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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 1, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
BAKER HUGHES INCORPORATED
(Exact name of Registrant as specified in its charter)
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DELAWARE 3533 72-0207995
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code) Identification No.)
3900 ESSEX LANE LAWRENCE O'DONNELL, III
HOUSTON, TEXAS 77027-5177 VICE PRESIDENT AND GENERAL COUNSEL
(713) 439-8600 BAKER HUGHES INCORPORATED
(Address, including zip code, 3900 ESSEX LANE
and telephone number, HOUSTON, TEXAS 77027-4995
including area code, of (713) 439-8600
Registrant's principal (Name, address, including zip code, and
executive offices) telephone number, including area code,
of agent for service)
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Copies to:
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J. DAVID KIRKLAND, JR. DANIEL A. NEFF
BAKER & BOTTS, L.L.P. WACHTELL, LIPTON, ROSEN & KATZ
ONE SHELL PLAZA 51 WEST 52ND STREET
910 LOUISIANA NEW YORK, NEW YORK 10019
HOUSTON, TEXAS 77002-4995
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement and the effective time of the merger of Western Atlas Inc. with a
subsidiary of Baker Hughes Incorporated (the "Merger"), as described in the
Agreement and Plan of Merger, dated as of May 10, 1998 (the "Merger Agreement"),
attached as Appendix A to the Joint Proxy Statement/Prospectus forming a part of
this Registration Statement.
---------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
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=========================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE(3)
- -------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $1.00
per share.................. 156,000,000 shares $34.09375 $5,318,625,000 $1,568,995
=========================================================================================================================
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(1) Plus such indeterminable number of shares that may be issuable upon
adjustment of the Exchange Ratio as provided in the Merger Agreement.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended (the
"Securities Act"), based on the average of the high and low prices reported
on the New York Stock Exchange on June 25, 1998.
(3) A fee of $962,327 was previously paid pursuant to Rules 14a-6 and 0-11 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in
connection with the filing of the preliminary Joint Proxy
Statement/Prospectus by Baker Hughes Incorporated and Western Atlas Inc. on
May 22, 1998. Pursuant to Rule 457(b) under the Securities Act and Rule
0-11(a)(2) under the Exchange Act, such fee is being credited against the
registration fee and, accordingly, an additional $606,668 is being paid in
connection with this Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
================================================================================
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BAKER HUGHES INCORPORATED
WESTERN ATLAS INC.
JOINT PROXY STATEMENT/PROSPECTUS
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SPECIAL MEETING OF SPECIAL MEETING OF
STOCKHOLDERS OF STOCKHOLDERS OF
BAKER HUGHES INCORPORATED WESTERN ATLAS INC.
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TO BE HELD AUGUST 10, 1998
------------------------
This Joint Proxy Statement/Prospectus relates to an Agreement and Plan of
Merger dated as of May 10, 1998 (the "Merger Agreement"), among Baker Hughes
Incorporated ("Baker Hughes"), Baker Hughes Delaware I, Inc., a wholly owned
subsidiary of Baker Hughes ("Merger Sub"), and Western Atlas Inc. ("Western
Atlas"), each a Delaware corporation. The Merger Agreement provides for the
merger of Merger Sub with and into Western Atlas (the "Merger"), as a result of
which Western Atlas would become a wholly owned subsidiary of Baker Hughes. In
the Merger, each outstanding share of common stock, par value $1.00 per share,
of Western Atlas ("Western Atlas Common Stock") would be converted into the
right to receive a number of shares (the "Exchange Ratio") of common stock, par
value $1.00 per share, of Baker Hughes ("Baker Hughes Common Stock") based on
the average trading price per share of Baker Hughes Common Stock on the New York
Stock Exchange, Inc. ("NYSE") during a specified period prior to the closing
date of the Merger. If the Merger had occurred on July 1, 1998, the Exchange
Ratio would have been 2.5816. Based on current capital structures and this
Exchange Ratio, stockholders of Western Atlas would have received in the Merger
approximately 141.5 million shares of Baker Hughes Common Stock, which would
represent approximately 45% of the Baker Hughes Common Stock to be outstanding
immediately after the Merger. Neither Baker Hughes' nor Western Atlas'
stockholders will be entitled to any appraisal or dissenters' rights in
connection with the Merger.
