<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 17, 1994
LITTON INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 1-3998 95-1775499
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
360 North Crescent Drive, Beverly Hills, California 90210
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 859-5000
Page 1 of 10
Exhibit Index appears on Page 3
<PAGE>
Item 2. Acquisition or Disposition of Assets
- - - - - - - - - - - - - - - - - - - - - - - -
On March 17, 1994, Litton Industries, Inc. (the "Registrant", "Litton" or the
"Company") distributed all of the issued and outstanding shares of
Common stock, par value $1.00 per share, of its wholly-owned subsidiary
Western Atlas Inc., a Delaware corporation ("WAI"). The distribution
("Distribution") was made in the form of a dividend to holders of record of
Litton Common stock at the close of business on March 14, 1994. Litton
shareholders of record are entitled to receive one share of WAI Common stock
for each share of Litton Common stock owned.
The Registrant retains its defense/electronics and marine operations and
interconnect products businesses, but no longer holds an interest in either
the oilfield information services or industrial automation systems
businesses. As a result of the Distribution, WAI is now an independent
publicly-owned company.
In connection with the Distribution, the Registrant and WAI entered into
a number of agreements including a Distribution and Indemnity Agreement and a
Tax Sharing Agreement, copies of which are included as exhibits hereto.
Additional information concerning WAI and the Distribution is contained
in WAI's Registration Statement on Form 10, as amended (File 1-12430),
filed under the Securities Exchange Act of 1934.
On March 17, 1994, Paul Bancroft, III, William C. Edwards and Steven B. Sample
resigned as members of Litton's Board of Directors to become members of WAI's
Board of Directors. On March 17, 1994, John M. Leonis, President and Chief
Executive Officer of Litton, and Rudolph E. Lang, Jr., Senior Vice President
and Chief Financial Officer of Litton, became members of Litton's Board of
Directors.
-2-
<PAGE>
Item 7. Pro Forma Financial Information and Exhibits
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
(a) Pro Forma Financial Information:
Page Number
- - - - - -
5 Introduction to Pro Forma Consolidated Condensed Financial
Information
6 Pro Forma Consolidated Condensed Statement of Operations
Six months ended January 31, 1994
7 Pro Forma Consolidated Condensed Balance Sheet as of
January 31, 1994
9 Pro Forma Consolidated Condensed Statement of Operations
Year ended July 31, 1993
10 Notes to Pro Forma Consolidated Condensed Financial Information
(b) Exhibits:
Exhibit 99.1 Distribution and Indemnity Agreement between Litton
Industries, Inc. and Western Atlas Inc. dated as of March
17, 1994
Exhibit 99.2 Tax Sharing Agreement between Litton Industries, Inc. and
Western Atlas Inc. dated as of March 17, 1994
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LITTON INDUSTRIES, INC.
(Registrant)
By /s/Rudolph E. Lang, Jr.
- - - - - - - - - - - -
Rudolph E. Lang, Jr.
Senior Vice President
and Chief Financial Officer
March 25, 1994
-4-
<PAGE>
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
INTRODUCTION TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION
On March 4, 1994, the Company's Board of Directors declared a dividend in the
form of a distribution of 100 percent of the Common stock of WAI to holders of
record of Litton Common stock on March 14, 1994, payable on March 17, 1994.
This transaction will be reported by Litton as a tax-free dividend for tax
reporting purposes. WAI comprises the Company's former oilfield information
services and industrial automation systems businesses. The Company's
continuing operations are composed of the defense/electronics and marine
operations and the interconnect products businesses. The Company's historical
financial statements as of January 31, 1994 and for the six months then ended
and as of July 31, 1993 and for the fiscal year then ended presented WAI as
discontinued operations.
The following unaudited pro forma consolidated condensed statements of
operations of the Company make adjustments to the historical statements of
operations for the six months ended January 31, 1994 and for the fiscal year
ended July 31, 1993, in order to present the consolidated results of continuing
operations, as if the Distribution had occurred at the beginning of the
respective periods.
The following unaudited pro forma consolidated condensed balance sheet of the
Company makes adjustments to the historical balance sheet at January 31, 1994,
as if the Distribution had occurred on January 31, 1994. The pro forma balance
sheet gives effect to the Distribution, reimbursement by WAI to Litton for
certain intercompany indebtedness and repayment by Litton of borrowings incurred
in connection with certain transactions entered into by WAI (see Notes 2 and 3
of Notes to Pro Forma Consolidated Condensed Financial Information for further
information).
The pro forma consolidated condensed balance sheet and statements of operations
of the Company should be read in conjunction with the historical financial
statements and notes thereto included in the Company's Annual Report to
Shareholders for the fiscal year ended July 31, 1993 and the Company's Form
10-Q for the period ended January 31, 1994. The pro forma consolidated
condensed financial information presented herein is for informational purposes
only and may not necessarily reflect the results of operations or financial
position of the Company which would have occurred had the Distribution occurred
at the beginning of the financial periods presented or as of January 31, 1994,
nor is the pro forma consolidated condensed financial information necessarily
indicative of future results of operations or financial position of the Company.
-5-
<PAGE>
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 1994
(thousands of dollars, except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustment Pro Forma
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales and Service Revenues $1,644,977 $1,644,977
- -------------------------------------------------------------------------------
Costs and Expenses
Cost of sales 1,322,332 1,322,332
Selling, general and administrative 172,321 $(11,150)(1) 161,171
Depreciation and amortization 49,277 49,277
Interest - net 18,137 18,137
- -------------------------------------------------------------------------------
Total 1,562,067 (11,150) 1,550,917
- -------------------------------------------------------------------------------
Earnings from Continuing Operations
before Taxes on Income 82,910 11,150 94,060
Taxes on Income (33,579) (4,555)(1) (38,134)
- -------------------------------------------------------------------------------
Earnings from Continuing Operations $ 49,331 $ 6,595 $ 55,926
===============================================================================
Earnings per Share (5):
- -----------------------
Primary $ 1.07 $ 1.19
Fully Diluted $ 1.07 $ 1.19
Shares Used in Computing Earnings
Per Share:
- ---------------------------------
Weighted average common shares out-
standing (net of treasury shares) 45,611,760 45,611,760
Common stock equivalents - 1,048,405
----------- ----------
Total Primary Shares 45,611,760 46,660,165
Additional potentially dilutive
securities:
Stock options - 37,708
----------- -----------
Total Fully Diluted Shares 45,611,760 46,697,873
=========== ===========
</TABLE>
See accompanying notes to pro forma consolidated condensed financial
information.
-6-
<PAGE>
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
JANUARY 31, 1994
(thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<S> <C> <C> <C>
Assets
Current Assets
Cash and marketable securities $ 257,430 $ 317,710 (2),(3) $ 575,140
Inventories less progress billings 489,694 489,694
Receivable from Western Atlas Inc. 567,710 (567,710) (2) -
Other current assets 686,417 686,417
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Total Current Assets 2,001,251 (250,000) 1,751,251
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Property, Plant and Equipment - at cost 1,502,251 1,502,251
Less accumulated depreciation (897,415) (897,415)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Net Property, Plant and Equipment 604,836 604,836
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Net Assets of Western Atlas Inc. to be
Distributed to Litton Shareholders 946,089 (946,089) (4) -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Other Non-current Assets 398,454 398,454
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Total Assets $3,950,630 $(1,196,089) $2,754,541
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
</TABLE>
See accompanying notes to pro forma consolidated condensed financial
information.
-7-
<PAGE>
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
JANUARY 31, 1994
(thousands of dollars)
(unaudited)
(continued)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<S> <C> <C> <C>
Liabilities and Shareholders' Investment
Current Liabilities
Accounts payable $ 540,966 $ 540,966
Notes payable and current portion of long-term obligations 304,901 $ (250,000) (3) 54,901
Other current liabilities 614,811 614,811
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Total Current Liabilities 1,460,678 (250,000) 1,210,678
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Subordinated Debt 435,805 435,805
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Other Long-term Liabilities 501,333 501,333
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Shareholders' Investment
Capital stock
Voting preferred stock - Series B 2,053 2,053
Common stock 45,718 45,718
Additional paid-in capital 714,506 (126,290) (4) 588,216
Retained earnings 816,035 (816,035) (4) -
Cumulative currency translation adjustment (25,498) (3,764) (4) (29,262)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Total Shareholders' Investment 1,552,814 (946,089) 606,725
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Total Liabilities and Shareholders' Investment $3,950,630 $(1,196,089) $2,754,541
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
</TABLE>
See accompanying notes to pro forma consolidated condensed financial
information.
-8-
<PAGE>
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1993
(thousands of dollars, except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustment Pro Forma
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Sales and Service Revenues $3,474,158 $3,474,158
- -----------------------------------------------------------------------------
Costs and Expenses
Cost of sales 2,801,485 2,801,485
Selling, general and administrative 354,826 $(19,483)(1) 335,343
Depreciation and amortization 107,380 107,380
Interest - net 66,101 66,101
- -----------------------------------------------------------------------------
Total 3,329,792 (19,483) 3,310,309
- -----------------------------------------------------------------------------
Earnings from Continuing Operations
before Taxes on Income and
Cumulative Effect of a Change in
Accounting Principle 144,366 19,483 163,849
Taxes on Income (57,025) (7,712)(1) (64,737)
- -----------------------------------------------------------------------------
Earnings from Continuing Operations
before Cumulative Effect of a Change
in Accounting Principle $ 87,341 $ 11,771 $ 99,112
=============================================================================
Earnings per Share (5):
- -----------------------
Primary $ 2.10 $ 2.39
Fully Diluted $ 2.10 $ 2.39
Shares Used in Computing Earnings
Per Share:
- ---------------------------------
Weighted average common shares out-
standing (net of treasury shares) 40,161,652 40,161,652
Common stock equivalents 998,827 998,827
---------- ----------
Total Primary Shares 41,160,479 41,160,479
Additional potentially dilutive
securities - -
---------- ----------
Total Fully Diluted Shares 41,160,479 41,160,479
========== ==========
</TABLE>
See accompanying notes to pro forma consolidated condensed financial
information.
-9-
<PAGE>
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION
(1) To reflect the allocation of corporate general and administrative costs and
related tax effects attributable to WAI.
(2) To reflect the reimbursement by WAI to Litton for funds advanced for use
primarily in payment of the $358 million cash portion of the purchase price
of $558 million for the acquisition of Dresser Industries, Inc.'s minority
interest in Western Atlas International, Inc. and in payment of the $100
million cash portion of the estimated purchase price of $190 million for
the acquisition of the geophysical services business of Halliburton
Company. Also includes an additional $100 million of repayment by WAI to
Litton for certain other intercompany indebtedness.
(3) To reflect the repayment of short-term borrowings of $250 million obtained
in connection with the transactions described in (2) above.
