York certificate of deposit
dealers of recognized standing for the purchase at face value from each CD
Reference Bank of its certificates of deposit in an amount comparable to the
principal amount of the CD Loan of such CD Reference Bank to which such Interest
Period applies and having a maturity comparable to such Interest Period.
"Domestic Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including without limitation any
basic, supplemental or emergency reserves) for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of new non-personal time deposits in dollars in New York City having a
maturity comparable to the related Interest Period and in an amount of $100,000
or more. The Adjusted CD Rate shall be adjusted automatically on and as of the
effective date of any change in the Domestic Reserve Percentage.
"Assessment Rate" means for any day the annual assessment rate in
effect on such day which is payable by a member of the Bank Insurance Fund
classified as adequately capitalized and within supervisory subgroup "A" (or a
comparable successor assessment risk classification) within the meaning of 12
C.F.R. Section 327.4(a) (or any successor
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<PAGE>
provision) to the Federal Deposit Insurance Corporation (or any successor) for
such Corporation's (or such successor's) insuring time deposits at offices of
such institution in the United States. The Adjusted CD Rate shall be adjusted
automatically on and as of the effective date of any change in the Assessment
Rate.
(c) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for each day during the Interest Period applicable
thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such
day plus the London Interbank Offered Rate applicable to such Interest Period.
Such interest shall be payable for each Interest Period on the last day thereof
and, if such Interest Period is longer than three months, at intervals of three
months after the first day thereof.
"Euro-Dollar Margin" means a rate per annum determined in accordance
with the Pricing Schedule.
The "London Interbank Offered Rate" applicable to any Interest Period
means the average (rounded upward, if necessary, to the next higher 1/16 of 1%)
of the respective rates per annum at which deposits in dollars are offered to
each of the Euro-Dollar Reference Banks in the London interbank market at
approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the
first day of such Interest Period in an amount approximately equal to the
principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank to
which such Interest Period is to apply and for a period of time comparable to
such Interest Period.
(d) Any overdue principal of or interest on any Euro-Dollar Loan
shall bear interest, payable on demand, for each day from and including the date
payment thereof was due to but excluding the date of actual payment, at a rate
per annum equal to the sum of 2% plus the higher of (i) the sum of the
Euro-Dollar Margin for such day plus the London Interbank Offered Rate
applicable to such Loan and (ii) the Euro-Dollar Margin for such day plus the
quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%)
by dividing (x) the average (rounded upward, if necessary, to the next higher
1/16 of 1%) of the respective rates per annum at which one day (or, if such
amount due remains unpaid more than three Euro-Dollar Business Days, then for
such other period of time not longer than three months as the Agent may select)
deposits in dollars in an amount approximately equal to such overdue payment due
to each of the Euro-Dollar Reference Banks are offered to such Euro-Dollar
Reference Bank in the London interbank market for the applicable period
determined as provided above by
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(y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the circumstances
described in clause (a) or (b) of Section 8.01 shall exist, at a rate per annum
equal to the sum of 2% plus the rate applicable to Base Rate Loans for such
day).
(e) Subject to Section 8.01(a), each Money Market LIBOR Loan shall
bear interest on the outstanding principal amount thereof, for the Interest
Period applicable thereto, at a rate per annum equal to the sum of the London
Interbank Offered Rate for such Interest Period (determined in accordance with
Section 2.07(c) as if the related Money Market LIBOR Borrowing were a
Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the
Bank making such Loan in accordance with Section 2.03. Each Money Market
Absolute Rate Loan shall bear interest on the outstanding principal amount
thereof, for the Interest Period applicable thereto, at a rate per annum equal
to the Money Market Absolute Rate quoted by the Bank making such Loan in
accordance with Section 2.03. Such interest shall be payable for each Interest
Period on the last day thereof and, if such Interest Period is longer than three
months, at intervals of three months after the first day thereof. Any overdue
principal of or interest on any Money Market Loan shall bear interest, payable
on demand, for each day until paid at a rate per annum equal to the sum of 2%
plus the Base Rate for such day.
(f) The Agent shall determine each interest rate applicable to the
Loans hereunder. The Agent shall give prompt notice to the Borrower and the
participating Banks of each rate of interest so determined, and its
determination thereof shall be conclusive in the absence of manifest error.
(g) Each Reference Bank agrees to use its best efforts to furnish
quotations to the Agent as contemplated by this Section. If any Reference Bank
does not furnish a timely quotation, the Agent shall determine the relevant
interest rate on the basis of the quotation or quotations furnished by the
remaining Reference Bank or Banks or, if none of such quotations is available on
a timely basis, the provisions of Section 8.01 shall apply.
SECTION 2.08. FACILITY FEE. The Borrower shall pay to the Agent for
the account of the Banks ratably in proportion to their Commitments a facility
fee at the Facility Fee Rate determined daily in accordance with the Pricing
Schedule. Such facility fee shall accrue (i) from and including the earlier of
(x) October 31, 1997 and (y) the Effective Date to but excluding the Termination
Date (or earlier date of termination of the Commitments in their
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entirety), on the daily aggregate amount of the Commitments (whether used or
unused) and (ii) from and including the Termination Date or earlier date of
termination to but excluding the date the Loans shall be repaid in their
entirety, on the daily aggregate outstanding principal amount of the Loans.
Accrued fees under this subsection (a) shall be payable quarterly in arrears on
the last Euro-Dollar Business Day of each March, June, September and December,
and upon the date of termination of the Commitments in their entirety (and, if
later, the date the Loans shall be repaid in their entirety).
SECTION 2.09. OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS. The
Borrower may, upon at least three Domestic Business Days' notice to the Agent
(which shall promptly notify the Banks), (i) terminate the Commitments at any
time, if no Loans are outstanding at such time or (ii) ratably reduce from time
to time by an aggregate amount of $10,000,000 or any larger multiple thereof,
the aggregate amount of the Commitments in excess of the aggregate outstanding
principal amount of the Loans.
SECTION 2.10. SCHEDULED TERMINATION OR REDUCTION OF COMMITMENTS. The
Commitments shall terminate on the Termination Date and any Loans then
outstanding (together with accrued interest thereon) shall be due and payable on
such date.
SECTION 2.11. OPTIONAL PREPAYMENTS. (a) The Borrower may (i) upon
at least one Domestic Business Day's notice to the Agent, prepay any Base Rate
Borrowing (or any Money Market Borrowing bearing interest at the Base Rate
pursuant to Section 8.01(a)), (ii) upon at least three Domestic Business Days'
notice to the Agent, subject to Section 2.13, prepay any CD Borrowing and (iii)
upon at least three Euro-Dollar Business Days' notice to the Agent, subject to
Section 2.13, prepay any Euro-Dollar Borrowing, in whole at any time, or from
time to time in part in amounts aggregating $10,000,000 or any larger multiple
of $1,000,000, by paying the principal amount to be prepaid together with
accrued interest thereon to the date of prepayment. Each such prepayment shall
be applied to prepay ratably the Loans of the several Banks included in such
Borrowing.
(b) Except as provided in Section 2.11(a), the Borrower may not
prepay all or any portion of the principal amount of any Money Market Loan prior
to the maturity thereof.
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(c) Upon receipt of a notice of prepayment pursuant to this Section,
the Agent shall promptly notify each Bank of the contents thereof and of such
Bank's ratable share (if any) of such prepayment and such notice shall not
thereafter be revocable by the Borrower.
SECTION 2.12. GENERAL PROVISIONS AS TO PAYMENTS. (a) The Borrower
shall make each payment of principal of, and interest on, the Loans and of fees
hereunder, not later than 12:00 Noon (New York City time) on the date when due,
in Federal or other funds immediately available in New York City, to the Agent
at its address referred to in Section 9.01. The Agent will promptly distribute
to each Bank its ratable share of each such payment received by the Agent for
the account of the Banks. Whenever any payment of principal of, or interest on,
the Domestic Loans or of fees shall be due on a day which is not a Domestic
Business Day, the date for payment thereof shall be extended to the next
succeeding Domestic Business Day. Whenever any payment of principal of, or
interest on, the Euro-Dollar Loans shall be due on a day which is not a
Euro-Dollar Business Day, the date for payment thereof shall be extended to the
next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day
falls in another calendar month, in which case the date for payment thereof
shall be the next preceding Euro-Dollar Business Day. Whenever any payment of
principal of, or interest on, the Money Market Loans shall be due on a day which
is not a Euro-Dollar Business Day, the date for payment thereof shall be
extended to the next succeeding Euro-Dollar Business Day. If the date for any
payment of principal is extended by operation of law or otherwise, interest
thereon shall be payable for such extended time.
(b) Unless the Agent shall have received notice from the Borrower
prior to the date on which any payment is due to the Banks hereunder that the
Borrower will not make such payment in full, the Agent may assume that the
Borrower has made such payment in full to the Agent on such date and the Agent
may, in reliance upon such assumption, cause to be distributed to each Bank on
such due date an amount equal to the amount then due such Bank. If and to the
extent that the Borrower shall not have so made such payment, each Bank shall
repay to the Agent forthwith on demand such amount distributed to such Bank
together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Agent, at the Federal Funds Rate.
SECTION 2.13. FUNDING LOSSES. If the Borrower makes any payment of
principal with respect to any Fixed Rate Loan (pursuant to Article II, VI or
VIII or otherwise)
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on any day other than the last day of the Interest Period applicable thereto, or
the last day of an applicable period fixed pursuant to Section 2.07(d), or if
the Borrower fails to borrow or prepay any Fixed Rate Loans after notice has
been given to any Bank in accordance with Section 2.04(a) or 2.11(c), the
Borrower shall reimburse each Bank within 15 days after demand for any resulting
loss or expense incurred by it (or by an existing or prospective Participant in
the related Loan), including (without limitation) any loss incurred in
obtaining, liquidating or employing deposits from third parties, but excluding
loss of margin for the period after any such payment or failure to borrow or
prepay, PROVIDED that such Bank shall have delivered to the Borrower a
certificate as to the amount of such loss or expense, setting forth the basis of
calculation thereof, which certificate shall be conclusive in the absence of
manifest error.
SECTION 2.14. COMPUTATION OF INTEREST AND FEES. Interest based on
the Prime Rate hereunder shall be computed on the basis of a year of 365 days
(or 366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All other interest and
facility fees shall be computed on the basis of a year of 360 days and paid for
the actual number of days elapsed (including the first day but excluding the
last day).
SECTION 2.15. REGULATION D COMPENSATION. For so long as any Bank
maintains reserves against "Eurocurrency liabilities" (or any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of such Bank to United
States residents), and as a result the cost to such Bank (or its Euro-Dollar
Lending Office) of making or maintaining its Euro-Dollar Loans is increased,
then such Bank may require the Borrower to pay, contemporaneously (or at such
other time or times as the Borrower and such Bank may mutually agree) with each
payment of interest on the Euro-Dollar Loans, additional interest on the related
Euro-Dollar Loan of such Bank at a rate per annum up to but not exceeding the
excess of (i) (A) the applicable London Interbank Offered Rate divided by (B)
one MINUS the Euro-Dollar Reserve Percentage over (ii) the applicable London
Interbank Offered Rate. Any Bank wishing to require payment of such additional
interest (x) shall so notify the Borrower and the Agent, in which case such
additional interest on the Euro-Dollar Loans of such Bank shall be payable to
such Bank at the place indicated in such notice with respect to each
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Interest Period commencing at least three Euro-Dollar Business Days after the
giving of such notice and (y) shall furnish to the Borrower at least five
Euro-Dollar Business Days prior to each date on which interest is payable on the
Euro-Dollar Loans (or at such other time or times as the Borrower and such Bank
may mutually agree) an officer's certificate setting forth the amount to which
such Bank is then entitled under this Section (which shall be consistent with
such Bank's good faith estimate of the level at which the related reserves are
maintained by it). Each such certificate shall be accompanied by such
information as the Borrower may reasonably request as to the computation set
forth therein.