(4) To record the tax-free distribution of Western Atlas Inc. Common stock to
Litton shareholders.
(5) Calculated based on earnings from continuing operations (and for fiscal
year 1993, before the cumulative effect of a change in accounting
principle) less the provision for cash dividends on preferred stock
(Series B) of $410 thousand and $821 thousand for the six months ended
January 31, 1994 and the fiscal year ended July 31, 1993, respectively.
-10-
<PAGE>
EXHIBIT 99.1
DISTRIBUTION AND INDEMNITY AGREEMENT
BETWEEN
LITTON INDUSTRIES, INC.
AND
WESTERN ATLAS INC.
<PAGE>
DISTRIBUTION AND INDEMNITY AGREEMENT
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS . . . . . . . . . . . . . . . . 1
Section 1.01 General. . . . . . . . . . . . . . . . 1
ARTICLE II. THE DISTRIBUTION. . . . . . . . . . . . . . 4
Section 2.01 The Distribution . . . . . . . . . . . 4
Section 2.02 Cooperation Prior to the
Distribution . . . . . . . . . . . . 5
Section 2.03 Conditions to Distribution . . . . . . 5
ARTICLE III. TRANSACTIONS RELATING TO
THE DISTRIBUTION. . . . . . . . . . . . . 6
Section 3.01 Intercorporate Reorganization. . . . . 6
Section 3.02 Repayment of Intercompany Indebtedness 7
Section 3.03 Other Agreements . . . . . . . . . . . 8
Section 3.04 The Western Atlas Board. . . . . . . . 8
Section 3.05 Western Atlas Charter and By-laws. . . 8
Section 3.06 Insurance. . . . . . . . . . . . . . . 8
ARTICLE IV. INDEMNIFICATION . . . . . . . . . . . . . . 12
Section 4.01 Indemnification by Litton. . . . . . . 12
Section 4.02 Indemnification by Western Atlas . . . 12
Section 4.03 Limitations on Indemnification
Obligations. . . . . . . . . . . . . 13
Section 4.04 Procedures for Indemnification
of Third-Party Claims. . . . . . . . 13
Section 4.05 Remedies Cumulative. . . . . . . . . . 17
Section 4.06 Survival of Indemnities. . . . . . . . 17
ARTICLE V. ACCESS TO INFORMATION; SERVICES . . . . . . 17
Section 5.01 Access to Information. . . . . . . . . 17
Section 5.02 Production of Witnesses. . . . . . . . 18
Section 5.03 Retention of Records . . . . . . . . . 18
Section 5.04 Confidentiality. . . . . . . . . . . . 18
Section 5.05 Provision of Services. . . . . . . . . 19
Section 5.06 Costs. . . . . . . . . . . . . . . . . 19
Section 5.07 BEI Recoveries . . . . . . . . . . . . 19
Section 5.08 WRH Recoveries . . . . . . . . . . . . 20
i
<PAGE>
Page
ARTICLE VI. MISCELLANEOUS . . . . . . . . . . . . . . . 20
Section 6.01 Complete Agreement; Construction . . . 20
Section 6.02 Survival of Agreements . . . . . . . . 20
Section 6.03 Expenses . . . . . . . . . . . . . . . 20
Section 6.04 Governing Law. . . . . . . . . . . . . 20
Section 6.05 Notices. . . . . . . . . . . . . . . . 21
Section 6.06 Amendments . . . . . . . . . . . . . . 21
Section 6.07 Successors and Assigns . . . . . . . . 21
Section 6.08 Termination. . . . . . . . . . . . . . 22
Section 6.09 No Third-Party Beneficiaries . . . . . 22
Section 6.10 Titles and Headings. . . . . . . . . . 22
Section 6.11 Legal Enforceability . . . . . . . . . 22
Section 6.12 Arbitration. . . . . . . . . . . . . . 22
ii
<PAGE>
DISTRIBUTION AND INDEMNITY AGREEMENT
DISTRIBUTION AND INDEMNITY AGREEMENT (this "Agreement"), dated as of
March 17, 1994, between LITTON INDUSTRIES, INC., a Delaware corporation
("Litton"), and WESTERN ATLAS INC., a Delaware corporation and, as of the date
hereof, a wholly owned subsidiary of Litton ("Western Atlas").
WHEREAS, the Litton Board has determined that it is appropriate and
desirable to spin off its holdings of Western Atlas and Western Research
Holdings, Inc., a Delaware corporation ("WRH"), by contributing the outstanding
stock of WRH to Western Atlas and distributing all outstanding shares of Western
Atlas Common Stock on a pro rata basis to holders of Litton Common Stock; and
WHEREAS, Litton and Western Atlas 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 Litton and Western Atlas; and
WHEREAS, Litton and Western Atlas 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 Litton and Western Atlas, the parties hereby agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.01 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.
<PAGE>
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 Litton, any Litton Subsidiary.
AGENT: Chemical Bank, as distribution agent.
BENEFITS AGREEMENT: the Benefits Agreement between Litton 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.
DATA PROCESSING AGREEMENT: the Data Processing and Service Agreement
between Litton and Western Atlas, the form of which is attached hereto as Annex
B.
DISTRIBUTION: the distribution to holders of Litton Common Stock of
the shares of Western Atlas Common Stock owned by Litton on the Distribution
Date.
DISTRIBUTION DATE: the date determined by the Litton 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 Western Atlas
with the Commission to effect the registration of the Western Atlas Common Stock
pursuant to the Exchange Act.
INFORMATION STATEMENT: the information statement to be sent to the
holders of Litton 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.
INTELLECTUAL PROPERTY AGREEMENT: the Intellectual Property Agreement
between Litton and Western Atlas, the form of which is attached hereto as Annex
C.
2
<PAGE>
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.
LINT AGREEMENT: the agreement between Litton International, S.A. and
Western Atlas, the form of which is attached hereto as Annex D.
LITTON BOARD: the Board of Directors of Litton.
LITTON COMMON STOCK: the Common Stock, $1 par value, of Litton.
LITTON INSURANCE PROGRAM: the insurance policies and self-insurance
program of Litton referred to in Section 3.06 hereof.
LITTON SUBSIDIARY: any direct or indirect subsidiary of Litton other
than WRH, Western Atlas or any Western Atlas Subsidiary.
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, judg-
ments, 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 Litton Board as the record date for the Distribution.
3
<PAGE>
SERVICES AGREEMENT: the Services and Support Agreement between Litton
and Western Atlas, the form of which is attached hereto as Annex E.
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 Litton and
Western Atlas, the form of which is attached hereto as Annex F.
WESTERN ATLAS COMMON STOCK: the Common Stock, par value $1.00 per
share, of Western Atlas.
WESTERN ATLAS INTERNATIONAL AGREEMENT: the Western Atlas
International Agreement between Litton and Western Atlas, the form of which is
attached hereto as Annex G.
WESTERN ATLAS SUBSIDIARY: WRH and any other direct or indirect
subsidiary of Western Atlas that will remain a direct or indirect subsidiary of
Western Atlas immediately following the Distribution Date, and any other direct
or indirect subsidiary of Western Atlas that thereafter may be organized or
acquired.
WESTERN TAX AGREEMENT: the Agreement between Litton and WRH dated
March 17, 1994 referred to in Section 4.01 of this Agreement.
WRH COMMON STOCK: the Class A Common Stock, par value $1.00 per
share, of WRH.
ARTICLE II
THE DISTRIBUTION
Section 2.01 THE DISTRIBUTION. Subject to Section 2.03 hereof, on
the Distribution Date, Litton will deliver to the Agent, for the benefit of
holders of record of Litton Common Stock on the Record Date, a single stock
certificate, endorsed by Litton in blank, representing all of the then out-
standing shares of Western Atlas Common Stock owned by Litton, and shall
instruct the Agent to distribute on the Distribution Date (or as soon as
practicable thereafter) the appropriate number of such shares of Western Atlas
Common Stock to each
4
<PAGE>
such holder or designated transferee or transferees of such holder. The
Distribution shall be effective on the Distribution Date. Western Atlas will
provide to the Agent all share certificates and Litton will provide to the Agent
any information required in order to complete the Distribution on the basis of
one share of Western Atlas Common Stock for each share of Litton Common Stock
outstanding on the Record Date.
Section 2.02 COOPERATION PRIOR TO THE DISTRIBUTION.
(a) Litton and Western Atlas have prepared, and Litton shall mail,
prior to the Distribution Date, to the holders of Litton Common Stock, the
Information Statement, which shall set forth appropriate disclosure concerning
Western Atlas, the Distribution and other matters. Litton and Western Atlas
have prepared, and Western Atlas has filed with the Commission, the Form 10,
which includes or incorporates by reference the Information Statement. Litton
and Western Atlas shall use reasonable efforts to cause the Form 10 to become
effective under the Exchange Act as soon as practicable.
(b) Litton and Western Atlas 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) Litton and Western Atlas 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) Litton and Western Atlas have prepared, and Western Atlas has
filed in preliminary form and shall seek to make effective, applications to list
the Western Atlas Common Stock on the New York Stock Exchange (the "NYSE") and
the Pacific Stock Exchange ("PSE").
Section 2.03 CONDITIONS TO DISTRIBUTION. This Agreement and the
consummation of each of the transactions provided for herein shall be subject to
approval of the Litton Board. The Litton Board shall in its discretion
establish the Record Date and the Distribution Date and all appropriate pro-
cedures 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 Litton Board in its sole discretion: (i)
the Litton Board shall have formally approved the Distribution; (ii) the Form
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10 shall have been declared effective by the Commission; (iii) Litton shall have
received a statement from the Staff of the Commission that the Distribution may
be effected without registration of the Western Atlas Common Stock under the
Securities Act of 1933; (iv) the Litton Board shall have received opinions of
counsel satisfactory to it that the Distribution will be a tax-free "spin-off"
under Section 355 of the Code; (v) the Board of Directors of Western Atlas,
comprised as contemplated by Section 3.04, shall have been duly elected, and the
Restated Certificate of Incorporation and the amended By-laws of Western Atlas,
as described in Section 3.05, shall have been adopted and be in effect; (vi) the
Western Atlas Common Stock shall have been authorized for listing on the NYSE;
(vii) the transactions contemplated by Sections 3.01, 3.02 and 3.03 shall have
been consummated in all material respects; (viii) Western Atlas 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 Litton or any other party hereto to effect the Dis-
tribution or in any way limit Litton's power of termination set forth in Section
6.08 or alter the consequences of any such termination from those specified in
such Section.
ARTICLE III
TRANSACTIONS RELATING TO THE DISTRIBUTION
Section 3.01 INTERCORPORATE REORGANIZATION.
(a) On July 31, 1993, WRH declared and paid a property dividend in
kind to Litton consisting of all of the assets, subject to all of the
liabilities, of WRH except all shares of the capital stock of Western Atlas
International, Inc. ("WAII") owned by WRH; the rights, interests and obligations
of WRH under the Amalgamation Agreement dated as of April 30, 1987 among Litton,
WRH, Dresser Industries, Inc. ("Dresser") and WAII and related agreements; and
deferred income tax. Immediately prior to the Distribution, Litton shall
transfer all of the outstanding WRH Common Stock to Western Atlas as a
contribution to the capital of Western Atlas. At the Distribution, WRH shall be
the owner of all of the out-
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standing capital stock of WAII except those shares which are owned by voting
trusts related to the WAII Employee Stock Purchase Plan and treasury shares. At
or prior to the Distribution there shall have been transferred to Western Atlas
all of the outstanding shares of Canadian Western Atlas Inc. (formerly LITCOM
Canada, Inc.), Western Atlas UK Limited (formerly LITCOM UK Limited), UHS
International, Inc. (formerly Litton UHS International, Inc.), Litton Industrial
Services, Inc., Unit Handling Systems International, Inc., M. M. & E., Inc.,
Gardiner Machine Company, and Standard Components Corp. 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.
(b) Prior to the Distribution Date, Litton and Western Atlas shall
take all steps necessary to increase the outstanding shares of Western Atlas
Common Stock so that immediately prior to the Distribution, Litton will hold a
number of shares of Western Atlas Common Stock equal to the number of shares of
Litton Common Stock outstanding on the Record Date.
Section 3.02 REPAYMENT OF INTERCOMPANY INDEBTEDNESS. Upon the
Distribution:
(a) Western Atlas shall pay to Litton, or Litton's designee, the sum
of $360,109,698.63 advanced by Litton to pay the cash portion of the
consideration required to consummate the purchase by Western Atlas of the shares
of WAII from Dresser, together with interest payable to Dresser on the total
purchase price;
(b) Similarly, Western Atlas shall pay to Litton, or Litton's
designee, the $100 million of Litton funds used to pay the cash portion of the
initial consideration payable in the acquisition by WAII of the business and
assets of the Halliburton Company geophysical business;
(c) To the extent Litton has borrowed funds for the purposes of
making the advances described in (a) and (b) above, Western Atlas will pay to
Litton, or Litton's designee, interest costs incurred by Litton on such
borrowings to the Distribution Date;
(d) To the extent Litton has utilized cash for the purposes of making
the advances set forth in (a) and (b) above, Western Atlas will pay to Litton,
or Litton's designee, the amount Litton could have earned by investing such cash
in
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short term investments yielding 3% during the period such cash was advanced to
Western Atlas prior to the Distribution Date;
(e) To the extent Litton has paid up-front fees, whether
characterized as arrangement fees, management fees, or otherwise, to the Agent
or any of the Co-Agents pursuant to the $850,000,000 Credit Agreement of Western
Atlas dated as of December 23, 1993, or has paid any installment of commitment
fee for any period ended prior to the Distribution Date, Western Atlas will pay
to Litton, or Litton's designee, the amount of such fees paid; and
(f) Western Atlas shall pay to Litton, or Litton's designee, $100
million of the intercompany indebtedness owed to Litton by Western Atlas
(remaining after the payments required by (a) through (e) immediately above),
and any remaining balance of such intercompany indebtedness of Western Atlas and
the Western Atlas Subsidiaries to Litton and the Litton Subsidiaries shall be
contributed to the capital of Western Atlas.
Section 3.03 OTHER AGREEMENTS. On or prior to the date of the
Distribution, Litton and Western Atlas will execute and deliver agreements
substantially in the form of Annexes A, C, E, F and G; Western Atlas shall
execute and deliver, and Litton shall cause Litton Systems, Inc. to execute and
deliver, the Agreement substantially in the form of Annex B; Western Atlas shall
execute and deliver, and Litton shall cause Litton International, S.A. to
execute and deliver, the Agreement substantially in the form of Annex D; and
Western Atlas shall cause Western Research Holdings, Inc. to execute and deliver
the Agreement substantially in the form of Annex G.
Section 3.04 THE WESTERN ATLAS BOARD. Western Atlas and Litton shall
take all actions that may be required to elect or otherwise appoint as directors
of Western Atlas, on or prior to the Distribution Date, the persons named in the
Form 10 to constitute the Board of Directors of Western Atlas on the Dis-
tribution Date.
Section 3.05 WESTERN ATLAS CHARTER AND BY-LAWS. Prior to the
Distribution Date, (a) Litton shall cause the Restated Certificate of
Incorporation of Western Atlas, 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 Western Atlas shall
adopt the By-laws of Western Atlas substantially in the form of Annex C to the
Form 10.
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Section 3.06 INSURANCE.
(a) Since at least the early 1970s, Litton has provided insurance and
self-insurance coverage to Western Atlas and the Western Atlas Subsidiaries
(except that, with respect to the period commencing on and after April 30, 1987,
WAII and its subsidiaries have participated in only parts of the Litton
Insurance Program) through various policies of insurance and Litton's
self-insurance programs, maintained by Litton for the benefit of itself and its
subsidiaries for workers' compensation, general liability, aircraft liability,
other liability, property and other insurable business risks and losses. Such
insurance policies and self-insurance programs are referred to as the "Litton
Insurance Program." Western Atlas and the Western Atlas Subsidiaries have paid
premiums and premium-like charges to Litton to provide such insurance and
self-insurance coverage, with deductibles, and for varying limits of liability.
Litton will continue to provide such coverage to Western Atlas and the Western
Atlas Subsidiaries for all such insured and Litton corporate self-insured
incidents, acts 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 Litton and Western Atlas, and Western Atlas and
the Western Atlas Subsidiaries shall pay Litton the costs, fees and expenses for
such coverage in accordance with the past and current practices established be-
tween Litton, Western Atlas and the Western Atlas Subsidiaries; provided,
however, that WRH shall not be obligated for any further payments to Litton
under the Litton Insurance Program with respect to periods ending on or before
April 30, 1987. Such costs include, but are not limited to, premiums, deducti-
bles, retrospective rating adjustments, assessments paid and audit adjustments
completed.
(b) Litton shall use reasonable efforts to assist Western Atlas and
the Western Atlas Subsidiaries in obtaining their own separate, initial
insurance and self-insurance coverage for Western Atlas and the Western Atlas
Subsidiaries, effective with respect to incidents, acts or omissions occurring
from and after the Distribution Date in such amounts as are agreed upon by the
parties. 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) Litton and Western Atlas agree that Western Atlas and the Western
Atlas Subsidiaries shall have the right to present claims to Litton or Litton's
insurers under the Litton Insurance Program for insured and self-insured inci-
dents, acts or occurrences occurring from the date said coverage first
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commenced until the Distribution Date. Any such claims shall be subject to the
terms and conditions of the Litton Insurance Program which for this purpose
shall include the so-called "tail" coverage referred to below in this subsection
(c). All such claims by Western Atlas or the Western Atlas Subsidiaries against
Litton or Litton's insurers shall be presented promptly when known to Litton's
Corporate Risk Management Department. 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 Western Atlas and the Western Atlas
Subsidiaries for incidents, acts or occurrences occurring prior to the
Distribution Date but which are first reported after the Distribution Date and,
accordingly, the parties have agreed that Litton shall acquire "tail" insurance
coverage, effective upon the Distribution Date, with respect to such "claims
made" policies on behalf of Western Atlas and the Western Atlas Subsidiaries so
that insurance and self-insurance coverage for all incidents, acts or
occurrences occurring prior to the Distribution Date shall be the responsibility
of Litton or its insurers. Western Atlas shall promptly reimburse Litton for
the cost of such "tail" insurance coverage. The terms and costs of such "tail"
coverage shall be mutually agreed to by Litton and Western Atlas.
(d) With respect to any insured or self-insured Losses or retroactive
premium adjustments relating to assets and/or operations of Western Atlas and/or
the Western Atlas Subsidiaries prior to the Distribution Date (other than any
such Losses or retroactive insurance premium adjustments with respect to WRH for
periods ending on or before April 30, 1987): (i) Litton shall pay over to
Western Atlas within 60 days of receipt any Insurance Proceeds it receives on
account of such Losses and any such retroactive premium reductions; and (ii)
Western Atlas and the Western Atlas Subsidiaries shall reimburse Litton within
60 days of Litton's request for all costs, expenses or payments made by Litton
after the Distribution Date to insurers on account of such Losses and any such
retroactive premium increases. The defense of and the responsibility for any
litigation pending at the Distribution Date, or commenced after the Distribution
Date, relating to Western Atlas or the Western Atlas Subsidiaries and covered by
the Litton Insurance Program shall continue to be managed in accordance with
current practice notwithstanding the Distribution.
(e) Notwithstanding the foregoing, with respect to the self-insured
property program for the first $250,000 of losses for the United States and
Canada operations of Litton and Western Atlas which is maintained by Litton (the
"Litton
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Property Loss Program"), an accounting shall be made as of 12:00 midnight of the
Distribution Date and there shall be paid to Western Atlas by Litton, or Western
Atlas shall pay to Litton, as the case may be, any pool excess or deficiency
attributable to loss experience and premiums of Western Atlas and the Western
Atlas Subsidiaries through the Distribution Date. Western Atlas and the Western
Atlas Subsidiaries shall have no coverage under the Litton Property Loss Program
after such accounting.
(f) Litton maintains various bonding facilities on behalf of itself
and its various subsidiaries, including Western Atlas and the Western Atlas
Subsidiaries. Western Atlas and the Western Atlas Subsidiaries shall have the
right to continue to have the benefit of such bonding facilities after the
Distribution Date until Western Atlas is able to arrange its own bonding
facilities; provided, however, that Western Atlas shall reimburse Litton for the
amount of any Losses on Litton bonds covering Western Atlas and the Western
Atlas Subsidiaries and shall also reimburse Litton for all fees and costs
incurred by Litton with respect to Litton bonds covering Western Atlas and the
Western Atlas Subsidiaries.
(g) For purposes of this Section 3.06, the term Western Atlas
Subsidiaries shall include WAII and its subsidiaries only to the extent that
WAII and its subsidiaries have participated in the Litton Insurance Program, and
the term Distribution Date means 12:00 midnight on the later of the date
determined by the Litton Board on which the Distribution shall be effected or
the later date agreed upon pursuant to subsection 3.06(a).