SECTION 2.16. INCREASED COMMITMENTS; ADDITIONAL BANKS. (a) On a
single occasion subsequent to the Effective Date, the Borrower may, upon at
least 30 days' notice to the Agent (which shall promptly provide a copy of such
notice to the Banks), propose to increase the aggregate amount of the
Commitments by an amount not to exceed $100,000,000 (the amount of any such
increase, the "Increased Commitments"). Each Bank party to this Agreement at
such time shall have the right (but no obligation), for a period of 15 days
following receipt of such notice, to elect by notice to the Borrower and the
Agent to increase its Commitment by a principal amount which bears the same
ratio to the Increased Commitments as its then Commitment bears to the aggregate
Commitments then existing.
(b) If any Bank party to this Agreement shall not elect to increase
its Commitment pursuant to subsection (a) of this Section, the Borrower may
designate another bank or other banks (which may be, but need not be, one or
more of the existing Banks) which at the time agree to (i) in the case of any
such bank that is an existing Bank, increase its Commitment and (ii) in the case
of any other such bank (an "Additional Bank"), become a party to this Agreement.
The sum of the increases in the Commitments of the existing Banks pursuant to
this subsection (b) plus the Commitments of the Additional Banks shall not in
the aggregate exceed the unsubscribed amount of the Increased Commitments.
(c) An increase in the aggregate amount of the Commitments pursuant
to this Section 2.16 shall become effective upon the receipt by the Agent of an
agreement in form and substance satisfactory to the Agent signed by the
Borrower, by each Additional Bank and by each other Bank whose Commitment is to
be increased, setting forth the new Commitments of such Banks and setting forth
the agreement of each Additional Bank to become a party to this Agreement and to
be bound by all the terms and provisions hereof, together
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with such evidence of appropriate corporate authorization on the part of the
Borrower with respect to the Increased Commitments and such opinions of counsel
for the Borrower with respect to the Increased Commitments as the Agent may
reasonably request.
ARTICLE III
CONDITIONS
SECTION 3.01. EFFECTIVENESS. The Commitments shall become effective
on the date that each of the following conditions shall have been satisfied (or
waived in accordance with Section 9.05):
(a) receipt by the Agent of counterparts hereof signed by each of the
parties hereto (or, in the case of any party as to which an executed
counterpart shall not have been received, receipt by the Agent in form
satisfactory to it of telegraphic, telex or other written confirmation from
such party of execution of a counterpart hereof by such party);
(b) receipt by the Agent for the account of each Bank of a duly
executed Note dated on or before the Effective Date complying with the
provisions of Section 2.05;
(c) receipt by the Agent of counterparts of the Subsidiary Guarantee
Agreement, duly executed by the Borrower and each of Subsidiaries listed on
the signature pages thereof;
(d) receipt by the Agent of an opinion of the principal legal officer
of the Borrower, substantially in the form of Exhibit E hereto and covering
such additional matters relating to the transactions contemplated hereby as
the Required Banks may reasonably request;
(e) receipt by the Agent of an opinion of Davis Polk & Wardwell,
special counsel for the Agent, substantially in the form of Exhibit F
hereto and covering such additional matters relating to the transactions
contemplated hereby as the Required Banks may reasonably request;
(f) receipt by the Agent of a letter from Wachtell Lipton Rosen & Katz
authorizing the Agent and the Banks
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to rely on their opinion rendered to the Borrower as to the Federal income
tax treatment of the Spin-Off;
(g) receipt by the Agent of evidence satisfactory to it that the
Spin-Off shall, substantially simultaneously with the effectiveness of the
Commitments and the initial Borrowing hereunder, be consummated in
accordance in all material respects with the description set forth in the
Bororwer's Form 10;
(h) receipt by the Agent of evidence satisfactory to it of the payment
of fees as heretofore mutually agreed; and
(i) receipt by the Agent of all documents it may reasonably request
relating to the existence of the Borrower and the Guarantors, the corporate
authority for and the validity of the Financing Documents, and any other
matters relevant hereto, all in form and substance satisfactory to the
Agent;
PROVIDED that the Commitments shall not become effective unless all of the
foregoing conditions are satisfied not later than December 31, 1997. The Agent
shall promptly notify the Borrower and each Bank of the Effective Date, and such
notice shall be conclusive and binding on all parties hereto.
SECTION 3.02. BORROWINGS. The obligation of any Bank to make a Loan
on the occasion of any Borrowing is subject to the satisfaction of the following
conditions:
(a) receipt by the Agent of a Notice of Borrowing as required by
Section 2.02 or 2.03, as the case may be;
(b) the fact that, immediately after such Borrowing, the aggregate
outstanding principal amount of the Loans will not exceed the aggregate
amount of the Commitments;
(c) the fact that, immediately before and after such Borrowing, no
Default shall have occurred and be continuing; and
(d) the fact that the representations and warranties of the Borrower
contained in the Financing Documents (except (x) in the case of a Refunding
Borrowing and (y) in the case of any other Borrowing, solely if on the date
of such Borrowing, the Borrower's senior unsecured long-term debt is rated,
without third-party credit enhancement, A- or higher by S&P and
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A3 or higher by Moody's, the representations and warranties set forth in
Section 4.04(c) as to any matter which has theretofore been disclosed in
writing by the Borrower to the Banks) shall be true on and as of the date
of such Borrowing.
Each Borrowing hereunder shall be deemed to be a representation and warranty by
the Borrower on the date of such Borrowing as to the facts specified in clauses
(b), (c) and (d) of this Section.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 4.01. CORPORATE EXISTENCE AND POWER. The Borrower is a
corporation duly incorporated, validly existing and in good standing under the
laws of Delaware, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.
SECTION 4.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO
CONTRAVENTION. The execution, delivery and performance by each Obligor of the
Financing Documents to which it is a party are within its corporate powers, have
been duly authorized by all necessary corporate action, require no action by or
in respect of, or filing with, any governmental body, agency or official and do
not contravene, or constitute a default under, any provision of applicable law
or regulation or of its certificate of incorporation or by-laws or of any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Borrower or any of its Subsidiaries or result in the creation or imposition
of any Lien on any asset of the Borrower or any of its Subsidiaries.
SECTION 4.03. BINDING EFFECT. This Agreement constitutes a valid and
binding agreement of the Borrower and the Notes, when executed and delivered in
accordance with this Agreement, will constitute valid and binding obligations of
the Borrower, in each case enforceable against the Borrower in accordance with
its terms. When executed and delivered in accordance with this Agreement, the
Subsidiary Guarantee Agreement will constitute a valid and binding agreement of
each of the Obligors enforceable against such Obligor in accordance with its
terms.
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SECTION 4.04. FINANCIAL INFORMATION.
(a) The consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of December 31, 1996 and the related consolidated
statements of operations and cash flows for the fiscal year then ended, reported
on by Deloitte & Touche LLP and set forth in the Borrower's Form 10, a copy of
which has been delivered to each of the Banks, fairly present, in conformity
with generally accepted accounting principles, the consolidated financial
position of the Borrower and its Consolidated Subsidiaries as of such date and
their consolidated results of operations and cash flows for such fiscal year.
(b) The unaudited consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of June 30, 1997 and the related unaudited
consolidated statements of operations and cash flows for the six months then
ended, set forth in the Borrower's Form 10, a copy of which has been delivered
to each of the Banks, fairly present, in conformity with generally accepted
accounting principles, the consolidated financial position of the Borrower and
its Consolidated Subsidiaries as of such date and their consolidated results of
operations and cash flows for such six month period (subject to normal year-end
adjustments).
(c) Since June 30, 1997 there has been no material adverse change in
the business, financial position, results of operations or prospects of the
Borrower.
SECTION 4.05. LITIGATION.
(a) There is no action, suit or proceeding pending against, or to the
knowledge of the Borrower threatened against or affecting, the Borrower or any
of its Subsidiaries before any court or arbitrator or any governmental body,
agency or official which could reasonably be expected to materially and
adversely affect the business, consolidated financial position or consolidated
results of operations of the Borrower and its Consolidated Subsidiaries taken as
a whole.
(b) There is no action, suit or proceeding pending against, or to the
knowledge of the Borrower threatened against or affecting, the Borrower or any
of its Subsidiaries before any court or arbitrator or any governmental body,
agency or official which in any manner questions the validity or enforceability
of any Financing Document.
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SECTION 4.06. COMPLIANCE WITH ERISA. Each member of the ERISA Group
has fulfilled its obligations under the minimum funding standards of ERISA and
the Internal Revenue Code with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Internal Revenue Code or (iii)
incurred any liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA.
SECTION 4.07. ENVIRONMENTAL MATTERS. In the ordinary course of its
business, the Borrower conducts an ongoing review of the effect of Environmental
Laws on the business, operations and properties of the Borrower and its
Subsidiaries, in the course of which it identifies and evaluates associated
liabilities and costs (including, without limitation, any capital or operating
expenditures required for clean-up or closure of properties presently or
previously owned, any capital or operating expenditures required to achieve or
maintain compliance with environmental protection standards imposed by law or as
a condition of any license, permit or contract, any related constraints on
operating activities, including any periodic or permanent shutdown of any
facility or reduction in the level of or change in the nature of operations
conducted thereat, any costs or liabilities in connection with off-site disposal
of wastes or Hazardous Substances, and any actual or potential liabilities to
third parties, including employees, and any related costs and expenses). On the
basis of this review, and based upon conditions of which the Borrower has
knowledge and upon its estimates of the costs of compliance with and/or
remediation mandated by Environmental Laws, the Borrower has reasonably
concluded that Environmental Laws are unlikely to have a material adverse effect
on the business, financial condition, results of operations or prospects of the
Borrower and its Consolidated Subsidiaries, considered as a whole.
SECTION 4.08. TAXES. All United States federal income tax returns
and all other material tax returns which are required to be filed by or in
respect of the Borrower or any Subsidiary have been filed by either (i) the
Borrower or a Subsidiary thereof or (ii) Western Atlas or Litton in a
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consolidated or combined return which incorporated the Borrower, and all taxes
due pursuant to such returns or pursuant to any assessment received in respect
thereof have been paid.
SECTION 4.09. MATERIAL SUBSIDIARIES. Each of the Borrower's Material
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and has all
corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted.
SECTION 4.10. NOT AN INVESTMENT COMPANY. Neither the Borrower nor
any Guarantor is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
SECTION 4.11. USE OF PROCEEDS. The proceeds of the loans under this
Agreement will be used by the Borrower (i) for working capital purposes, (ii) to
refinance certain indebtedness, including the repayment of certain intercompany
indebtedness owed to Western Atlas and (iii) to the extent not required for the
foregoing purposes, for the Borrower's other general corporate purposes,
including acquisitions and stock repurchases. None of such proceeds will be
used in violation of Regulation G, T, U or X of the Board of Governors of the
Federal Reserve System.
SECTION 4.12. FULL DISCLOSURE. All information heretofore furnished
by the Borrower or any Guarantor to the Agent or any Bank for purposes of or in
connection with this Agreement or any transaction contemplated hereby is, and
all such information hereafter furnished by the Borrower or any Guarantor to the
Agent or any Bank will be, true and accurate in all material respects on the
date as of which such information is stated or certified. The Borrower has
disclosed to the Banks in writing any and all facts which materially and
adversely affect or may affect (to the extent the Borrower can now reasonably
foresee), the business, operations or financial condition of the Borrower and
its Consolidated Subsidiaries, taken as a whole, or the ability of any Obligor
to perform its obligations under this Agreement or any other Financing Document.