(h) In recognition that premiums, premium adjustments, retrospective
rating adjustments, assessments and audit adjustments have been paid or charged
to Western Atlas and the Western Atlas Subsidiaries prior to the Distribution
Date, and that similar such payments and charges will be made by and to Western
Atlas and the Western Atlas Subsidiaries after the Distribution Date (other than
with respect to WRH for periods ending on or before April 30, 1987), Litton
agrees to coordinate and consult with Western Atlas and the Western Atlas
Subsidiaries concerning the strategy to be pursued in insured litigation, and to
provide access to all litigation pleadings, and other documents and
correspondence, and copies thereof as requested by Western Atlas and the Western
Atlas Subsidiaries, with respect to all litigation and claims against or related
to Western Atlas and the Western Atlas Subsidiaries tendered pursuant to the
Litton Insurance Program, whether before or after the Distribution Date. Litton
further agrees to reasonably consult with Western Atlas
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prior to the commencement of any third-party action proposed in any such
litigation and to reasonably consider any objections to such action expressed by
Western Atlas; however, in circumstances in which the reasonable expectation is
that Western Atlas and or Western Atlas Subsidiaries will be financially
responsible for the entire result in the litigation, Litton shall not commence
any third-party action over the objections of Western Atlas or the Western Atlas
Subsidiaries. Further, Litton agrees that Western Atlas shall have full and
complete access, during normal business hours, to all insurance policies which
are or were included within the Litton Insurance Program at any time, including
the right to copy the same.
ARTICLE IV
INDEMNIFICATION
Section 4.01 INDEMNIFICATION BY LITTON. 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 (other than insurance and self-insurance claims with respect to WRH for
periods ending on or prior to April 30, 1987), which shall be governed by
Sections 3.06 and 4.03 hereof, Litton 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 Litton 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 4.01 to the contrary not-
withstanding, neither Litton nor any Litton Subsidiary shall have any liability
whatsoever to either Western Atlas or any Western Atlas 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 and the
Agreement between Litton and Western Research Holdings, Inc., dated March 17,
1994, referred to in Section 5.04 of the Tax Sharing Agreement (the "Western Tax
Agreement").
Section 4.02 INDEMNIFICATION BY WESTERN ATLAS. Except with respect
to employee benefits or other Liabilities to employees, which shall be governed
by the Benefits Agreement,
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and except with respect to insurance and self-insurance claims (other than
insurance and self-insurance claims with respect to WRH for periods ending on or
prior to April 30, 1987), which shall be governed by Sections 3.06 and 4.03
hereof, Western Atlas shall indemnify, defend and hold harmless Litton, each
Affiliate of Litton and each of their respective directors, officers, employees
and agents (in their capacities as directors, officers, employees and agents of
Litton and its Affiliates) and each of the heirs, executors, successors and
assigns of any of the foregoing (the "Litton Indemnitees") from and against any
and all Losses of the Litton 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 B. Anything in this Section 4.02 to
the contrary notwithstanding, neither Western Atlas nor any Western Atlas
Subsidiary shall have any liability whatsoever to either Litton or any Litton
Subsidiary in respect of any Tax, except as otherwise provided in Schedule B
hereto or in the Tax Sharing Agreement or the Western Tax Agreement.
Section 4.03 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 4.01 or Section 4.02 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
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 4.04 PROCEDURES FOR INDEMNIFICATION OF THIRD-PARTY CLAIMS.
Procedures for Indemnification of Third-Party Claims shall be as follows:
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(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 G hereto or to the Western Tax
Agreement (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 4.01, 4.02 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 4.04(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 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 4.04(a) (or sooner, if the
nature of such Third-Party Claim so requires), the Indemnifying Party shall
notify the Indemnitee of its 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
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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 4.04(b), such Indemnitee may defend or
(subject to the remainder of this Section 4.04(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; 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
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personnel of the Indemnitee spend one full day or more in providing such
assistance.
(d) Notwithstanding anything else in this Section 4.04 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 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.
(f) In addition to any adjustments required pursuant to Section 4.03,
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.
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(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 4.05 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 this Agreement or under Litton's directors
and officers liability insurance policy.
Section 4.06 SURVIVAL OF INDEMNITIES. The obligations of each of
Litton and Western Atlas under this Article IV shall survive the sale or other
transfer by it of any assets or businesses or the assignment by it of any
Liabilities, with respect to any Loss of the other related to such assets, busi-
nesses or Liabilities.
ARTICLE V
ACCESS TO INFORMATION; SERVICES
Section 5.01 ACCESS TO INFORMATION. From and after the Distribution
Date, Litton shall afford to Western Atlas 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 Litton's possession
relating to Western Atlas or any Western Atlas Subsidiary, insofar as such
access is reasonably required by Western Atlas or any Western Atlas Subsidiary,
without cost to Western Atlas. Similarly, Western Atlas shall afford to Litton
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 Western Atlas's possession or
in the possession of the Western Atlas Subsidiaries relating to Litton or any
Litton Subsidiary and
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insofar as such access is reasonably required by Litton or any Litton
Subsidiary, without cost to Litton. For purposes of this Section 5.01 only, in
the case of requests made to Western Atlas and the Western Atlas Subsidiaries,
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.
Section 5.02 PRODUCTION OF WITNESSES. After the Distribution Date,
each of Litton and Western Atlas 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 5.03 RETENTION OF RECORDS. Except as otherwise required by
law or agreed to in writing, each of Litton and Western Atlas 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 Litton and
Western Atlas, 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 5.04 CONFIDENTIALITY. Each of Litton and the Litton
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 de-
veloped by such party), and each party shall
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not release or disclose such Information to any other person, except to its
auditors, attorneys, financial advisors, bankers and other consultants and
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 5.05 PROVISION OF SERVICES.
(a) In addition to the services to be provided by Litton pursuant to
the Data Processing Agreement and the Services Agreement and by Litton
International S.A. pursuant to the Lint Agreement, Litton shall make available
to Western Atlas, during normal business hours and in a manner that will not
unreasonably interfere with Litton's business, its tax, internal audit,
accounting, legal 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. Litton
shall be entitled to receive from Western Atlas, upon the presentation of
invoices therefor, reimbursement for all direct and indirect costs of providing
the Services, including such amounts relating to personnel, supplies, dis-
bursements and other out-of-pocket expenses, to the extent provided for in the
Services Agreement.
(b) Western Atlas shall make available to Litton, during normal
business hours and in a manner that will not unreasonably interfere with Western
Atlas'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. Western Atlas shall be entitled to receive from
Litton, upon the presentation of invoices therefor, reimbursement for all direct
and indirect costs of providing the Services, including such amounts relating to
personnel, supplies, disbursements and other out-of-pocket expenses, to the
extent provided for in the Services Agreement.
Section 5.06 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.
Section 5.07 BEI RECOVERIES. Western Atlas agrees to pay, or cause
to be paid, to Litton or to Litton's designee any amounts recovered by Western
Atlas or any of the Western
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Atlas Subsidiaries on unrecorded assets of Business Equipment, Inc., including
taxes receivable by its Italian branch after the Distribution net of any taxes
payable with respect to such recoveries.
Section 5.08 WRH RECOVERIES. In the event that, after the
Distribution, WRH receives a refund of taxes and any related interest with
respect to the deferred income taxes referred to in Section 3.01(a), Western
Atlas shall cause WRH to promptly remit to Litton the amount so received on an
after-tax basis and Western Atlas shall also cause WRH to pay over or transfer
to Litton any other unrecorded assets of WRH attributable to or arising in all
periods prior to the Distribution.
ARTICLE VI
MISCELLANEOUS
Section 6.01 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.
Section 6.02 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 6.03 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 cer-
tificates of Western Atlas) shall be paid by Litton to the extent that
appropriate documentation concerning such costs and expenses shall be provided
to Litton.
Section 6.04 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of
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the State of Delaware, without regard to the principles of conflicts of laws
thereof.
Section 6.05 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 Litton:
Litton Industries, Inc.
360 North Crescent Drive
Beverly Hills, California 90210
Attention: General Counsel
if to Western Atlas:
Western Atlas Inc.
360 North Crescent Drive
Beverly Hills, California 90210
Attention: General Counsel
Section 6.06 AMENDMENTS. This Agreement may not be modified or
amended except by an agreement in writing signed by the parties.
Section 6.07 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 Litton shall have
the right to assign this Agreement to a purchaser or acquirer of substantially
all of the business, properties, and assets of Litton or to the survivor of a
statutory merger or consolidation to which Litton is a constituent party; pro-
vided, 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 consolida-
tion to which Western Atlas is a constituent party; and provided further,
however, that in the event of any such assignment by Litton or Western Atlas,
Litton or Western Atlas, 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 G hereof, as the
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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 suc-
cessors and permitted assigns.
Section 6.08 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 Litton Board without the approval of Western Atlas or
Litton's 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 6.03.
Section 6.09 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 G hereof, 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 Litton or Western Atlas or
any Litton or Western Atlas 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. 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 agrees that the obligations
of the parties hereunder shall be specifically enforceable.
Section 6.12 ARBITRATION. Any dispute hereunder which is not
resolved by agreement of the parties, shall be subject to resolution by
arbitration in Los Angeles, California in accordance with the Rules of the
American Arbitration Association but subject to the procedural
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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.
LITTON INDUSTRIES, INC.
By: /s/ Rudolph E. Lang, Jr.
-----------------------------
WESTERN ATLAS INC.
By: /s/ Joseph T. Casey
-----------------------------
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SCHEDULE A
Items with respect to which Litton will indemnify the Western Atlas
Indemnitees in accordance with Section 4.01 of the Agreement:
(1) All Losses arising out of the businesses conducted or to be
conducted by Litton or any Litton 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
Western Atlas (whether directly or through a subsidiary or Affiliate of Western
Atlas) and the Western Atlas Subsidiaries; PROVIDED, HOWEVER, that the foregoing
exclusion shall not extend to, and Litton shall indemnify Western Atlas and the
Western Atlas Subsidiaries, as provided above and in Section 4.01, from and
against, all Losses arising out of, or attributable to, any and all of the
businesses or operations of Litton or any of Litton's current or former
subsidiaries (including Western Atlas and the Western Atlas Subsidiaries)
included within Litton's accounts designated Discontinued Operations or Opera-
tions Held for Sale (the "Discontinued Operations") which have been
discontinued, designated discontinued (excluding Western Atlas's inclusion in
such account), liquidated, sold or otherwise disposed of at any time on or prior
to the Distribution Date except to the extent provided for in the Benefits
Agreement;
(2) All of Litton's and any of the Litton Subsidiary's Liabilities
arising out of this Agreement or any of the Other Agreements, except as
otherwise provided for in such Other Agreements;
(3) Any Losses of Western Atlas UK Limited, formerly Litton UK
Limited ("Western Atlas UK") and the Liabilities of Litton Precision Products
International, Inc. ("LPPI") and Litton UK Limited, formerly Classicprobe
Limited ("Litton UK") arising out of the sales transaction of August 1993 of the
Interconnection Operation of Western Atlas UK to LPPI, and of the Avionics
Operations of Western Atlas UK to Litton UK;
(4) Any Losses of Western Atlas Canada Ltd., formerly Litton Canada
Inc. ("Western Atlas Canada") and the
<PAGE>
Liabilities of Litton Canada Ltd., formerly 1042489 Ontario, Inc. ("LCI")
arising out of the sales transaction in August 1993 of the Kester Operation and
of the Litton Computer Systems Operation of Western Atlas Canada to LCI;
(5) Any Losses of Western Atlas and the Liabilities of Cresticon,
Inc. ("Cresticon"), arising out of the sales transaction and assignments in
August 1993 of certain real properties, real property interests and other
properties and assets of Western Atlas to Cresticon;
(6) Any Losses of Litton Business Systems Holland, NV ("LBS Holland")
and the Liabilities of LPPI arising out of the sale transaction in July 1993 of
the LPPI Operation of LBS Holland to LPPI;
(7) Any Liabilities of WRH arising on or before, or attributable to
any period preceding, the Distribution; and
(8) 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 Litton and Western Atlas 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 Litton.
2
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SCHEDULE B
Items with respect to which Western Atlas will indemnify the Litton
Indemnitees in accordance with Section 4.02 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 Litton or any Litton Subsidiary with respect to any obliga-
tions of Western Atlas or any Western Atlas Subsidiary to third parties
excluding, however, any such obligations of Western Atlas or any Western Atlas
Subsidiary with respect to any of the Discontinued Operations, as that term is
defined in Schedule A except for the Liabilities of Western Atlas under the
Benefits Agreement which shall be included within Western Atlas's indemnity of
Litton and the Litton Subsidiaries;
(2) All Losses arising out of the businesses conducted or to be
conducted by Western Atlas (whether directly or through a subsidiary or
Affiliate of Western Atlas) and the Western Atlas Subsidiaries, excluding any
Liability of Western Atlas or of any of the Western Atlas Subsidiaries with
respect to 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 Litton or of any Litton
Subsidiary under or with respect to any Revenue Bond financing related to any of
the properties and assets of Western Atlas or any of the Western Atlas
Subsidiaries, irrespective of whether or not Litton has suffered actual loss;
(4) All of Western Atlas's and any of the Western Atlas 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
<PAGE>
statement or omission made in any of the sections of the Information Statement
or Form 10 that are listed in paragraph (7) of Schedule A.
2
<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
<PAGE>
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
2
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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.
(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.
3
<PAGE>
(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 ("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.
4
<PAGE>
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 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
5
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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 last known address or by personal service, in or outside
the state where the Arbitration is to be held, provided that reasonable
6
<PAGE>
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.
7
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(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.
8
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EXHIBIT 99.2
ANNEX F
TAX SHARING AGREEMENT
This Tax Sharing Agreement (the "Agreement") is being entered into
this 17th day of March, 1994, in connection with a Distribution and Indemnity
Agreement (the "Distribution Agreement") dated as of March 17, 1994 by and
between Litton Industries, Inc., a Delaware corporation ("Litton") and Western
Atlas Inc., a Delaware corporation ("Western Atlas"), pursuant to which, among
other things, Litton will distribute to holders of its common stock all the
issued and outstanding common stock of Western Atlas (the "Western Atlas
Distribution"). Litton, on behalf of itself and its present and future
subsidiaries (the "Litton Group"), and Western Atlas on behalf of itself and its
present and future subsidiaries (the "Western Atlas Group"), are entering into
this Agreement to provide for the allocation between the Litton Group and the
Western Atlas 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.
<PAGE>
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings (such meanings to be equally applicable to both the singular
and the plural forms of the terms defined):
"Accounting Firm" shall have the meaning assigned to such term in
Section 3.01(b)(2) of this Agreement.
"Acquisition" shall have the meaning assigned to such term in Section
3.06(b) of this Agreement.
"Carryback Item" shall have the meaning assigned to such term in
Section 3.08(b) of this Agreement.
"Cash Equivalent" shall have the meaning assigned to such term in
Section 3.03(h)(2) 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 Litton Board of
Directors as of which the Western Atlas
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<PAGE>
Distribution shall be effected, which is presently contemplated to be March 17,
1994.
"Dresser Agreement" shall have the meaning assigned to such term in
Section 5.04 of this Agreement.
"Filed Western Atlas Group Separate Tax Liability" means the amount
determined pursuant to Section 3.01(b) for fiscal 1993 and fiscal 1994.
"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 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 off-
-3-
<PAGE>
set) 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.
"Intermec Reserve" shall have the meaning assigned to such term in
Section 3.11 of this Agreement.
"Intermec Tax" shall have the meaning assigned to such term in Section
3.11 of this Agreement.
"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 Litton Business and at least one Western Atlas Business
and that was filed by Litton or any member of the Litton Group.
"Litton Adjustment" shall have the meaning assigned to such term in
Section 3.01(b)(2)(A) of this Agreement.
"Litton Business" means any present or future subsidiary, division or
business of any member of the Litton Group, other than a present or future
subsidiary, division or business of any member of the Western Atlas Group.
Litton Business also shall include any former subsidiary,
-4-
<PAGE>
division or business of Litton not listed on Schedule A hereto.
"Litton Consolidated Group" means with respect to any taxable period,
the affiliated group of corporations of which Litton is the common parent
(within the meaning of Section 1504 of the Code).
"Litton Group" shall have the meaning assigned to such term in the
preface to this Agreement.
"Litton Issue" shall have the meaning assigned to such term in Section
3.04(a) of this Agreement.
"1994 Stub Period" shall have the meaning assigned to such term in
Section 3.01(a) of this Agreement.
"Notification Date" shall have the meaning assigned to such term in
Section 3.01(b)(2)(B) of this Agreement.
"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 Western Atlas Group was
included in the Litton Consolidated Group.
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<PAGE>
"Restructuring Taxes" means any Taxes, including related interest,
penalties and additions to Tax, resulting from the failure of the Western Atlas
Distribution to qualify as a distribution described in Section 355 of the Code
or corresponding provisions of state tax law. Restructuring Taxes shall not
include any investment tax credit recaptured pursuant to Code Section 47(a) with
respect to Code Section 38 property transferred by Litton to Western Atlas in
connection with the Western Atlas Distribution.
"Separate Tax Liability" means, with respect to fiscal 1993 or fiscal
1994, the federal income tax liability of any member of the Western Atlas Group
that was a member of the Litton Consolidated Group at any time during such
fiscal year, as calculated by Litton in accordance with past practice; provided,
however, that items arising as a result of the Western Atlas Distribution and
reflected in the Federal Form 1120 of Western Atlas or any member of the Western
Atlas Group, but which have no impact on the federal income tax return of the
Litton Consolidated Group, will not be taken into account in determining
Separate Tax Liability.
"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, governmen-
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<PAGE>
tal, 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, 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 Western Atlas Group, the Litton
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.
"Tax Detriment" means any item of income, gain, recapture of credit or
any other Tax Item which increases Taxes paid or payable.
"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.
"Tax Reserve" shall have the meaning assigned to such term in Section
5.01 of this Agreement.
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<PAGE>
"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).
"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
subsidiary of such party immediately prior to the Acquisition of such party's
stock or assets.
"Western Agreement" shall have the meaning assigned to such term in
Section 5.04 of this Agreement.
"Western Atlas Business" means any present or future subsidiary,
division or business of any member of the Western Atlas Group which is not, or
is not contemplated by the Distribution Agreement to be, part of the Litton
Group immediately after the Western Atlas Distribution. Western Atlas Business
shall include any subsidiary, division or business listed on Schedule A hereto.
"Western Atlas Distribution" shall have the meaning assigned to such
term in the preface to this Agreement.
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<PAGE>
"Western Atlas Group" shall have the meaning assigned to such term in
the preface to this Agreement.
"Western Atlas Group Separate State Tax Liability" shall have the
meaning assigned to such term in Section 3.02(b) of this Agreement.
"Western Atlas Group Separate Tax Liability" means, with respect to
fiscal 1993 or fiscal 1994, the sum of the Separate Tax Liabilities of Western
Atlas Group members that were members of the Litton Consolidated Group at any
time during such year.
"Western Atlas Indemnity Issue" shall have the meaning assigned to
such term in Section 4.01(a) of this Agreement.
"Western Atlas Issue" shall have the meaning assigned to such term in
Section 3.04(a) of this Agreement.
"Western Atlas Notice" shall have the meaning assigned to such term
in Section 3.01(b)(2)(B) of this Agreement.
ARTICLE II
FILING OF TAX RETURNS
Section 2.01. 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
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<PAGE>
obtained by Litton in connection with the Western Atlas 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 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.
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.
Section 2.02. PRE-DISTRIBUTION TAX RETURNS.
(a) Except as otherwise provided in this Section 2.02, all Tax
Returns required to be filed for periods beginning before the Distribution Date
shall be filed by Litton or the appropriate Litton 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 Litton Business or Western Atlas Business, as the case may
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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 Litton
Group or the Western Atlas Group before or after the Distribution Date.
Section 2.03. POST-DISTRIBUTION TAX RETURNS. 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 and all Tax
Returns of the Litton Group for periods beginning after the Distribution Date
shall be filed by Litton or the appropriate Litton Business.
ARTICLE III
PAYMENT OF TAXES
Section 3.01. UNFILED FEDERAL TAXES FOR PREDISTRIBUTION PERIODS.
(a) On or about September 15, 1993, Litton paid to members of the Western Atlas
Group a sum equal to the difference between (i) Litton's estimate of the
Western Atlas Group Separate Tax Liability for fiscal 1993, and (ii) an amount
equal to all payments previously made to
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Litton with respect thereto by the Western Atlas Group or any member thereof. On
or about February 1, 1994, Western Atlas shall deliver to Litton an estimate,
prepared as Litton shall direct, of the taxable income of each member of the
Western Atlas Group that was a member of the Litton Consolidated Group at any
time in fiscal 1994, for the period beginning on August 2, 1993 and ending on
the last day in which the members of the Western Atlas Group are includible in
the Litton Consolidated Group (the "1994 Stub Period"). On or about March 15,
1994, Western Atlas shall pay to Litton, or Litton shall pay to Western Atlas,
as appropriate, a sum equal to the difference (if any) between (i) Litton's
estimate of the Western Atlas Group Separate Tax Liability for the 1994 Stub
Period, and (ii) an amount equal to all payments previously made to Litton with
respect thereto by the Western Atlas Group or any member thereof. Not later than
one business day before March 15, 1994, Litton shall deliver to Western Atlas a
schedule showing its estimate of the Western Atlas Group Separate Tax
Liabilities for the 1994 Stub Period and the amount payable by Western Atlas to
Litton, or by Litton to Western Atlas, as the case may be, pursuant to this
Section 3.01(a).