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ARTICLE V
COVENANTS
The Borrower agrees that, from and after the Effective Date for so
long as any Bank has any Commitment hereunder or any amount payable under any
Note remains unpaid:
SECTION 5.01. INFORMATION. The Borrower will deliver to each of the
Banks:
(a) as soon as available and in any event within 120 days after the
end of each fiscal year of the Borrower, a consolidated balance sheet of
the Borrower and its Consolidated Subsidiaries as of the end of such fiscal
year and the related consolidated financial statements in the form then
required to be filed with the Securities and Exchange Commission on Form
10-K or its then equivalent, all reported on by independent public
accountants of nationally recognized standing;
(b) as soon as available and in any event within 60 days after the
end of each of the first three quarters of each fiscal year of the
Borrower, a consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as of the end of such quarter and the related consolidated
financial statements in the form then required to be filed with the
Securities and Exchange Commission on Form 10-Q or its then equivalent, all
certified (subject to normal year-end audit adjustments) by the chief
financial officer or the chief accounting officer of the Borrower;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of the
chief financial officer or the chief accounting officer of the Borrower (i)
setting forth in reasonable detail the calculations required to establish
whether the Borrower was in compliance with the requirements of Sections
5.05 to 5.07, inclusive, on the date of such financial statements and (ii)
stating whether any Default exists on the date of such certificate and, if
any Default then exists, setting forth the details thereof and the action
which the Borrower is taking or proposes to take with respect thereto;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (a) above, a statement of the firm of
independent public
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accountants which reported on such statements whether anything has come to
their attention to cause them to believe that any Default existed on the
date of such statements;
(e) within five days after any officer of the Borrower obtains
knowledge of any Default, if such Default is then continuing, a certificate
of the chief financial officer or the chief accounting officer of the
Borrower setting forth the details thereof and the action which the
Borrower is taking or proposes to take with respect thereto;
(f) promptly upon the mailing thereof to the shareholders of the
Borrower generally, copies of all financial statements, reports and proxy
statements so mailed;
(g) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements
on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or
their equivalents) which the Borrower shall have filed with the Securities
and Exchange Commission;
(h) if and when any member of the ERISA Group (i) gives or is
required to give notice to the PBGC of any "reportable event" (as defined
in Section 4043 of ERISA) with respect to any Material Plan which might
constitute grounds for a termination of such Plan under Title IV of ERISA,
or knows that the plan administrator of any Material Plan has given or is
required to give notice of any such reportable event, a copy of the notice
of such reportable event given or required to be given to the PBGC; (ii)
receives notice of complete or partial withdrawal liability under Title IV
of ERISA or notice that any Multiemployer Plan is in reorganization, is
insolvent or has been terminated, a copy of such notice; (iii) receives
notice from the PBGC under Title IV of ERISA of an intent to terminate,
impose liability (other than for premiums under Section 4007 of ERISA) in
respect of, or appoint a trustee to administer, any Material Plan, a copy
of such notice; (iv) applies for a waiver of the minimum funding standard
under Section 412 of the Internal Revenue Code, a copy of such application;
(v) gives notice of intent to terminate any Material Plan under Section
4041(c) of ERISA, a copy of such notice and other information filed with
the PBGC; (vi) gives notice of withdrawal from any Material Plan pursuant
to Section 4063 of ERISA, a copy of such notice; or (vii) fails to
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make any payment or contribution to any Material Plan or Multiemployer Plan
or in respect of any Benefit Arrangement or makes any amendment to any
Material Plan or Benefit Arrangement which has resulted or could result in
the imposition of a Lien or the posting of a bond or other security, a
certificate of the chief financial officer or the chief accounting officer
of the Borrower setting forth details as to such occurrence and action, if
any, which the Borrower or applicable member of the ERISA Group is required
or proposes to take;
(i) forthwith, notice of any change of which the Borrower becomes
aware in the rating by any Rating Agency of the Borrower's long-term debt;
and
(j) from time to time such additional information regarding the
financial position or business of the Borrower and its Subsidiaries as the
Agent, at the request of any Bank, may reasonably request.
SECTION 5.02. MAINTENANCE OF PROPERTY; INSURANCE.
(a) The Borrower will keep, and will cause each Subsidiary to keep,
all property useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted.
(b) The Borrower will, and will cause each of its Subsidiaries to,
maintain (either in the name of the Borrower or in such Subsidiary's own name)
with financially sound and responsible insurance companies, insurance on all
their respective properties in at least such amounts and against at least such
risks (and with such risk retention) as are usually insured against in the same
general area by companies of established repute engaged in the same or a similar
business; and will furnish to the Banks, upon request from the Agent,
information presented in reasonable detail as to the insurance so carried.
SECTION 5.03. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The
Borrower will continue, and will cause each Material Subsidiary to continue, to
engage in business of the same general type as now conducted by the Borrower and
its Subsidiaries, and will preserve, renew and keep in full force and effect,
and will cause each Material Subsidiary to preserve, renew and keep in full
force and effect their respective existence and their respective rights,
privileges and franchises necessary or desirable in the normal conduct of
business; PROVIDED that nothing in
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this Section 5.03 shall prohibit (i) the merger of a Subsidiary into the
Borrower or the merger or consolidation of a Subsidiary with or into another
Person if the corporation surviving such consolidation or merger is a Subsidiary
and if, in each case, after giving effect thereto, no Default shall have
occurred and be continuing or (ii) the termination of the existence of any
Subsidiary if the Borrower in good faith determines that such termination is in
the best interest of the Borrower and is not materially disadvantageous to the
Banks.
SECTION 5.04. COMPLIANCE WITH LAWS. The Borrower will comply, and
cause each Subsidiary to comply, in all material respects with all applicable
laws, ordinances, rules, regulations, and requirements of governmental
authorities (including, without limitation, Environmental Laws and ERISA and the
rules and regulations thereunder) except where the necessity of compliance
therewith is contested in good faith by appropriate proceedings.
SECTION 5.05. LEVERAGE RATIO. The Leverage Ratio will not exceed, at
any time during any period set forth below, the maximum ratio set forth below
for such period:
PERIOD MAXIMUM RATIO
------ -------------
Effective Date-
September 29, 1998 3.5 to 1.0
September 30, 1998-
September 29, 1999 3.0 to 1.0
September 30 1999 and
thereafter 2.75 to 1.0
SECTION 5.06. MAINTENANCE OF CERTAIN OPERATIONS. The Borrower will
at all times maintain direct or indirect ownership of 80% of the Equity
Securities of each Subsidiary which is a Guarantor on the Effective Date.
SECTION 5.07. LIMITATION ON SUBSIDIARY DEBT. The aggregate
outstanding principal amount of Debt of Subsidiaries of the Borrower (exclusive
of Debt owing to the Borrower or another Subsidiary) will at no time exceed 15%
of Consolidated Net Assets.
SECTION 5.08. NEGATIVE PLEDGE. The Borrower will not, and will not
permit any Consolidated Subsidiary to, create, assume or suffer to exist any
Lien securing Debt or Derivatives Obligations on any asset now owned or
hereafter acquired by it, except:
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(a) Liens existing on the date of this Agreement securing Debt
outstanding on the date of this Agreement in an aggregate principal amount
not exceeding $20,000,000;
(b) any Lien existing on the assets of any Person at the time such
Person becomes a Consolidated Subsidiary;
(c) any Lien on any asset securing Debt incurred or assumed for the
purpose of financing all or any part of the purchase price or cost of
construction of such asset, PROVIDED that such Lien attaches to such asset
within 270 days after the acquisition or completion of construction and
commencement of full operations thereof;
(d) any Lien on any asset of any Person existing at the time such
Person is acquired by, merged into or consolidated with the Borrower or a
Consolidated Subsidiary;
(e) any Lien existing on any asset prior to the acquisition thereof
by the Borrower or a Consolidated Subsidiary and not created in
contemplation of such acquisition;
(f) any Lien arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien permitted by any of the foregoing
clauses of this Section, PROVIDED that such Debt is not increased and is
not secured by any additional assets;
(g) Liens on cash and cash equivalents securing Derivatives
Obligations, provided that the aggregate amount of cash and cash
equivalents subject to such Liens may at no time exceed $20,000,000; and
(h) Liens not otherwise permitted by the foregoing clauses of this
Section securing Debt in an aggregate principal or face amount at any time
outstanding not exceeding 10% of Consolidated Net Worth.
SECTION 5.09. CONSOLIDATIONS, MERGERS AND SALES OF ASSETS. The
Borrower will not (i) consolidate or merge with or into any other Person or (ii)
sell, lease or otherwise transfer, directly or indirectly, all or any
substantial part of the assets of the Borrower and its Subsidiaries, taken as a
whole, to any other Person; PROVIDED that the Borrower may merge with another
Person if
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the Borrower is the surviving corporation and, after giving effect thereto, no
Default exists.
ARTICLE VI
DEFAULTS
SECTION 6.01. EVENTS OF DEFAULT. If one or more of the following
events ("Events of Default") shall have occurred and be continuing:
(a) the Borrower (i) shall fail to pay when due any principal of any
Loan or (ii) shall fail to pay any interest on any Loan, any fees or any
other amount payable hereunder within five days after the due date thereof;
(b) the Borrower shall fail to observe or perform any covenant
contained in Sections 5.05 through 5.09, inclusive;
(c) any Obligor shall fail to observe or perform any covenant or
agreement contained in any Financing Document (other than those covered by
clause (a) or (b) above) for 30 days after notice thereof has been given to
such Obligor by the Agent at the request of any Bank;
(d) any representation, warranty, certification or statement made (or
deemed made) by any Obligor in any Financing Document or in any
certificate, financial statement or other document delivered pursuant to
any Financing Document shall prove to have been incorrect in any material
respect when made (or deemed made) or delivered;
(e) the Borrower or any Subsidiary shall fail to make any payment in
respect of any Material Financial Obligations when due or within any
applicable grace period;
(f) any event or condition shall occur which results in the
acceleration of the maturity of any Material Debt or enables (with the
giving of appropriate notice if required) the holder of such Debt or any
Person acting on such holder's behalf to accelerate the maturity thereof;
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(g) the Borrower or any Material Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or
other relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or shall consent to
any such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against it,
or shall make a general assignment for the benefit of creditors, or shall
fail generally to pay its debts as they become due, or shall take any
corporate action to authorize any of the foregoing;
(h) an involuntary case or other proceeding shall be commenced
against the Borrower or any Material Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain undismissed and
unstayed for a period of 60 days; or an order for relief shall be entered
against the Borrower or any Material Subsidiary under the federal
bankruptcy laws as now or hereafter in effect;
(i) any member of the ERISA Group shall fail to pay when due an
amount or amounts aggregating in excess of $25,000,000 which it shall have
become liable to pay under Title IV of ERISA; or notice of intent to
terminate a Material Plan shall be filed under Title IV of ERISA by any
member of the ERISA Group, any plan administrator or any combination of the
foregoing; or the PBGC shall institute proceedings under Title IV of ERISA
to terminate, to impose liability (other than for premiums under Section
4007 of ERISA) in respect of, or to cause a trustee to be appointed to
administer, any Material Plan; or a condition shall exist by reason of
which the PBGC would be entitled to obtain a decree adjudicating that any
Material Plan must be terminated; or there shall occur a complete or
partial withdrawal from, or a default, within the meaning of Section
4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which
could cause one or more
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members of the ERISA Group to incur a current payment obligation in excess
of $10,000,000;
(j) a judgment or order for the payment of money in excess of
$25,000,000 shall be rendered against the Borrower or any Material
Subsidiary and such judgment or order shall continue unsatisfied and
unstayed for a period of 30 days;
(k) a Change of Control shall occur; or
(l) the Subsidiary Guarantee Agreement shall cease to be a legal,
valid, binding and enforceable obligation of any Guarantor (otherwise than
in accordance with the terms thereof), or any Guarantor shall so assert in
writing;
then, and in every such event, the Agent shall (i) if requested by Banks having
more than 50% in aggregate amount of the Commitments, by notice to the Borrower
terminate the Commitments and they shall thereupon terminate, and (ii) if
requested by Banks holding Notes evidencing more than 50% in aggregate principal
amount of the Loans, by notice to the Borrower declare the Notes (together with
accrued interest thereon) to be, and the Notes (together with accrued interest
thereon) shall thereupon become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower; PROVIDED that in the case of any of the Events of
Default specified in clause (g) or (h) above with respect to any Obligor,
without any notice to any Obligor or any other act by the Agent or any Bank, the
Commitments shall thereupon terminate and the Notes (together with accrued
interest thereon) shall become immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Obligors.