(b) Western Atlas shall pay to Litton, or Litton shall pay to Western
Atlas, as appropriate, an amount reflecting the difference (if any) between (i)
the Filed Western Atlas Group Separate Tax Liability for fiscal 1993
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or the 1994 Stub Period, as the case may be, and (ii) an amount equal to all
estimated federal income tax payments made by Western Atlas with respect to each
such period. Such payment shall be made on or before March 15, 1994, with
respect to such difference for fiscal 1993, and on or before October 15, 1994,
with respect to such difference for the 1994 Stub Period. The Filed Western
Atlas Group Separate Tax Liability for fiscal 1993 and for the 1994 Stub Period
shall be determined pursuant to the following procedures:
(1) On or before January 14, 1994, Western Atlas shall
deliver to Litton 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 Litton may reasonably request from
time to time, with respect to each member of the Western Atlas
Group that was a member of the Litton Consolidated Group at any
time in fiscal 1993, for the preparation of the federal income
tax return of the Litton Consolidated Group for fiscal 1993. On
or before August 12, 1994, Western Atlas shall deliver to Litton
all such information with respect to each member of the Western
Atlas Group that was a member of the
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<PAGE>
Litton Consolidated Group at any time in fiscal 1994, for the
preparation of the federal income tax return of the Litton
Consolidated Group for fiscal 1994. All information provided by
Western Atlas pursuant to this paragraph shall correctly reflect
the facts regarding the income, properties, operations and status
of each such member of the Western Atlas 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.
(2) (A) Litton shall make any adjustments to the information
so submitted that it deems appropriate (individually, a "Litton
Adjustment") and shall prepare and file the consolidated federal
income tax returns for the Litton Consolidated Group for fiscal
1993 and fiscal 1994. Litton shall determine, in good faith, the
Western Atlas Group Separate Tax Liability for fiscal 1993 or
fiscal 1994, as the case may be. Litton shall notify Western
Atlas in writing of the amount of such liability no later than
January 28, 1994, in respect of the Western Atlas Group Separate
Tax Liability for fiscal 1993, and no later
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<PAGE>
than August 26, 1994, in respect of the Western Atlas Group
Separate Tax Liability for fiscal 1994. Such notification shall
include an explanation of the basis for any Litton adjustments
and a copy of the calculations of the Western Atlas Group
Separate Tax Liability.
(B) On or before February 4, 1994, with respect to fiscal
1993, and on or before September 2, 1994, with respect to fiscal
1994, Western Atlas shall provide Litton with written notice (the
"Western Atlas Notice") of all Litton Adjustments with which
Western Atlas disagrees, together with the grounds for such
disagreement and any supporting documentation.
If and to the extent that any Litton Adjustments remain in
dispute, Litton 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 Western Atlas Notice pertaining to the disputed Litton
Adjustments, together with a statement of Litton's position with
respect to each such adjustment and any supporting docu-
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<PAGE>
mentation. Litton shall provide such information to Accounting
Firm no later than February 11, 1994, with respect to fiscal
1993, and no later than September 9, 1994, with respect to fiscal
1994. Accounting Firm shall resolve all disputed Litton
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 March 11, 1994, with respect to
fiscal 1993, and on or before October 7, 1994 with respect to
fiscal 1994 (respectively, a "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 Litton Adjustment by the applicable
Notification Date, Litton shall use its sole discretion in
reflecting such disputed Litton Adjustment on its federal income
tax return(s). Accounting Firm shall be directed to proceed to a
resolution of such disputed Litton Adjustment as soon as
practicable, and, if such resolution differs from the manner in
which the disputed Litton Adjustment was reflected on Litton's
federal income tax
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<PAGE>
return(s), Litton shall file amended return(s) reflecting such
difference. Litton shall make the appropriate adjustments to the
amount of the Filed Western Atlas Group Separate Tax Liability
for fiscal 1993 or fiscal 1994, as the case may be, and shall
promptly pay Western Atlas any balance otherwise due Western
Atlas on March 15, 1994 or October 15, 1994, as the case may be.
(3) Either party may extend any date referenced in this
Section 3.01(b) with the consent of the other party, and such
consent shall not be unreasonably withheld.
Section 3.02. UNFILED JOINT RETURNS FOR PRE-DISTRIBUTION PERIODS. (a)
On or before March 1, 1994, Western Atlas shall deliver to Litton all
information (including, without limitation, schedules, statements and supporting
documentation), as Litton may reasonably request from time to time, with respect
to each member of the Western Atlas Group that Litton, in its sole discretion,
deems includible in the filing of a Joint Return for fiscal 1993. On or before
September 15, 1994, Western Atlas shall deliver to Litton all such information
for fiscal 1994. All information provided by Western Atlas pursuant to this
paragraph shall correctly reflect the facts regarding the income, properties,
operations and status of each member of
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the Western Atlas 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.
(b) Litton shall adjust the information so submitted in good faith and
shall prepare and file all Joint Returns for fiscal 1993 and fiscal 1994. Litton
shall determine, in a manner consistent with past practice, the sum of the
separate state income tax liabilities of each member of the Western Atlas Group
included in a Joint Return for fiscal 1993 or fiscal 1994 (the "Western Atlas
Group Separate State Tax Liability"), and its good faith determination shall be
binding on the parties hereto. Litton shall notify Western Atlas in writing of
the amount of the Western Atlas Group Separate State Tax Liability no later than
one business day before the applicable payment date specified in Section
3.02(c). Such notification shall include an explanation of the basis for any
adjustments Litton has made to the information provided by Western Atlas and a
copy of the calculation of the Western Atlas Group Separate State Tax Liability.
(c) On or before June 15, 1994, Western Atlas shall pay to Litton the
amount of the Western Atlas Group Separate State Tax Liability for fiscal 1993.
On or before June 15, 1995, Western Atlas shall pay to Litton the amount of the
Western Atlas Group Separate State Tax Liability for fiscal 1994.
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<PAGE>
Section 3.03. CHANGE IN PRE-DISTRIBUTION YEAR FEDERAL RETURNS. (a)
The parties acknowledge that there has not yet been a Final Determination of the
federal income tax liability of the Litton Group for any taxable year after
fiscal 1982 and that certain members of the Western Atlas Group were included in
the Litton Consolidated Group from the beginning of fiscal 1983 through the
Distribution Date. Except as otherwise provided in this Agreement, Litton and
each member of the Litton Group shall jointly and severally indemnify Western
Atlas and each member of the Western Atlas Group against and hold them harmless
from federal income taxes for all periods beginning before the Distribution Date
and shall be entitled to receive and retain all refunds of federal income taxes
with respect to periods beginning before the Distribution Date.
(b) If as a result of any audit, amendment or other change in a
consolidated federal income tax return as filed by Litton with respect to any
period beginning before the Distribution Date, the Final Determination of an
adjustment to any Tax Item generates a Tax Detriment for any period beginning
before the Distribution Date and a corresponding Tax Benefit for Western Atlas
or any of the Western Atlas Businesses for any period beginning after the
Distribution Date (a "Reimbursable Adjustment"), then Litton shall notify
Western Atlas of such Reimbursable Adjustment.
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<PAGE>
(c) Within ninety (90) days of receiving notice of a Reimbursable
Adjustment that generates a Tax Benefit for Western Atlas or any member of the
Western Atlas Group for any taxable period(s) with respect to which (i) a
federal income tax return has been filed, and (ii) the applicable statute of
limitations has not expired, Western Atlas (or the appropriate member of the
Western Atlas Group) shall file a refund claim pursuant to Code Section 6511
reflecting such Tax Benefit. Western Atlas shall, within 10 days after receipt,
pay to Litton any refunds received by Western Atlas 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 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 Western Atlas or any member of the Western Atlas Group, Western
Atlas shall pay to Litton, within 10 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, Western Atlas is required to and does make a repayment to
the IRS of any portion of a refund described herein, then Litton shall pay to
Western Atlas, within 10 days following the date Western Atlas notifies Litton
of such repayment, the amount of such repayment, including related interest.
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(d) In the event that Western Atlas receives notice of a Reimbursable
Adjustment that generates a Tax Benefit for Western Atlas or any member of the
Western Atlas Group for any taxable period(s) with respect to which a federal
income tax return has not been filed, then Western Atlas (or the appropriate
member of the Western Atlas Group) shall file federal Form 1120(s) reflecting
such Tax Benefit and shall pay to Litton, 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 payable by Western Atlas or such member of the
Western Atlas 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, Western Atlas is required to and
does make a payment to the IRS representing any portion of the amount paid to
Litton pursuant to the preceding sentence, then Litton shall pay to Western
Atlas, within 10 days following the date Western Atlas notifies Litton of such
payment to the IRS, the amount of such payment, including related interest.
(e) Litton may notify Western Atlas of a Reimbursable Adjustment prior
to the Final Determination of such adjustment if Litton, in its sole discretion,
determines that such Reimbursable Adjustment may, upon Final Determination,
generate a Tax Benefit for Western Atlas with
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<PAGE>
respect to which a refund claim may be barred by the applicable statute of
limitations. If Litton so requests, Western Atlas shall file a refund claim for
the appropriate taxable period(s) reflecting such Tax Benefit, and shall pay to
Litton any Tax and interest refunded with respect thereto under the terms and
conditions set forth in subsection (c) of this Section 3.03. All refund claims
filed by Western Atlas pursuant to this Section 3.03(e) shall be prepared in
cooperation with Litton, shall fully explain the circumstances giving rise to
the claim and shall be identified with the notation "Protective Claim".
(f) If as a result of any audit, amendment or other change in a
federal income tax return filed by Western Atlas with respect to any period
beginning after the Distribution Date, an adjustment to any Tax Item generates a
Tax Detriment to Western Atlas or any Western Atlas Business and a corresponding
Tax Benefit for Litton or any Litton Business for any taxable period, then the
provisions of subsections (b), (c), (d) and (e) of this Section 3.03 shall be
applied by substituting Litton for Western Atlas and Western Atlas for Litton,
as the context requires.
(g) Any payment not made on or before the last day on which such
payment could be timely made under this Section 3.03 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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(h) Notwithstanding any provision of this Agreement to the contrary,
(1) the total amount payable by Western Atlas to Litton with respect to any
Reimbursable Adjustment pursuant to subsections (c), (d) and/or (e) of this
Section 3.03, together with the amount (if any) paid to Litton pursuant to
Section 3(a) of the Dresser Agreement with respect to the same adjustment, shall
not exceed the amount of the Taxes (excluding penalties) paid by Litton with
respect to such adjustment; and (2) no payment shall be made under this Section
3.03 by either party in respect of a Tax Benefit recognized by such party as a
result of (i) a stock for stock exchange; (ii) a statutory merger; or (iii) a
sale of assets for consideration other than cash, cash equivalents (within the
meaning of Rev. Rul. 66-290, 1966-2 C.B. 112) ("Cash Equivalents") and/or notes
or other obligations which provide for ultimate payment in cash or Cash
Equivalents.