SECTION 6.02. NOTICE OF DEFAULT. The Agent shall give notice to an
Obligor under Section 6.01(c) promptly upon being requested to do so by any Bank
and shall thereupon notify all the Banks thereof.
ARTICLE VII
THE AGENT
SECTION 7.01. APPOINTMENT AND AUTHORIZATION. Each Bank irrevocably
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers under the Financing Documents as are delegated to the
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Agent by the terms thereof, together with all such powers as are reasonably
incidental thereto.
SECTION 7.02. AGENT AND AFFILIATES. Morgan Guaranty Trust Company of
New York shall have the same rights and powers under the Financing Documents as
any other Bank and may exercise or refrain from exercising the same as though it
were not the Agent, and Morgan Guaranty Trust Company of New York and its
affiliates may accept deposits from, lend money to, and generally engage in any
kind of business with the Borrower or any Subsidiary or Affiliate of the
Borrower as if it were not the Agent hereunder.
SECTION 7.03. ACTION BY AGENT. The obligations of the Agent
hereunder are only those expressly set forth in the Financing Documents.
Without limiting the generality of the foregoing, the Agent shall not be
required to take any action with respect to any Default, except as expressly
provided in Article VI.
SECTION 7.04. CONSULTATION WITH EXPERTS. The Agent may consult with
legal counsel (who may be counsel for any Obligor), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.
SECTION 7.05. LIABILITY OF AGENT. Neither the Agent nor any of its
affiliates nor any of the directors, officers, agents or employees of the
foregoing shall be liable for any action taken or not taken by it or them in
connection herewith (i) with the consent or at the request of the Required Banks
or (ii) in the absence of its or their own gross negligence or willful
misconduct. Neither the Agent nor any of its affiliates nor any of the
directors, officers, agents or employees of the foregoing shall be responsible
for or have any duty to ascertain, inquire into or verify (i) any statement,
warranty or representation made in connection with this Agreement or any
borrowing hereunder; (ii) the performance or observance of any of the covenants
or agreements of any Obligor; (iii) the satisfaction of any condition specified
in Article III, except receipt of items required to be delivered to the Agent;
or (iv) the validity, effectiveness or genuineness of the Financing Documents or
any other instrument or writing furnished in connection herewith. The Agent
shall not incur any liability by acting in reliance upon any notice, consent,
certificate, statement, or other writing (which may be a bank wire, telex or
similar writing) believed by it to be genuine or to be signed by the proper
party or parties.
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Without limiting the generality of the foregoing, the use of the term "agent" in
this Agreement with reference to the Agent is not intended to connote any
fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law. Instead, such term is used merely as a matter
of market custom and is intended to create or reflect only an administrative
relationship between independent contracting parties.
SECTION 7.06. INDEMNIFICATION. Each Bank shall, ratably in
accordance with its Commitment, indemnify the Agent, its affiliates and their
respective directors, officers, agents and employees (to the extent not
reimbursed by the Borrower) against any cost, expense (including counsel fees
and disbursements), claim, demand, action, loss or liability (except such as
result from such indemnitees' gross negligence or willful misconduct) that such
indemnitees may suffer or incur in connection with the Financing Documents or
any action taken or omitted by such indemnitees thereunder.
SECTION 7.07. CREDIT DECISION. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon the Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under this Agreement.
SECTION 7.08. SUCCESSOR AGENT. The Agent may resign at any time by
giving notice thereof to the Banks and the Borrower. Upon any such resignation,
the Required Banks shall have the right to appoint a successor Agent, subject to
the approval of the Borrower. If no successor Agent shall have been so
appointed by the Required Banks, with the approval of the Borrower, and shall
have accepted such appointment, within 30 days after the retiring Agent gives
notice of resignation, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent, which shall be a Bank, if any Bank is willing to
accept such appointment, and in any event shall be a commercial bank organized
or licensed under the laws of the United States of America or of any State
thereof and having a combined capital and surplus of at least $50,000,000. Upon
the acceptance of its appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the rights
and duties
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of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations hereunder. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Article shall inure to its benefit as
to any actions taken or omitted to be taken by it while it was Agent.
SECTION 7.09. AGENT'S FEES. The Borrower shall pay to the Agent for
its own account fees in the amounts and at the times previously agreed upon
between the Borrower and the Agent.
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01. BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR
UNFAIR. If on or prior to the first day of any Interest Period for any Fixed
Rate Borrowing:
(a) the Agent is advised by the Reference Banks that deposits in
dollars (in the applicable amounts) are not being offered to the Reference
Banks in the relevant market for such Interest Period, or
(b) in the case of a Committed Borrowing, Banks having 50% or more of
the aggregate amount of the Commitments advise the Agent that the Adjusted
CD Rate or the London Interbank Offered Rate, as the case may be, as
determined by the Agent will not adequately and fairly reflect the cost to
such Banks of funding their CD Loans or Euro-Dollar Loans, as the case may
be, for such Interest Period,
the Agent shall forthwith give notice thereof to the Borrower and the Banks,
whereupon until the Agent notifies the Borrower that the circumstances giving
rise to such suspension no longer exist, the obligations of the Banks to make CD
Loans or Euro-Dollar Loans, as the case may be, shall be suspended. Unless the
Borrower notifies the Agent at least two Domestic Business Days before the date
of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been
given that it elects not to borrow on such date, (i) if such Fixed Rate
Borrowing is a Committed Borrowing, such Borrowing shall instead be made as a
Base Rate Borrowing and (ii) if such Fixed Rate Borrowing is a Money Market
LIBOR Borrowing, the Money Market LIBOR Loans comprising such Borrowing shall
bear interest for each day
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from and including the first day to but excluding the last day of the Interest
Period applicable thereto at the Base Rate for such day.
SECTION 8.02. ILLEGALITY. If, on or after the date of this
Agreement, the adoption of any applicable law, rule or regulation, or any change
in any applicable law, rule or regulation, or any change in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Bank (or its Euro-Dollar Lending Office) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency shall make it unlawful or impossible for any
Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its
Euro-Dollar Loans and such Bank shall so notify the Agent, the Agent shall
forthwith give notice thereof to the other Banks and the Borrower, whereupon
until such Bank notifies the Borrower and the Agent that the circumstances
giving rise to such suspension no longer exist, the obligation of such Bank to
make Euro-Dollar Loans shall be suspended. Before giving any notice to the
Agent pursuant to this Section 8.02, such Bank shall designate a different
Euro-Dollar Lending Office if such designation will avoid the need for giving
such notice and will not, in the judgment of such Bank, be otherwise
disadvantageous to such Bank. If such Bank shall determine that it may not
lawfully continue to maintain and fund any of its outstanding Euro-Dollar Loans
to maturity and shall so specify in such notice, the Borrower shall immediately
prepay in full the then outstanding principal amount of each such Euro-Dollar
Loan, together with accrued interest thereon. Concurrently with prepaying each
such Euro-Dollar Loan, the Borrower shall borrow a Base Rate Loan in an equal
principal amount from such Bank (on which interest and principal shall be
payable contemporaneously with the related Euro-Dollar Loans of the other
Banks), and such Bank shall make such a Base Rate Loan.
SECTION 8.03. INCREASED COST AND REDUCED RETURN. (a) If on or after
(x) the date hereof, in the case of any Committed Loan or any obligation to make
Committed Loans or (y) the date of the related Money Market Quote, in the case
of any Money Market Loan, the adoption of any applicable law, rule or
regulation, or any change in any applicable law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Applicable Lending
Office) with any request
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or directive (whether or not having the force of law) of any such authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Applicable Lending
Office) with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency shall impose, modify or
deem applicable any reserve (including, without limitation, any such requirement
imposed by the Board of Governors of the Federal Reserve System, but excluding
(i) with respect to any CD Loan any such requirement included in an applicable
Domestic Reserve Percentage and (ii) with respect to any Euro-Dollar Loan any
such requirement with respect to which such Bank is entitled to compensation
during the relevant Interest Period under Section 2.15), special deposit,
insurance assessment (excluding, with respect to any CD Loan, any such
requirement reflected in an applicable Assessment Rate) or similar requirement
against assets of, deposits with or for the account of, or credit extended by,
any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its
Applicable Lending Office) or on the United States market for certificates of
deposit or the London interbank market any other condition affecting its Fixed
Rate Loans, its Note or its obligation to make Fixed Rate Loans and the result
of any of the foregoing is to increase the cost to such Bank (or its Applicable
Lending Office) of making or maintaining any Fixed Rate Loan, or to reduce the
amount of any sum received or receivable by such Bank (or its Applicable Lending
Office) under this Agreement or under its Note with respect thereto, by an
amount deemed by such Bank to be material, then, within 15 days after demand by
such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such
additional amount or amounts as will compensate such Bank for such increased
cost or reduction.
(b) If any Bank shall have determined that, after the date hereof,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change in any such law, rule or regulation, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on capital of such Bank (or its Parent) as a consequence of such Bank's
obligations hereunder to a level below that which such Bank (or its Parent)
could have achieved but for such adoption, change, request or directive (taking
into consideration its policies with respect to capital adequacy) by an amount
deemed by
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such Bank to be material, then from time to time, within 15 days after demand by
such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such
additional amount or amounts as will compensate such Bank (or its Parent) for
such reduction; PROVIDED that the Borrower shall not be liable for any such
amounts attributable to a period more than three months prior to the date of
notice by such Bank to the Borrower of its intention to seek compensation under
this subsection (b).
(c) Each Bank will promptly notify the Borrower and the Agent of any
event of which it has knowledge, occurring after the date hereof, which will
entitle such Bank to compensation pursuant to this Section and will designate a
different Applicable Lending Office if such designation will avoid the need for,
or reduce the amount of, such compensation and will not, in the judgment of such
Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank
claiming compensation under this Section, setting forth the additional amount or
amounts to be paid to it hereunder and the basis of calculation thereof, shall
be conclusive in the absence of manifest error. In determining such amount,
such Bank may use any reasonable averaging and attribution methods.
SECTION 8.04. TAXES. (a) Any and all payments by the Borrower to or
for the account of any Bank or the Agent hereunder or under any Note shall be
made free and clear of and without deduction for any and all present or future
taxes, duties, levies, imposts, deductions, charges and withholdings, and all
liabilities with respect thereto, EXCLUDING, in the case of each Bank and the
Agent, taxes imposed on its income, and franchise taxes imposed on it, by the
jurisdiction under the laws of which such Bank or the Agent (as the case may be)
is organized or any political subdivision thereof and, in the case of each Bank,
taxes imposed on its income, and franchise or similar taxes imposed on it, by
the jurisdiction of such Bank's Applicable Lending Office or any political
subdivision thereof (all such non-excluded taxes, duties, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to
as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from
or in respect of any sum payable hereunder or under any Note to any Bank or the
Agent, (i) the sum payable shall be increased as necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section 8.04) such Bank or the Agent (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions, (iii) the
Borrower shall pay the
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full amount deducted to the relevant taxation authority or other authority in
accordance with applicable law and (iv) the Borrower shall furnish to the Agent,
at its address referred to in Section 9.01, the original or a certified copy of
a receipt evidencing payment thereof.
(b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes and any other excise or property taxes, or charges or
similar levies which arise from any payment made hereunder or under any Note or
from the execution or delivery of, or otherwise with respect to, this Agreement
or any Note (hereinafter referred to as "Other Taxes").
(c) The Borrower agrees to indemnify each Bank and the Agent for the
full amount of Taxes and Other Taxes (including, without limitation, any Taxes
and Other Taxes imposed or asserted by any jurisdiction on amounts payable under
this Section 8.04) paid by such Bank or the Agent (as the case may be) and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto. This indemnification shall be made within 15 days from the
date such Bank or the Agent (as the case may be) makes demand therefor.
(d) Each Bank organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Bank listed on the signature pages hereof and on
or prior to the date on which it becomes a Bank in the case of each other Bank,
and from time to time thereafter if requested in writing by the Borrower (but
only so long as such Bank remains lawfully able to do so), shall provide the
Borrower with Internal Revenue Service form 1001 or 4224, as appropriate, or any
successor form prescribed by the Internal Revenue Service, certifying that such
Bank is entitled to benefits under an income tax treaty to which the United
States is a party which reduces the rate of withholding tax on payments of
interest or certifying that the income receivable pursuant to this Agreement is
effectively connected with the conduct of a trade or business in the United
States. If the form provided by a Bank at the time such Bank first becomes a
party to this Agreement indicates a United States interest withholding tax rate
in excess of zero, withholding tax at such rate shall be considered excluded
from "Taxes" as defined in Section 8.04(a).
(e) For any period with respect to which a Bank has failed to provide
the Borrower with the form required pursuant to Section 8.04(d), if any (unless
such failure is
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due to a change in treaty, law or regulation occurring subsequent to the date on
which a form originally was required to be provided), such Bank shall not be
entitled to indemnification under Section 8.04(a) with respect to Taxes imposed
by the United States; PROVIDED, HOWEVER, that should a Bank, which is otherwise
exempt from or subject to a reduced rate of withholding tax, become subject to
Taxes because of its failure to deliver a form required hereunder, the Borrower
shall take such steps as such Bank shall reasonably request to assist such Bank
to recover such Taxes.
(f) If the Borrower is required to pay additional amounts to or for
the account of any Bank pursuant to this Section 8.04, then such Bank will
change the jurisdiction of its Applicable Lending Office so as to eliminate or
reduce any such additional payment which may thereafter accrue if such change,
in the judgment of such Bank, is not otherwise disadvantageous to such Bank.
SECTION 8.05. BASE RATE LOANS SUBSTITUTED FOR AFFECTED FIXED RATE
LOANS. If (i) the obligation of any Bank to make Euro-Dollar Loans has been
suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation
under Section 8.03 or 8.04 with respect to its CD Loans or Euro-Dollar Loans and
the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to
such Bank through the Agent, have elected that the provisions of this Section
shall apply to such Bank, then, unless and until such Bank notifies the Borrower
that the circumstances giving rise to such suspension or demand for compensation
no longer exist:
(a) all Loans which would otherwise be made by such Bank as CD Loans
or Euro-Dollar Loans, as the case may be, shall be made instead as Base
Rate Loans (on which interest and principal shall be payable
contemporaneously with the related Fixed Rate Loans of the other Banks),
and
(b) after each of its CD Loans or Euro-Dollar Loans, as the case may
be, has been repaid, all payments of principal which would otherwise be
applied to repay such Fixed Rate Loans shall be applied to repay its Base
Rate Loans instead.
SECTION 8.06. SUBSTITUTION OF BANK. If (i) the obligation of any
Bank to make Euro-Dollar Loans has been suspended pursuant to Section 8.02 or
(ii) any Bank has demanded compensation under Section 8.03 or 8.04, the Borrower
shall have the right, with the assistance of the Agent, to seek a mutually
satisfactory substitute bank or
54
<PAGE>
banks (which may be one or more of the Banks) to purchase the Note and assume
the Commitment of such Bank.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. NOTICES. All notices, requests and other
communications to any party hereunder shall be in writing (including bank wire,
telex, facsimile transmission or similar writing) and shall be given to such
party: (x) in the case of the Borrower or the Agent, at its address or
facsimile or telex number set forth on the signature pages hereof, (y) in the
case of any Bank, at its address or facsimile or telex number set forth in its
Administrative Questionnaire or (z) in the case of any party, such other address
or facsimile or telex number as such party may hereafter specify for the purpose
by notice to the Agent and the Borrower. Each such notice, request or other
communication shall be effective (i) if given by telex, when such telex is
transmitted to the telex number specified in this Section and the appropriate
answerback is received, (ii) if given by mail, 72 hours after such communication
is deposited in the mails with first class postage prepaid, addressed as
aforesaid or (iii) if given by any other means, when delivered at the address
specified in this Section; PROVIDED that notices to the Agent under Article II
or Article VIII shall not be effective until received.
SECTION 9.02. NO WAIVERS. No failure or delay by the Agent or any
Bank in exercising any right, power or privilege under any Financing Document
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies therein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 9.03. EXPENSES; INDEMNIFICATION. (a) The Borrower shall pay
(i) all out-of-pocket expenses of the Agent, including fees and disbursements of
special counsel for the Agent, in connection with the preparation and
administration of the Financing Documents, any waiver or consent thereunder or
any amendment thereof or any Default or alleged Default thereunder and (ii) if
an Event of Default occurs, all out-of-pocket expenses incurred by the Agent or
any Bank, including fees and disbursements of outside counsel (or, in lieu
thereof, the allocated cost of in-house counsel), in connection with such Event
of Default and collection,
55
<PAGE>
bankruptcy, insolvency and other enforcement proceedings resulting therefrom.
(b) The Borrower agrees to indemnify the Agent and each Bank, their
respective affiliates and the respective directors, officers, agents and
employees of the foregoing (each an "Indemnitee") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by such Indemnitee in connection
with any investigative, administrative or judicial proceeding (whether or not
such Indemnitee shall be designated a party thereto) brought or threatened
relating to or arising out of the Financing Documents, or any actual or proposed
use of proceeds of Loans hereunder; PROVIDED that no Indemnitee shall have the
right to be indemnified hereunder for such Indemnitee's own gross negligence or
willful misconduct.
SECTION 9.04. SHARING OF SET-OFFS. Each Bank agrees that if it
shall, by exercising any right of set-off or counterclaim or otherwise, receive
payment of a proportion of the aggregate amount of principal and interest due
with respect to any Note held by it which is greater than the proportion
received by any other Bank in respect of the aggregate amount of principal and
interest due with respect to any Note held by such other Bank, the Bank
receiving such proportionately greater payment shall purchase such
participations in the Notes held by the other Banks, and such other adjustments
shall be made, as may be required so that all such payments of principal and
interest with respect to the Notes held by the Banks shall be shared by the
Banks pro rata; PROVIDED that nothing in this Section shall impair the right of
any Bank to exercise any right of set-off or counterclaim it may have and to
apply the amount subject to such exercise to the payment of indebtedness of the
Borrower other than its indebtedness under the Notes. Each of the Borrower and
the Guarantors agrees, to the fullest extent it may effectively do so under
applicable law, that any holder of a participation in a Note, whether or not
acquired pursuant to the foregoing arrangements, may exercise rights of set-off
or counterclaim and other rights with respect to such participation as fully as
if such holder of a participation were a direct creditor of the Borrower or such
Guarantor, as the case may be, in the amount of such participation.
SECTION 9.05. AMENDMENTS AND WAIVERS. Any provision of this
Agreement or the Notes may be amended or waived if, but only if, such amendment
or waiver is in
56
<PAGE>
writing and is signed by the Borrower and the Required Banks (and, if the rights
or duties of the Agent are affected thereby, by the Agent); PROVIDED that no
such amendment or waiver shall, unless signed by all the Banks, (i) except as
contemplated by Section 2.16, increase or decrease the Commitment of any Bank
(except for a ratable decrease in the Commitments of all Banks) or subject any
Bank to any additional obligation, (ii) reduce the principal of, accrued
interest on or rate of interest on any Loan or any fees hereunder, (iii)
postpone the date fixed for any payment of principal of or interest on any Loan
or any fees hereunder or for any scheduled termination of any Commitment or (iv)
change the percentage of the Commitments or of the aggregate unpaid principal
amount of the Notes, or the number of Banks, which shall be required for the
Banks or any of them to take any action under this Section or any other
provision of the Financing Documents.
SECTION 9.06. SUCCESSORS AND ASSIGNS. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign or otherwise transfer any of its rights under this Agreement without the
prior written consent of all Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Commitment or
in any or all of its Loans. In the event of any such grant by a Bank of a
participating interest to a Participant, whether or not upon notice to the
Borrower and the Agent, such Bank shall remain responsible for the performance
of its obligations hereunder, and the Borrower and the Agent shall continue to
deal solely and directly with such Bank in connection with such Bank's rights
and obligations under this Agreement. Any agreement pursuant to which any Bank
may grant such a participating interest shall provide that such Bank shall
retain the sole right and responsibility to enforce the obligations of the
Borrower hereunder including, without limitation, the right to approve any
amendment, modification or waiver of any provision of this Agreement; PROVIDED
that such participation agreement may provide that such Bank will not agree to
any modification, amendment or waiver of this Agreement described in clause (i),
(ii) or (iii) of Section 9.05 without the consent of the Participant. The
Borrower agrees that each Participant shall, to the extent provided in its
participation agreement, be entitled to the benefits of Section 2.15 and
Article VIII with respect to its participating interest. An assignment or other
transfer which is not permitted by subsection (c) or (d) below shall be given
effect for purposes of this Agreement only to the
57
<PAGE>
extent of a participating interest granted in accordance with this subsection
(b).
(c) Any Bank may at any time assign to one or more banks or other
institutions (each an "Assignee") all, or a proportionate part (equivalent to a
Commitment of not less than $5,000,000) of all, of its rights and obligations
under this Agreement and the Notes, and such Assignee shall assume such rights
and obligations, pursuant to an Assignment and Assumption Agreement in
substantially the form of Exhibit G hereto executed by such Assignee and such
transferor Bank, with (and subject to) the subscribed consent of the Borrower
and the Agent (which consents shall not be unreasonably withheld); PROVIDED that
if an Assignee is a Bank prior to such assignment or is an affiliate of such
transferor Bank, no such consent shall be required; PROVIDED FURTHER that such
assignment may, but need not, include rights of the transferor Bank in respect
of outstanding Money Market Loans; and PROVIDED FURTHER that if an Assignee is
another Bank, such consent shall not be unreasonably withheld. Upon execution
and delivery of such instrument and payment by such Assignee to such transferor
Bank of an amount equal to the purchase price agreed between such transferor
Bank and such Assignee, such Assignee shall be a Bank party to this Agreement
and shall have all the rights and obligations of a Bank with a Commitment as set
forth in such instrument of assumption, and the transferor Bank shall be
released from its obligations hereunder to a corresponding extent, and no
further consent or action by any party shall be required. Upon the consummation
of any assignment pursuant to this subsection (c), the transferor Bank, the
Agent and the Borrower shall make appropriate arrangements so that, if required,
a new Note is issued to the Assignee. In connection with any such assignment,
the transferor Bank shall pay to the Agent an administrative fee for processing
such assignment in the amount of $2,500. If the Assignee is not incorporated
under the laws of the United States of America or a state thereof, it shall
deliver to the Borrower and the Agent certification as to exemption from
deduction or withholding of any United States federal income taxes in accordance
with Section 8.04.
(d) Any Bank may at any time assign all or any portion of its rights
under this Agreement and its Note to a Federal Reserve Bank. No such assignment
shall release the transferor Bank from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Bank's rights
shall be entitled to receive any greater payment under Section 8.03 or 8.04 than
such Bank would have been entitled to receive with respect to the
58
<PAGE>
rights transferred, unless such transfer is made with the Borrower's prior
written consent or by reason of the provisions of Section 8.02, 8.03 or 8.04
requiring such Bank to designate a different Applicable Lending Office under
certain circumstances.
SECTION 9.07. COLLATERAL. Each of the Banks represents to the Agent
and each of the other Banks that it in good faith is not relying upon any
"margin stock" (as defined in Regulation U) as collateral in the extension or
maintenance of the credit provided for in this Agreement.
SECTION 9.08. GOVERNING LAW; SUBMISSION TO JURISDICTION. This
Agreement and each Note shall be governed by and construed in accordance with
the laws of the State of New York. Each of the Borrower and the Guarantors
hereby submits to the nonexclusive jurisdiction of the United States District
Court for the Southern District of New York and of any New York State court
sitting in New York City for purposes of all legal proceedings arising out of or
relating to the Financing Documents or the transactions contemplated thereby.
Each of the Borrower and the Guarantors irrevocably waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to the
laying of the venue of any such proceeding brought in such a court and any claim
that any such proceeding brought in such a court has been brought in an
inconvenient forum.