Section 3.04. CHANGE IN PRE-DISTRIBUTION YEAR STATE, LOCAL OR OTHER
RETURN. (a) Except as otherwise provided in this Section 3.04, if as a result of
any audit, amendment or other change in a state or local tax 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 Litton shall be responsible
for and shall hold Western Atlas harmless from any such adjustment generated by
or attributable to Litton or any Litton
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Business (a "Litton Issue"), and Western Atlas shall be responsible for and
shall hold Litton harmless from any such adjustment generated by or attributable
to Western Atlas or any Western Atlas Business (a "Western Atlas Issue"). If a
Western Atlas Issue arises with respect to a Joint Return, then (1) any contest
of such Western Atlas Issue shall be controlled by Litton and (2) any amounts
payable by or to Western Atlas in respect of such Western Atlas Issue shall be
determined in a manner consistent with past practice by Litton, whose good faith
determination shall be binding on the parties hereto.
(b) Any payment required to be made under this Section 3.04 shall be
exclusive of interest and penalties and shall be made no later than 10 days
after the party required to make such payment receives written notice of a Final
Determination of the Litton Issue or Western Atlas Issue, as the case may be,
giving rise to such payment; provided, however, that no payment shall be due
under this Section 3.04 unless the total amount payable with respect to any
individual state or local return or Other Tax Return by Litton or by Western
Atlas, as the case may be, equals or exceeds $5,000. Any payment not made within
the 10-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 3.05. 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 Litton Group or the Western Atlas Group before or after the
Distribution Date.
Section 3.06. RESTRUCTURING TAXES. (a) Notwithstanding any other
provision of this Agreement to the contrary, and except as otherwise provided in
this Section 3.06, Litton shall pay fifty percent (50%) of all Restructuring
Taxes and Western Atlas shall pay fifty percent (50%) of all Restructuring
Taxes. Western Atlas and each member of the Western Atlas Group will jointly and
severally indemnify Litton and each member of the Litton Group against and hold
them harmless from any payment of Restructuring Taxes in excess of fifty percent
(50%) of such taxes, and Litton and each member of the Litton 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.
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(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 Litton or Western Atlas 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 taxes, including, but not limited to, fees,
interest, penalties and reasonable attorneys' fees. For purposes of this Section
3.06(b), a Restructuring Tax is attributable to an Acquisition if the
Acquisition occurs prior to the assessment of such Restructuring Tax.
(c) Any payment required to be made pursuant to this Section 3.06
shall be made no later than 10 days after the payor receives written notice of a
Final Determination of such Restructuring Taxes. Any payment not so made within
10 days shall thereafter bear interest at the rate established for large
corporate underpayments pursuant to Section 6621(c)(1) of the Code.
Section 3.07. LIABILITY FOR TAXES WITH RESPECT TO POST-DISTRIBUTION
PERIODS. Unless otherwise provided in this Agreement, the Litton 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
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Date which are attributable to Litton Businesses. 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.
Section 3.08. CARRYBACKS. (a) If, for any taxable year beginning on or
after the Distribution Date, a member of the Western Atlas 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 Litton
Consolidated Group, such member shall make an election pursuant to Section
172(b)(3) of the Code, unless Litton, in its sole discretion, consents to treat
such net operating loss as a Carryback Item pursuant to paragraph (b) of this
Section 3.08.
(b) If, for any taxable year beginning on or after the Distribution
Date, a member of the Western Atlas 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 Litton Consolidated Group, Western Atlas (or such
member of the Western Atlas Group) may file a refund claim pursuant to Code
section 6411 reflecting such Carryback Item. In the event that Western Atlas (or
such member of the Western
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Atlas Group) shall not elect to file such a claim (or shall not be eligible to
file such claim under applicable law), Litton shall, at the request and expense
of Western Atlas, file amended returns or refund claims reflecting such
Carryback Item. Litton shall, within 10 days after receipt, pay to Western Atlas
any refunds received by Litton resulting from the filing of a refund claim
pursuant to the foregoing provisions of this Section 3.08(b), together with any
interest refunded with respect thereto. In the event that Litton 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 Litton Consolidated Group or any member thereof (other than
deficiencies, interest or penalties attributable to (i) the operations of the
Western Atlas Group and with respect to which the Western Atlas Group would
otherwise be responsible under the terms of this Agreement or (ii) a taxable
year of the Litton Consolidated Group for which the statute of limitations has
expired), Litton shall pay to Western Atlas, within 10 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 Litton Group or a member of the Western
Atlas Group receives a double benefit as a result of this Section 3.08(b) and
the operation of the Code, Litton or Western Atlas, respectively, will
compensate
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Western Atlas or Litton, respectively, for the duplication of the benefit. If,
for any taxable year, Litton is required to and does make a repayment to the IRS
of any portion of a refund described herein, then Western Atlas shall pay to
Litton, within 10 days following the date Litton notifies Western Atlas of such
repayment, the amount of such repayment, including interest.
Section 3.09. STATUTES OF LIMITATIONS.
(a) Except as otherwise provided in this Agreement, Western Atlas or
Litton 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 in respect of any
taxable period ending after the Distribution Date, as Western Atlas or Litton in
its sole discretion may determine.
(b) At least six months prior to the expiration of the statute of
limitations for any taxable period of Western Atlas, Western Atlas shall advise
Litton in writing of the date of such expiration.
Section 3.10. EARNINGS AND PROFITS. The allocation of earnings and
profits described in Section 312(h) of the Code and Treas. Reg. Section 1.312-10
shall be made by Litton in its sole discretion and its good faith determination
shall be binding on the parties hereto. Litton shall pro-
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vide such allocation to Western Atlas on or before April 15, 1996.
Section 3.11. LIABILITY FOR INTERMEC TAXES. Notwithstanding any other
provision of this Agreement to the contrary, Western Atlas shall represent
Intermec Corporation in connection with, and shall pay and hold harmless Litton
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 Intermec Corporation for any taxable period
ending prior to the date upon which Intermec Corporation became a member of the
Litton Consolidated Group (hereinafter, "Intermec Taxes"); provided however,
that Western Atlas's aggregate after-tax liability for Intermec Taxes under this
Section 3.11 shall not exceed the amount of the applicable Tax Reserve as
reflected on Schedule B hereto (the "Intermec Reserve"). Litton shall pay and
hold harmless Western Atlas from and against any and all Intermec Taxes in
excess of the amount payable by Western Atlas pursuant to the preceding
sentence. Neither Intermec Taxes, nor the Intermec Reserve, shall include any
Taxes attributable to the shifting of any Tax Item from one taxable period to
another.
Section 3.12. BREACH. Litton shall indemnify and hold harmless each
member of the Western Atlas Group and Western Atlas shall indemnify and hold
harmless each member of the Litton Group from and against any Taxes, penalties
or
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interest required to be paid as a result of the breach by a member of the Litton
Group or the Western Atlas Group, as the case may be, of any obligation under
this Agreement.
ARTICLE IV
INDEMNITY: COOPERATION AND EXCHANGE OF INFORMATION
Section 4.01. INDEMNITY.
(a) Litton shall have full responsibility and discretion in the
handling of any federal income tax controversy, 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, involving a Tax Return of
the Litton Consolidated Group. Upon request by Litton, Western Atlas or any
member of the Western Atlas Group shall use its reasonable best efforts to
cooperate in a defense in any such federal income tax controversy with respect
to any Reimbursable Adjustment, or any Restructuring Tax, for which Western
Atlas could be liable under Section 3.03 or 3.06 of this Agreement (hereinafter,
a "Western Atlas Indemnity Issue").
(b) Litton shall (i) promptly notify Western Atlas of any inquiries by
any taxing authority or any other administrative, judicial or other governmental
authority that relate to any Western Atlas Indemnity Issue or any liability of
any member of the Western Atlas Group that might arise under this Agreement,
(ii) shall provide Western
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Atlas with such notice and information as is necessary to keep Western Atlas
reasonably apprised of the progress of any audit or proceeding involving a
Western Atlas Indemnity Issue and (iii) shall in good faith consider all
reasonable suggestions of Western Atlas with respect to the contest of such
issue. Western Atlas shall promptly notify Litton 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 Litton Group or
any liability of any member of the Litton Group that might arise under this
Agreement.
Section 4.02. COOPERATION AND EXCHANGE OF INFORMATION. (a) Litton, on
behalf of itself and each member of the Litton Group, agrees to provide the
Western Atlas Group, and Western Atlas, on behalf of itself and each member of
the Western Atlas Group, agrees to provide the Litton 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 appropriate notices and forms or other
communications received from or sent to any taxing authority which relate to
Litton Businesses in the case of the Western Atlas Group and Western Atlas
Businesses in the case of the
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Litton 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. Litton shall make available to Western Atlas any information in
Litton's possession that would enable Western Atlas to compute the tax basis of
its assets or stock. Western Atlas shall collect and make available to Litton
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 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 4.02, Western Atlas and
Litton agree to retain all Tax Returns, related schedules and workpapers, and
all material
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records and other documents relating thereto existing on the date hereof or
created through or with respect to periods ending on or before July 31, 1994,
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. Litton and Western Atlas agree to advise each other
promptly of any such Final Determination.
(c) If any member of the Litton Group or the Western Atlas Group, as
the case may be, fails to provide any information requested pursuant to Section
3.01(b)(1), Section 3.02(a) or this Section 4.02 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 gather such information. Western Atlas and Litton, as the case may be,
agree upon 24 hours' notice, in the case of a failure to provide information
pursuant to Section 3.01(b)(1) or Section 3.02(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 Litton Group or the
Western Atlas Group, as the case may be, during reasonable
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<PAGE>
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 Litton or Western Atlas or any member of their respective
groups, including without limitation, books, records, Tax Returns and all
supporting schedules and information relating thereto, shall not be destroyed or
disposed of unless (i) the party proposing such destruction or disposal provides
sixty (60) days prior written notice to the other party describing in reasonable
detail the documentation to be destroyed or disposed of, and (ii) the recipient
of such notice agrees in writing to such destruction or disposal. If the
recipient of such notice objects, then the party proposing the destruction or
disposal shall promptly deliver such materials to the objecting party at the
expense of the objecting party.
Section 4.03. RELIANCE ON EXCHANGED INFORMATION. If either Litton or
Western Atlas, 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
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<PAGE>
such party's knowledge, the accuracy and completeness of the information so
supplied.