SECTION 9.09. COUNTERPARTS; INTEGRATION. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement constitutes the entire agreement and understanding
among the parties hereto and supersedes any and all prior agreements and
understandings, oral or written, relating to the subject matter hereof.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
GUARANTORS, THE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THE
FINANCING DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.
59
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
UNOVA, INC.
By:
------------------------------------
Title:
360 North Crescent Drive
Beverly Hills, California 90210
Telex number:
Telecopy number:
60
<PAGE>
COMMITMENTS
$50,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:
-----------------------------
Name:
Title:
$35,000,000 BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By:
-----------------------------
Name:
Title:
$35,000,000 THE BANK OF NEW YORK
By:
-----------------------------
Name:
Title:
$35,000,000 THE CHASE MANHATTAN BANK
By:
-----------------------------
Name:
Title:
$35,000,000 CIBC INC.
By:
-----------------------------
Name:
Title:
61
<PAGE>
$35,000,000 THE FIRST NATIONAL BANK OF CHICAGO
By:
-----------------------------
Name:
Title:
$35,000,000 NATIONSBANK OF TEXAS, N.A.
By:
-----------------------------
Name:
Title:
$28,000,000 CREDIT SUISSE FIRST BOSTON
By:
-----------------------------
Name:
Title:
$28,000,000 DRESDNER BANK A.G., NEW YORK BRANCH
AND GRAND CAYMAN BRANCH
By:
-----------------------------
Name:
Title:
$28,000,000 THE FUJI BANK, LIMITED
By:
-----------------------------
Name:
Title:
62
<PAGE>
$28,000,000 MELLON BANK, N.A.
By:
-----------------------------
Name:
Title:
$28,000,000 THE NORTHERN TRUST COMPANY
By:
-----------------------------
Name:
Title:
- -----------------
Total Commitments
$400,000,000
=================
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By:
------------------------------
Title:
60 Wall Street
New York, New York 10260-0060
Attention:
Telex number: 177615
63
<PAGE>
PRICING SCHEDULE
The "Euro-Dollar Margin", "CD Margin" and "Facility Fee Rate" for any
day are the respective percentages set forth below in the applicable row under
the column corresponding to the Status that exists on such day:
=================== ======== ========= ========= ========= ========= ==========
Level Level Level Level Level Level
Status I II III IV V VI
=================== ======== ========= ========= ========= ========= ==========
Euro-Dollar Margin .13% .17% .21% .24% .35% .50%
- ------------------- -------- --------- --------- --------- --------- ----------
CD Margin .255% .295% .335% .365% .475% .625%
- ------------------- -------- --------- --------- --------- --------- ----------
Facility Fee Rate .07% .08% .09% .11% .15% .25%
=================== ======== ========= ========= ========= ========= ==========
For purposes of this Schedule, the following terms have the following
meanings:
"Applicable Leverage Ratio" means, at any date, the Leverage Ratio
reflected in the certificate most recently delivered by the Borrower pursuant to
Section 5.01(c) prior to such date; PROVIDED that until the delivery of the
first such certificate, the Applicable Leverage Ratio shall be deemed to be at a
level resulting in Level II Status; and PROVIDED FURTHER that at any date on
which a Default exists under Section 5.01(c), the Applicable Leverage Ratio
shall be deemed to be greater than 3.0 to 1.0.
"Level I Status" exists at any date if, at such date, (A) prior to the
Ratings Trigger Date, the Applicable Leverage Ratio is equal to or less than
1.50 to 1.0 or (B) on and after the Ratings Trigger Date, the Borrower's
long-term debt is rated A/A2 or higher by at least two Rating Agencies.
"Level II Status" exists at any date if, at such date, (i) (A) prior
to the Ratings Trigger Date, the Applicable Leverage Ratio is equal to or less
than 1.85 to 1.0 or (B) on and after the Ratings Trigger Date, the Borrower's
long-term debt is rated A-/A3 or higher by at least two Rating Agencies and (ii)
Level I Status does not exist at such date.
"Level III Status" exists at any date if, at such date, (i) (A) prior
to the Ratings Trigger Date, the Applicable Leverage Ratio is equal to or less
than 2.25 to
<PAGE>
1.0 or (B) on and after the Ratings Trigger Date, the Borrower's long-term debt
is rated BBB+/Baa1 or higher by at least two Rating Agencies and (ii) neither
Level I Status nor Level II Status exists at such date.
"Level IV Status" exists at any date if, at such date, (i) (A) prior
to the Ratings Trigger Date, the Applicable Leverage Ratio is equal to or less
than 2.50 to 1.0 or (B) on and after the Ratings Trigger Date, the Borrower's
long-term debt is rated BBB/Baa2 or higher by at least two Rating Agencies and
(ii) none of Level I Status, Level II Status or Level III Status exists at such
date.
"Level V Status" exists at any date if, at such date, (i) (A) prior to
the Ratings Trigger Date, the Applicable Leverage Ratio is equal to or less than
3.0 to 1.0 or (B) on and after the Ratings Trigger Date,the Borrower's long-term
debt is rated BBB-/Baa3 or higher by at least two Rating Agencies and (ii) none
of Level I Status, Level II Status, Level III Status or Level IV Status exists
at such date.
"Level VI Status" exists at any date, if at the close of business on
such date, none of Level I Status, Level II Status, Level III Status, Level IV
Status or Level V Status exists.
"Ratings Trigger Date" means the first date subsequent to the
Effective Date on which the Borrower shall have been assigned a senior unsecured
long-term debt rating by at least two Rating Agencies.
"Status" refers to the determination of which of Level I Status, Level
II Status, Level III Status, Level IV Status, Level V Status or Level VI Status
exists at any date.
The credit ratings to be utilized for purposes of determining a Status
hereunder are those assigned to the senior unsecured long-term debt of the
Borrower without third-party credit enhancement, and any rating assigned to any
other debt of the Borrower shall be disregarded; PROVIDED that if at any time
the Borrower's senior unsecured long-term debt is rated by exactly two Rating
Agencies and the ratings assigned to such debt by such two Rating Agencies are
more than one full rating category apart, Status shall be determined based on a
rating one category higher than the lower of such two ratings (E.G., if the S&P
rating is A+, the Moody's rating is Baa1 and there is no D&P rating, then Level
II Status shall exist); PROVIDED FURTHER that if at any time after the Ratings
Trigger Date the
2
<PAGE>
Borrower's senior unsecured long-term debt, without third party credit
enhancement, is not rated by at least two Rating Agencies, then Status shall be
Level VI Status. The rating in effect at any date is that in effect at the
close of business on such date.
3
<PAGE>
EXHIBIT A
NOTE
New York, New York
____________, 1997
For value received, UNOVA Inc., a Delaware corporation (the
"Borrower"), promises to pay to the order of (the "Bank"), for
the account of its Applicable Lending Office, the unpaid principal amount of
each Loan made by the Bank to the Borrower pursuant to the Credit Agreement
referred to below on the last day of the Interest Period relating to such Loan.
The Borrower promises to pay interest on the unpaid principal amount of each
such Loan on the dates and at the rate or rates provided for in the Credit
Agreement. All such payments of principal and interest shall be made in lawful
money of the United States in Federal or other immediately available funds at
the office of Morgan Guaranty Trust Company of New York, 60 Wall Street, New
York, New York.
Each Loan made by the Bank, the type and maturity thereof, and all
repayments of the principal thereof, shall be recorded by the Bank and, if the
Bank so elects in connection with any transfer or enforcement hereof,
appropriate notations to evidence the foregoing information with respect to each
Loan then outstanding may be endorsed by the Bank on the schedule attached
hereto, or on a continuation of such schedule attached to and made a part
hereof; PROVIDED that the failure of the Bank to make any such recordation or
endorsement shall not affect the obligations of the Borrower or any Guarantor
hereunder or under any other Financing Document.
This note is one of the Notes referred to in the Credit Agreement
dated as of September 24, 1997 among the Borrower, the banks parties thereto and
Morgan Guaranty Trust Company of New York, as Agent (as the same may be amended
from time to time, the "Credit Agreement"). Terms defined in the Credit
Agreement are used herein with the same meanings. Reference is made to the
Credit Agreement for provisions for the prepayment hereof and the acceleration
of the maturity hereof.
UNOVA, INC.
By
------------------------
Title:
<PAGE>
Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
- --------------------------------------------------------------------------------
Amount of
Amount of Type of Principal Maturity Notation
Date Loan Loan Repaid Date Made By
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
<PAGE>
EXHIBIT B
FORM OF MONEY MARKET QUOTE REQUEST
----------------------------------
[Date]
To: Morgan Guaranty Trust Company of New York
From: UNOVA, Inc. (the "Borrower")
Re: Credit Agreement (as amended from time to time, the "Credit
Agreement") dated as of September 24, 1997 among the Borrower, the
Banks parties thereto and Morgan Guaranty Trust Company of New York,
as Agent
We hereby give notice pursuant to Section 2.03 of the Credit Agreement
that we request Money Market Quotes for the following proposed Money Market
Borrowing(s):
Date of Borrowing: __________________
PRINCIPAL AMOUNT INTEREST PERIOD
- ---------------- ---------------
$
Such Money Market Quotes should offer a Money Market [Margin]
[Absolute Rate]. [The applicable base rate is the London Interbank Offered
Rate.]
- ----------------------
*Amount must be $10,000,000 or a larger multiple of $1,000,000.
**Not less than one month (LIBOR Auction) or not less than 7 days (Absolute
Rate Auction), subject to the provisions of the definition of Interest
Period.
<PAGE>
Terms used herein have the meanings assigned to them in the Credit
Agreement.
UNOVA, INC.
By
------------------------------
Title:
2
<PAGE>
EXHIBIT C
FORM OF INVITATION FOR MONEY MARKET QUOTES
To: [Name of Bank]
Re: Invitation for Money Market Quotes
to UNOVA, Inc. (the "Borrower")
Pursuant to Section 2.03 of the Credit Agreement (as amended from time
to time, the "Credit Agreement") dated as of September 24, 1997 among the
Borrower, the Banks parties thereto and the undersigned, as Agent, we are
pleased on behalf of the Borrower to invite you to submit Money Market Quotes to
the Borrower for the following proposed Money Market Borrowing(s):
Date of Borrowing: __________________
PRINCIPAL AMOUNT INTEREST PERIOD
- ---------------- ---------------
$
Such Money Market Quotes should offer a Money Market [Margin]
[Absolute Rate]. [The applicable base rate is the London Interbank Offered
Rate.]
Please respond to this invitation by no later than [2:00 P.M.] [9:30
A.M.] (New York City time) on [date].
Terms used herein have the meanings assigned to them in the Credit
Agreement.
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By
-----------------------
Authorized Officer
<PAGE>
EXHIBIT D
FORM OF MONEY MARKET QUOTE
--------------------------
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
60 Wall Street
New York, New York 10260-0060
Attention:
Re: Money Market Quote to
UNOVA, Inc. (the "Borrower")
In response to your invitation on behalf of the Borrower dated
_____________, 19__, we hereby make the following Money Market Quote on the
following terms:
1. Quoting Bank: ________________________________
2. Person to contact at Quoting Bank:
_____________________________
3. Date of Borrowing: ____________________*
4. We hereby offer to make Money Market Loan(s) in the following principal
amounts, for the following Interest Periods and at the following rates:
Principal Interest Money Market
Amount** Period*** [Margin****] [Absolute Rate*****]
- --------- --------- ------------ --------------------
$
$
[Provided, that the aggregate principal amount of Money Market Loans for
which the above offers may be accepted shall not exceed $____________.]**
__________
* As specified in the related Invitation.
(notes continued on following page)
<PAGE>
We understand and agree that the offer(s) set forth above,
subject to the satisfaction of the applicable conditions set forth in
the Credit Agreement (as amended from time to time, the "Credit
Agreement") dated as of September 24, 1997 among the Borrower, the
Banks parties thereto and yourselves, as Agent, irrevocably obligates
us to make the Money Market Loan(s) for which any offer(s) are
accepted, in whole or in part.
Terms used herein have the meanings assigned to them in the
Credit Agreement.
Very truly yours,
[NAME OF BANK]
Dated:_______________ By:__________________________
Authorized Officer
- --------------
** Principal amount bid for each Interest Period may not exceed principal amount
requested. Specify aggregate limitation if the sum of the individual offers
exceeds the amount the Bank is willing to lend. Bids must be made for
$5,000,000 or a larger multiple of $1,000,000.
*** Not less than one month or not less than 7 days, as specified in the related
Invitation. No more than five bids are permitted for each Interest Period.
(notes continued on following page)
**** Margin over or under the London Interbank Offered Rate determined for the
applicable Interest Period. Specify percentage (to the nearest 1/10,000 of 1%)
and specify whether "PLUS" or "MINUS".
***** Specify rate of interest per annum (to the nearest 1/10,000th of 1%).
2
<PAGE>
EXHIBIT E
OPINION OF COUNSEL FOR THE
BORROWER AND THE GUARANTORS
---------------------------
__, 1997
To the Banks and the Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Agent
60 Wall Street
New York, New York 10260-0060
Dear Sirs:
I am the chief legal officer of UNOVA, Inc. (the "Borrower") and have
acted in that capacity in connection with the Credit Agreement (the "Credit
Agreement") dated as of September 24, 1997 among the Borrower, the banks listed
on the signature pages thereof and Morgan Guaranty Trust Company of New York, as
Agent. Terms defined in the Credit Agreement are used herein as therein
defined.
I have examined originals or copies, certified or otherwise identified
to my satisfaction, of such documents, corporate records, certificates of public
officials and other instruments and have conducted such other investigations of
fact and law as I have deemed necessary or advisable for purposes of this
opinion.
Upon the basis of the foregoing, I am of the opinion that:
1. The Borrower is a corporation duly incorporated, validly existing
and in good standing under the laws of Delaware and has all corporate powers and
all material governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted.
2. The execution, delivery and performance by each Obligor of the
Financing Documents to which it is a party are within its corporate powers, have
been duly authorized by all necessary corporate action, require no action by or
in respect of, or filing with, any governmental body, agency or official and do
not contravene, or constitute a default under, any provision of applicable law
<PAGE>
or regulation or of its certificate of incorporation or by-laws or of any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Borrower or any of its Subsidiaries or result in the creation or imposition
of any Lien on any asset of the Borrower or any of its Subsidiaries.
3. The Credit Agreement constitutes a valid and binding agreement of
the Borrower, the Notes constitute valid and binding obligations of the Borrower
and the Subsidiary Guarantee Agreement is a valid and binding agreement of each
Obligor.
4. There is no action, suit or proceeding pending against, or to the
best of my knowledge threatened against or affecting, the Borrower or any of its
Subsidiaries before any court or arbitrator or any governmental body, agency or
official which could reasonably be expected to materially and adversely affect
the business, consolidated financial position or consolidated results of
operations of the Borrower and its Consolidated Subsidiaries, taken as a whole.
(b) There is no action, suit or proceeding pending against, or to
the best of my knowledge threatened against or affecting, the Borrower or any of
its Subsidiaries before any court or arbitrator or any governmental body, agency
or official which in any manner questions the validity or enforceability of any
Financing Document.
5. Each of the Borrower's Material Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted.
I am a member of the Bar of the State of California, and the foregoing
opinion is limited to the laws of the State of California, the General
Corporation Law of the State of Delaware and the Federal laws of the United
States of America. Inasmuch as the Credit Agreement and the Notes are governed
by the law of the State of New York, I have assumed for purposes of the
foregoing opinion that such law is the same as the law of the State of
California.
Very truly yours,
2
<PAGE>
EXHIBIT F
OPINION OF
DAVIS POLK & WARDWELL, SPECIAL COUNSEL
FOR THE AGENT
--------------------------------------
__, 1997
To the Banks and the Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Agent
60 Wall Street
New York, New York 10260-0060
Dear Sirs:
We have participated in the preparation of the Credit Agreement (the
"Credit Agreement") dated as of September 24, 1997 among UNOVA, Inc., a Delaware
corporation (the "Borrower"), the banks listed on the signature pages thereof
(the "Banks") and Morgan Guaranty Trust Company of New York, as Agent (the
"Agent"), and have acted as special counsel for the Agent for the purpose of
rendering this opinion pursuant to Section 3.01(e) of the Credit Agreement.
Terms defined in the Credit Agreement are used herein as therein defined.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as we have deemed necessary or advisable
for purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. The execution, delivery and performance by the Borrower of the
Financing Documents are within the Borrower's corporate powers and have been
duly authorized by all necessary corporate action.
2. The Credit Agreement and the Subsidiary Guarantee Agreement
constitute valid and binding agreements of the Borrower and each Note
constitutes a valid and
<PAGE>
binding obligation of the Borrower, in each case enforceable in accordance with
its terms, except as the same may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and by general principles of
equity.
3. The Subsidiary Guarantee Agreement constitutes a valid and binding
agreement of each Guarantor, enforceable in accordance with its terms, except as
the same may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and by general principles of equity.
4. The documents delivered to the Agent by the Borrower pursuant to
Section 3.01 of the Credit Agreement are substantially responsive to the
requirements of said Section.
In giving the opinion set forth in paragraph 3 above, we have, with
your permission, assumed that the execution, delivery and performance by each
Guarantor of the Subsidiary Guarantee Agreement are within such Guarantor's
corporate powers and have been duly authorized by all necessary corporate
action.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York, the federal laws of the
United States of America and the General Corporation Law of the State of
Delaware. In giving the foregoing opinion, (i) we express no opinion as to the
effect (if any) of any law of any jurisdiction (except the State of New York) in
which any Bank is located which limits the rate of interest that such Bank may
charge or collect and (ii) the opinion expressed in paragraph 3 above is subject
to the effect, if any, of Section 548 of the United States Bankruptcy Code and
any comparable provisions of applicable state law.
This opinion is rendered solely to you in connection with the above
matter. This opinion may not be relied upon by you for any other purpose or
relied upon by any other person without our prior written consent.
Very truly yours,
2
<PAGE>
EXHIBIT G
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT dated as of _________, 19__ among [ASSIGNOR] (the
"Assignor"), [ASSIGNEE] (the "Assignee"), UNOVA, INC. (the "Borrower") and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent").
W I T N E S E T H
- - - - - - - - -
WHEREAS, this Assignment and Assumption Agreement (the "Agreement")
relates to the Credit Agreement dated as of September 24, 1997 among the
Borrower, the Assignor and the other Banks party thereto, as Banks, and the
Agent (as amended from time to time, the "Credit Agreement");
WHEREAS, as provided under the Credit Agreement, the Assignor has a
Commitment to make Committed Loans to the Borrower in an aggregate principal
amount at any time outstanding not to exceed $__________;
WHEREAS, Committed Loans made to the Borrower by the Assignor under
the Credit Agreement in the aggregate principal amount of $__________ are
outstanding at the date hereof; and
WHEREAS, the Assignor proposes to assign to the Assignee all of the
rights of the Assignor under the Credit Agreement in respect of a portion of its
Commitment thereunder in an amount equal to $__________ (the "Assigned Amount"),
together with a corresponding portion of its outstanding Committed Loans, and
the Assignee proposes to accept assignment of such rights and assume the
corresponding obligations from the Assignor on such terms;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. All capitalized terms not otherwise defined
herein shall have the respective meanings set forth in the Credit Agreement.
<PAGE>
SECTION 2. ASSIGNMENT. The Assignor hereby assigns and sells to the
Assignee all of the rights of the Assignor under the Credit Agreement and the
other Financing Documents to the extent of the Assigned Amount, and the Assignee
hereby accepts such assignment from the Assignor and assumes all of the
obligations of the Assignor under the Credit Agreement to the extent of the
Assigned Amount, including the purchase from the Assignor of the corresponding
portion of the principal amount of the Committed Loans made by the Assignor
outstanding at the date hereof. Upon the execution and delivery hereof by the
Assignor, the Assignee, the Borrower and the Agent and the payment of the
amounts specified in Section 3 required to be paid on the date hereof (i) the
Assignee shall, as of the date hereof, succeed to the rights and be obligated to
perform the obligations of a Bank under the Credit Agreement and the other
Financing Documents with a Commitment in an amount equal to the Assigned Amount,
and (ii) the Commitment of the Assignor shall, as of the date hereof, be reduced
by a like amount and the Assignor released from its obligations under the Credit
Agreement to the extent such obligations have been assumed by the Assignee. The
assignment provided for herein shall be without recourse to the Assignor.
SECTION 3. PAYMENTS. As consideration for the assignment and sale
contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the
date hereof in Federal funds the amount heretofore agreed between them. It is
understood that facility fees accrued to the date hereof are for the account of
the Assignor and such fees accruing from and including the date hereof in
respect of the Assigned Amount are for the account of the Assignee. Each of the
Assignor and the Assignee hereby agrees that if it receives any amount under the
Credit Agreement or any other Financing Document which is for the account of the
other party hereto, it shall receive the same for the account of such other
party to the extent of such other party's interest therein and shall promptly
pay the same to such other party.
SECTION 4. CONSENT OF THE BORROWER AND THE AGENT. This Agreement is
conditioned upon the consent of the Borrower and the Agent, pursuant to Section
9.06(c) of the Credit Agreement. The execution of this Agreement by the
Borrower and the Agent is evidence of this consent. Pursuant to Section 9.06(c)
the Borrower agrees to execute and deliver a Note payable to the order of the
Assignee to evidence the assignment and assumption provided for herein.
SECTION 5. NON-RELIANCE ON ASSIGNOR. The Assignor makes no
representation or warranty in connection
2
<PAGE>
with, and shall have no responsibility with respect to, the solvency, financial
condition, or statements of the Borrower or any Guarantor, or the validity and
enforceability of the obligations of the Borrower or any Guarantor in respect of
any Financing Document. The Assignee acknowledges that it has, independently
and without reliance on the Assignor, and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and will continue to be responsible for
making its own independent appraisal of the business, affairs and financial
condition of the Borrower and each Guarantor.
SECTION 6. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 7. COUNTERPARTS. This Agreement may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.
[ASSIGNOR]
By_________________________
Title:
[ASSIGNEE]
By__________________________
Title:
UNOVA, INC.
By__________________________
Title:
3
<PAGE>
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By___________________________
Title:
4
<PAGE>
EXHIBIT H
SUBSIDIARY GUARANTEE AGREEMENT
dated as of
, 1997
among
UNOVA, Inc.
The Guarantors Referred to Herein
and
Morgan Guaranty Trust Company of New York,
as Agent
<PAGE>
TABLE OF CONTENTS*
PAGE
ARTICLE I
DEFINITIONS
1.01 Definitions................................ 2
ARTICLE II
Guarantees
2.01 The Guarantees............................. 3
2.02 Guarantees Unconditional................... 3
2.03 Limit of Liability......................... 4
2.04 Discharge; Reinstatement in
Certain Circumstances.................... 4
2.05 Waiver..................................... 4
2.06 Subrogation................................ 5
2.07 Stay of Acceleration....................... 5
ARTICLE III
COVENANT OF THE BORROWER
3.01 Additional Guarantors...................... 5
ARTICLE IV
MISCELLANEOUS
4.01 Notices.................................... 5
4.02 No Waiver.................................. 6
4.03 Amendments and Waivers..................... 6
4.04 Governing Law; Submission to
Jurisdiction; Waiver of a
Jury Trial............................... 6
4.05 Successors and Assigns..................... 6
4.06 Counterparts; Effectiveness................ 7
- -----------------
* The Table of Contents is not a part of this Agreement.
<PAGE>
SUBSIDIARY GUARANTEE AGREEMENT
------------------------------
AGREEMENT dated as of ____________, 1997 among UNOVA, Inc., a Delaware
corporation (the "Borrower"), each of the Guarantors listed on the signature
pages hereof under the caption "Guarantors" and each Person that shall, at any
time after the date hereof, become a "Guarantor" hereunder (collectively, the
"Guarantors") and Morgan Guaranty Trust Company of New York, as Agent.