ARTICLE V
MISCELLANEOUS
Section 5.01. RESERVES. The parties agree that all accrued taxes, tax
reserves and other tax balances in the balance sheet accounts of Litton and its
subsidiaries as of the Distribution Date, including but not limited to Financial
Consolidations accounts (hereinafter, "Tax Reserves"), shall remain with the
Litton Group after the Western Atlas Distribution, except for those Tax Reserves
which shall belong to the Western Atlas Group upon the Western Atlas
Distribution, as set forth by company and division on Schedule B hereto.
Section 5.02. 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 5.03. PAYMENTS. All payments to be made under this Agreement
shall be made in immediately available funds.
Section 5.04. ENTIRE AGREEMENT; TERMINATION OF PRIOR AGREEMENTS OTHER
THAN DRESSER AND WESTERN AGREEMENTS.
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Except for (1) that certain Tax Separation and Indemnification Agreement dated
April 30, 1987 by and among Litton Industries, Inc., Dresser Industries, Inc.
and Western Atlas International, Inc. (the "Dresser Agreement"), and (2) that
certain Western Tax Agreement dated March 17, 1994 by and between Litton
Industries, Inc., and Western Research Holdings, Inc. pertaining to the Dresser
Agreement (the "Western 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 Litton Group, on the one hand, and any member or
members of the Western Atlas Group, on the other hand. All such agreements other
than the Dresser Agreement and the Western Agreement are hereby cancelled and
any rights or obligations existing thereunder are hereby fully and finally
settled without any payment by any 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
Dresser Agreement or Western Agreement, the provi-
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<PAGE>
sions of the Dresser Agreement or Western Agreement, as the case may be, shall
control.
Section 5.05. 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 Litton or any member of the Litton Group:
General Counsel
Litton Industries, Inc.
Litton Plaza South
360 North Crescent Drive
Beverly Hills, CA 90210
To Western Atlas or any member of the Western
Atlas Group:
General Counsel
Western Atlas Inc.
Litton Plaza North
360 North Crescent Drive
Beverly Hills, CA 90210
Section 5.06. APPLICATION TO PRESENT AND FUTURE SUBSIDIARIES. This
Agreement is being entered into by Litton and Western Atlas on behalf of
themselves and each
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member of the Litton Group and Western Atlas 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 Litton Group and Western Atlas Group in the future. Litton and
Western Atlas hereby guarantee the performance of all actions, agreements and
obligations provided for under this Agreement of each member of the Litton Group
and the Western Atlas Group, respectively. Litton and Western Atlas 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 as such successors, assigns or
controlling persons are members of the Litton Group or the Western Atlas Group
or their successors and assigns.
Section 5.07. TERM. This Agreement shall commence on the date of
execution indicated below and shall continue in effect until otherwise agreed to
in writing by Litton and Western Atlas or their successors.
Section 5.08. 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.
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<PAGE>
Section 5.09. 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 unenforceabil-
ity 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 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, com-
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mission 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 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 accor-
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dance with the laws of the State of California applicable to agreements made and
to be performed in the State of California.
Section 5.15. RESOLUTION OF CERTAIN DISPUTES.
(a) Disagreements between Litton, on the one hand, and the members of
the Western Atlas Group, on the other, with respect to amounts that Litton
claims are owed by the Western Atlas Group, or that the Western Atlas Group
claims are owed by Litton, under Sections 3.03, 3.04 or 3.06 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 3.03, 3.04 or 3.06 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 3.03, 3.04 or 3.06 shall be tolled. Such tolling
shall not affect the accrual of interest pursuant to Sections 3.03(g), 3.04(b)
or 3.06(c).
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<PAGE>
(b) Any arbitrator selected pursuant to this Section 5.15 shall have
at least five years of experience in the 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.
(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
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amount it 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
Litton's and Western Atlas'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.
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(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 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
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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
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.
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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.
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 Western Atlas, by
and in the sole discretion of the Litton 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 5.02
hereof.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day and year first written above.
LITTON INDUSTRIES, INC.
By: /s/ Rudolph E. Lang, Jr.
------------------------------
Title: Senior Vice President
WESTERN ATLAS INC.
By: /s/ Joseph T. Casey
------------------------------
Title: Vice Chairman and
Chief Financial Officer
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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
<PAGE>
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.
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.
<PAGE>
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
<PAGE>
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.
(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.
<PAGE>
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.
<PAGE>
(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 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.
<PAGE>
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
<PAGE>
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 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
<PAGE>
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.
<PAGE>
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, with such modification as the parties may
agree upon.
<PAGE>
SCHEDULE A
Tax Sharing Agreement
Western Atlas Group corporations:
ACTIVE CORPORATIONS:
1. Western Atlas Inc, (formerly Litton Industrial Automation
Systems), parent
2. Western Research holdings, Inc. (formerly WG of America
Holdings, Inc.) and subsidiaries
3. Intermec Corporation and subsidiaries
4. Grand Design, Inc.
5. J.S. McNamara Company
6. Standard Components Corp. and subsidiary
7. Litton UHS International, Inc.
8. M M & E, Inc.
9. Litton Industrial Services, Inc, and subsidiary
10. LITCOM Canada Inc.
11. LITCOM U.K. Limited
12. Lamb - Unima Maschinenbau GmbH (formerly
F. Jos. Lamb GmbH)
13. General Partner I Corp. and partnership interest
14. Limited Partner I Corp. and partnership interest
INACTIVE CORPORATIONS:
Gardner Machine Company
Stanko Litton Corporation
<PAGE>
Schedule B
TAX SHARING AGREEMENT
<TABLE>
<CAPTION>
DISK: NEWCO FINANCIALS NEWCO
FILE: HEWTAX SUMMARY OF TAX BALANCES
30-Sep-93 AS OF JULY 31, 1993
05:29 PM
FEDERAL STATE
COMPANY COMPANY TAX TAX
NAME NUMBER BALANCES BALANCES
- ------------------------- ------- -------- --------
<S> <C> <C> <C>
MATERIAL HANDLING M01010 $ 5,333 $ (216)
LAMB U.S. M02410 3,700 2
LAMB CANADA M02420 3,657
LAMB EUROPE M02430 1,934
ELIMINATOR M02499 791
GRINDING MACHINES M02610 1,138 214
LANDIS LUND M02630 2,168
DISC GRINDERS &
ABRASIVES M02640 (1,768) (44)
INTERMEC: M06110
PRE-ACQUISITION RESERVES (A) 455
OTHER (698) 212
SOFTWARE SYSTEMS M06120 (76) (16)
IAS ADMINISTRATION M09010 (310)
WESTERN ATLAS P09010 (14,942) 1,464
LIASI CORPORATE Z00050 (20,977) (1,578)
LITTON U.K. Z00076 (815)
CORE DATABASE (B) 25,145
-------- -------
TOTAL $ 4,735 $ 38
======== =======
NOTE: THE ABOVE AMOUNTS REPRESENT THE COMBINED TOTAL OF ACCRUED
AND DEFERRED TAX BALANCES ON THE BALANCE SHEET AS OF
JULY 31, 1993.
<FN>
(A) REPRESENTS RESERVES FOR PRE-ACQUISITION ISSUES.
(B) AMOUNT IS NET OF AMORTIZATION.
</TABLE>
<PAGE>
WESTERN TAX AGREEMENT
This Western Tax Agreement (the "Agreement") is
made and entered into on and as of March 17, 1994 by and
between Litton Industries, Inc., a Delaware corporation
("Litton") and Western Research Holdings, Inc., a Delaware
corporation ("Western").
WHEREAS, Dresser Industries, Inc., a Delaware
corporation ("Dresser"), Litton and Western Geophysical
Company of America, a Delaware corporation (Western
Geophysical") executed an Amalgamation Agreement dated April
30, 1987, (the "Amalgamation Agreement") pursuant to which
Dresser contributed certain assets to Western Atlas
International, In. ("Western Atlas International") and
Litton caused Western Geophysical to contribute
substantially all of its assets to Western Atlas
International, in exchange for stock and the assumption of
certain liabilities by Western Atlas International;
WHEREAS, on the date of and in connection with the
Amalgamation agreement, dresser, Litton and Western Atlas
International entered into a Tax Separation and
Indemnification Agreement (the "Litton/Dresser Agreement")
in order to provide, among other things, for the allocation
among the parties of certain tax liabilities;
WHEREAS, Western is the successor by merger to
Western Geophysical;
<PAGE>
WHEREAS, on or about March 17, 1994 Litton intends
to distribute (the "Distribution") to holders of its common
stock all the issued and outstanding common stock of Western
Atlas Inc., a Delaware corporation ("Western Atlas");
WHEREAS, as a result of transactions contemplated
as part of the Distribution, Western will become a
subsidiary of Western Atlas;
WHEREAS, Litton and Western Atlas intend to enter
into a Tax Sharing Agreement in connection with the
Distribution to provide, among other things, for the
allocation of certain tax liabilities between Litton and its
present and future subsidiaries on the one hand, and Western
Atlas and its present and future subsidiaries on the other
(the "Tax Sharing Agreement");
WHEREAS, in light of the Distribution and the Tax
Sharing Agreement, the parties wish to clarify their
respective rights and obligations under the Litton/Dresser
Agreement;
NOW, THEREFORE, in consideration of the mutual
promises made herein, the parties hereto agree for the
purpose of the Litton/Dresser Agreement only and for no
other purpose:
(1) As between the parties hereto, the term
"Litton Parties" as used in the Litton/Dresser Agreement
shall mean Litton, notwithstanding any contrary definition
of such term in the Litton/Dresser Agreement of the
Amalgamation Agreement;
- 2 -
<PAGE>
(2) Litton agrees to pay any amounts payable by
"Litton Parties" pursuant to the Litton/Dresser Agreement;
and
(3) If any amount payable to "Litton Parties"
pursuant to the Litton/Dresser Agreement is paid to Western,
Western agrees to immediately pay such amount to Litton; and
(4) Section 3 of the Litton/Dresser Agreement
shall be interpreted consistently with the concepts
underlying subsections (c) and (d) of Section 3.03 of the
Tax Sharing Agreement, and neither party shall be required
to make any payment pursuant to section 3 of the
Litton/Dresser Agreement with respect to any taxable period
unless the Taxes paid of payable by such party with respect
to such taxable period are lower than the Taxes that would
have been paid or payable by such party in the absence of
the "adjustment"described in Section 3(a) or 3(b), as the
case may be, of the Litton/Dresser Agreement. For purposes
of the preceding sentence, "Taxes" shall have the meaning
assigned to such term in the Tax Sharing Agreement.
- 3 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending
to be legally bound, have caused this Agreement to be
executed by their duly authorized representatives on and as
of the day and date first above set forth.
LITTON INDUSTRIES, INC.
By: /s/Rudolph E. Lang, Jr.
---------------------------
Title: Senior Vice President
WESTERN RESEARCH HOLDINGS, INC.
By: /s/Joseph T. Casey
---------------------------
Title: President
- 4 -