WHEREAS, the Borrower has entered into a Credit Agreement dated as of
September 24, 1997 (as the same may be amended from time to time, the "Credit
Agreement") among the Borrower, the banks parties thereto and Morgan Guaranty
Trust Company of New York, as Agent, pursuant to which the Borrower is entitled,
subject to certain conditions, to borrow up to $400,000,000;
WHEREAS, the Credit Agreement provides, among other things, that one
condition to the effectiveness of the Commitments thereunder is the execution
and delivery by the Borrower and the Guarantors of a subsidiary guarantee
substantially in the form of this Agreement;
WHEREAS, in conjunction with the transactions contemplated by the
Credit Agreement and in consideration of the financial and other support that
the Borrower has provided, and such financial and other support as the Borrower
may in the future provide, to the Guarantors, and in order to induce the Banks
and the Agent to enter into the Credit Agreement and to make Loans thereunder,
the Guarantors are willing to guarantee the obligations of the Borrower under
the Credit Agreement and the Notes;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. Terms defined in the Credit Agreement and
not otherwise defined herein are used herein as therein defined. In addition
the following terms, as used herein, have the following meanings:
"Guaranteed Obligations" means (i) all obligations of the Borrower in
respect of principal of and interest on the Loans and the Notes, (ii) all other
amounts payable by the Borrower under the Credit Agreement or the Notes and
(iii) all renewals or extensions of the foregoing, in each case whether now
outstanding or hereafter arising. The Guaranteed Obligations shall include,
without limitation, any interest, costs, fees and expenses which accrue on or
with respect to any of the foregoing, whether before or after the commencement
of any case, proceeding or other action relating to the bankruptcy, insolvency
or reorganization of any one or more than one of the Borrower and the
Guarantors, and any such interest, costs, fees and expenses that would have
accrued thereon or with respect thereto but for the commencement of such case,
proceeding or other action.
"Material Subsidiary" means (i) each Material Subsidiary (as defined
in the Credit Agreement) of the Borrower, (ii) each Subsidiary of the Borrower
that the Required Banks have by notice to the Borrower designated as a "Material
Subsidiary" for purposes hereof and (iii) all direct or indirect successors in
interest to any of the entities described in clauses (i) and (ii) of this
definition (including, without limitation, by way of merger or consolidation
with, or acquisition of all or a substantial part of the assets of, any such
entity).
ARTICLE II
Guarantees
SECTION 2.01. THE GUARANTEES. Subject to Section 2.03, the
Guarantors hereby jointly, severally, unconditionally and irrevocably guarantee
to the Banks and the Agent and to each of them, the due and punctual payment of
all Guaranteed Obligations as and when the same shall
2
<PAGE>
become due and payable, whether at maturity, by declaration or otherwise,
according to the terms thereof. In case of failure by the Borrower punctually
to pay the indebtedness guarantied hereby, the Guarantors, subject to Section
2.03, hereby jointly, severally, unconditionally and irrevocably agree to cause
such payment to be made punctually as and when the same shall become due and
payable, whether at maturity or by declaration or otherwise, and as if such
payment were made by the Borrower.
SECTION 2.02. GUARANTEES UNCONDITIONAL. The obligations of each
Guarantor under this Article II shall be unconditional and absolute and, without
limiting the generality of the foregoing, shall not be released, discharged or
otherwise affected by:
(a) any extension, renewal, settlement, compromise, waiver or release
in respect of any obligation of any other Obligor under any Financing
Document, by operation of law or otherwise;
(b) any modification or amendment of or supplement to any Financing
Document;
(c) any modification, amendment, waiver, release, impairment,
non-perfection or invalidity of any direct or indirect security, or of any
guarantee or other liability of any third party, for any obligation of any
other Obligor under any Financing Document;
(d) any change in the corporate existence, structure or ownership of
any other Obligor, or any insolvency, bankruptcy, reorganization or other
similar proceeding affecting any other Obligor or its assets or any
resulting release or discharge of any obligation of any other Obligor
contained in any Financing Document;
(e) the existence of any claim, set-off or other rights which any
Obligor may have at any time against any other Obligor, the Agent, any
Co-Agent, any Bank or any other Person, whether or not arising in
connection with the Financing Documents; PROVIDED that nothing herein shall
prevent the assertion of any such claim by separate suit or compulsory
counterclaim;
(f) any invalidity or unenforceability relating to or against any
other Obligor for any reason of any Financing Document, or any provision of
applicable law or regulation purporting to prohibit the payment by any
other Obligor of the principal of or interest on any
3
<PAGE>
Note or any other amount payable by any other Obligor under any Financing
Document; or
(g) any other act or omission to act or delay of any kind by any
other Obligor, the Agent, any Bank or any other Person or any other
circumstance whatsoever that might, but for the provisions of this
paragraph, constitute a legal or equitable discharge of or defense to the
obligations of any Guarantor under this Article II.
SECTION 2.03. LIMIT OF LIABILITY. Each Guarantor shall be liable
under this Agreement only for amounts aggregating up to the largest amount that
would not render its obligations hereunder subject to avoidance under Section
548 of the United States Bankruptcy Code or any comparable provisions of any
applicable state law.
SECTION 2.04. DISCHARGE; REINSTATEMENT IN CERTAIN CIRCUMSTANCES.
Each Guarantor's obligations under this Article II shall remain in full force
and effect until the Commitments are terminated and the principal of and
interest on the Notes and all other amounts payable by the Borrower under the
Financing Documents shall have been paid in full. The obligations of any
Guarantor under this Article II may only be terminated with the consent of all
of the Banks. If at any time any payment of the principal of or interest on any
Note or any other amount payable by the Borrower under any Financing Document is
rescinded or must be otherwise restored or returned upon the insolvency,
bankruptcy or reorganization of any other Obligor or otherwise, each Guarantor's
obligations under this Article II with respect to such payment shall be
reinstated at such time as though such payment had become due but had not been
made at such time.
SECTION 2.05. WAIVER. Each Guarantor irrevocably waives acceptance
hereof, presentment, demand, protest and any notice not provided for herein, as
well as any requirement that at any time any action be taken by any Person
against any other Obligor or any other Person.
SECTION 2.06. SUBROGATION. Upon making any payment hereunder, the
Guarantor making such payment shall be subrogated to the rights of the payee
against the Borrower with respect to such payment; PROVIDED that such Guarantor
shall not enforce any payment by way of subrogation until all amounts of
principal of and interest on the Notes and all other amounts payable by the
Borrower under the Credit Agreement shall have been paid in full.
4
<PAGE>
SECTION 2.07. STAY OF ACCELERATION. If acceleration of the time for
payment of any amount payable by the Borrower under the Financing Documents is
stayed upon the insolvency, bankruptcy or reorganization of the Borrower, all
such amounts otherwise subject to acceleration under the terms of the Financing
Documents shall nonetheless be payable by each Guarantor hereunder forthwith on
demand by the Agent made at the request of the Required Banks.
ARTICLE III
COVENANT OF THE BORROWER
SECTION 3.01. ADDITIONAL GUARANTORS. The Borrower represents and
warrants that, as of the date of this Agreement, the Guarantors set forth on the
signature pages hereof constitute all Material Subsidiaries. The Borrower
agrees, within ten days after any Person hereafter becomes a Material
Subsidiary, to cause such Person to become a Guarantor hereunder, and in
connection therewith to deliver such opinions of counsel and other documents
relating to such Guarantor and its obligations hereunder as the Agent may
reasonably request.
ARTICLE IV
MISCELLANEOUS
SECTION 4.01. NOTICES. Unless otherwise specified herein, all
notices, requests and other communications to any party hereunder shall be in
writing (including facsimile transmission or similar writing) and shall be given
to such party at its address or facsimile number set forth on the signature
pages hereof (or, in the case of any Guarantor as to which no such address or
facsimile number is so set forth, to it at the address or facsimile number of
the Borrower set forth on the signature pages hereof) or such other address or
facsimile number as such party may hereafter specify for the purpose by notice
to the Agent. Each such notice, request or other communication shall be
effective (i) if given by facsimile transmission, when such facsimile is
transmitted to the facsimile transmission number specified in or pursuant to
this Section 4.01, (ii) if given by mail, 72 hours after such communication is
deposited in the mails with first class postage prepaid, addressed as aforesaid
or (iii) if
5
<PAGE>
given by any other means, when delivered at the address specified in this
Section 4.01.
SECTION 4.02. NO WAIVER. No failure or delay by the Agent or any
Bank in exercising any right, power or privilege under this Agreement or any
other Financing Document shall operate as a waiver thereof nor shall any single
or partial exercise thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies
herein and therein provided shall be cumulative and not exclusive of any rights
or remedies provided by law.
SECTION 4.03. AMENDMENTS AND WAIVERS. Any provision of this
Agreement may be amended or waived if, and only if, such amendment or waiver is
in writing and is signed by the Borrower, each Guarantor and the Agent with the
prior written consent of the Required Banks under the Credit Agreement; PROVIDED
that the second sentence of Section 2.04 and the PROVISO in Section 4.05 of this
Agreement may only be amended with the consent of all of the Banks.
SECTION 4.04. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF A
JURY TRIAL. This Agreement shall be construed in accordance with and governed
by the laws of the State of New York. Each of the Guarantors hereby agrees to
be bound by each provision of the Credit Agreement which purports to bind it,
including without limitation Sections 8.04, 9.04, 9.08 and 9.10, to the same
extent as if it were a signatory party thereto.
SECTION 4.05. SUCCESSORS AND ASSIGNS. This Subsidiary Guarantee is
for the benefit of the Banks and the Agent and their respective successors and
assigns and in the event of an assignment of the Loans, the Notes or other
amounts payable under the Financing Documents, the rights hereunder, to the
extent applicable to the indebtedness so assigned, shall be transferred with
such indebtedness. All the provisions of this Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns; PROVIDED that no Guarantor shall assign its rights and obligations
hereunder without the consent of all of the Banks.
SECTION 4.06. COUNTERPARTS; EFFECTIVENESS. This Agreement may be
signed in any number of counterparts, each of which shall be an original, and
all of which taken together shall constitute a single instrument, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when
6
<PAGE>
the Agent shall have received a counterpart hereof signed by the Borrower, and
one or more of the Guarantors and when the Commitments shall become effective in
accordance with the terms of the Credit Agreement. Thereafter, upon execution
and delivery of a counterpart of this Agreement on behalf of any other
Guarantor, this Agreement shall become effective with respect to such Guarantor
as of the date of such delivery.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Subsidiary
Guarantee Agreement to be duly executed by their respective authorized officers
as of the date first above written.
UNOVA, INC.
By
----------------------------------
Title:
360 North Crescent Drive
Beverly Hills, California 90210
Telex number:
Telecopy number:
GUARANTORS
----------
INTERMEC TECHNOLOGIES CORPORATION
By
------------------------------
Title:
UNOVA INDUSTRIAL AUTOMATION
SYSTEMS, INC.
By
------------------------------
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By
------------------------------
Title:
60 Wall Street
New York, New York 10260-0060
Attention:
Telex number: 177615
8
<PAGE>
EXHIBIT 21
UNOVA, INC.
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION PERCENTAGE
OF OF
NAME OF SUBSIDIARY INCORPORATION OWNERSHIP
- ------------------------------------------------------------------------------------- -------------- ---------------
<S> <C> <C>
Intermec Technologies Corporation.................................................... Washington 100%
Norand Corporation................................................................... Delaware 100%
UBI Holdings B.V..................................................................... Netherlands 100%
UNOVA Industrial Automation Systems, Inc............................................. Delaware 100%
</TABLE>
The Registrant has additional operating subsidiaries which, considered in
the aggregate as a single subsidiary, do not constitute a significant
subsidiary.
All above-listed subsidiaries have been consolidated in the Registrant's
financial statements upon acquisition.