Baker Hughes has filed a registration statement on Form S-4 pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), covering the shares
of Baker Hughes Common Stock to be issuable in connection with the Merger. This
Joint Proxy Statement/Prospectus constitutes the Prospectus filed as a part of
the registration statement and is being furnished to stockholders of Baker
Hughes and Western Atlas in connection with the solicitation of proxies by the
respective Boards of Directors of Baker Hughes and Western Atlas for use at the
Special Meeting of Stockholders of Baker Hughes (the "Baker Hughes Special
Meeting") and the Special Meeting of Stockholders of Western Atlas (the "Western
Atlas Special Meeting" and, together with the Baker Hughes Special Meeting, the
"Meetings"), or any reconvened meetings after any adjournment or postponement
thereof, both scheduled to be held on August 10, 1998.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to stockholders of Baker Hughes and Western Atlas on or
about July , 1998.
On June 30, 1998, the closing sales prices of Western Atlas Common Stock
and Baker Hughes Common Stock on the NYSE were $87 7/8 and $34 9/16,
respectively.
------------------------
THE SECURITIES TO BE ISSUED IN CONNECTION WITH THE MERGER HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is July , 1998.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES CERTAIN DOCUMENTS BY
REFERENCE THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS
(OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS THE EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE) ARE AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL
OWNER, UPON REQUEST FROM, IN THE CASE OF DOCUMENTS RELATING TO BAKER HUGHES,
LINDA J. SMITH, CORPORATE SECRETARY, 3900 ESSEX LANE, SUITE 1200, HOUSTON, TEXAS
77027-5177, TELEPHONE NUMBER (713) 439-8600; AND IN THE CASE OF DOCUMENTS
RELATING TO WESTERN ATLAS, LOURDES T. HERNANDEZ, VICE PRESIDENT AND SECRETARY,
10205 WESTHEIMER ROAD, HOUSTON, TEXAS 77042, TELEPHONE NUMBER (713) 972-4000. TO
ENSURE TIMELY DELIVERY OF THESE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY AUGUST
3, 1998.
BAKER HUGHES AND WESTERN ATLAS HEREBY UNDERTAKE TO PROVIDE, WITHOUT CHARGE,
TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER OF BAKER HUGHES COMMON STOCK OR
WESTERN ATLAS COMMON STOCK, TO WHOM A COPY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS HAS BEEN DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF ANY
SUCH PERSON, A COPY OF ANY AND ALL OF THE DOCUMENTS REFERRED TO BELOW THAT HAVE
BEEN OR MAY BE INCORPORATED HEREIN BY REFERENCE, OTHER THAN EXHIBITS TO SUCH
DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED HEREIN BY
REFERENCE. REQUESTS FOR SUCH DOCUMENTS SHOULD BE DIRECTED TO ONE OF THE PERSONS
INDICATED IN THE IMMEDIATELY PRECEDING PARAGRAPH.
The following documents, which have been filed previously by Baker Hughes
(File No. 1-9397) and Western Atlas (File No. 1-12430) with the Securities and
Exchange Commission (the "SEC") pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), are hereby incorporated herein by reference:
- Baker Hughes' Annual Report on Form 10-K for the fiscal year ended
September 30, 1997;
- Baker Hughes' Quarterly Reports on Form 10-Q for the quarters ended
December 31, 1997 and March 31, 1998, as amended by amendments on Form
10-Q/A filed on May 21, 1998;
- Baker Hughes' Current Report on Form 8-K dated May 20, 1998;
- Western Atlas' Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, as amended by amendments on Form 10-K/A filed March
11, 1998 and May 21, 1998;
- Western Atlas' Quarterly Report on Form 10-Q for the quarter ended March
31, 1998; and
- Western Atlas' Current Reports on Form 8-K dated March 10, 1998.
All documents and reports filed by Baker Hughes or Western Atlas pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Joint Proxy Statement/Prospectus and prior to the date of the Meetings shall be
deemed to be incorporated by reference herein and to be a part hereof from the
respective dates of filing of such documents or reports. All information
appearing in this Joint Proxy Statement/Prospectus or in any document
incorporated herein by reference is not necessarily complete and is qualified in
its entirety by the information and financial statements (including notes
thereto) appearing in the documents incorporated herein by reference and should
be read together with such information and documents.
Any statement contained herein or in a document all or a portion of which
is incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Joint Proxy
Statement/Prospectus to the extent that a statement contained herein (or in any
subsequently filed document that also is or is deemed to be incorporated by
reference herein) modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed to constitute a part of this Joint
Proxy Statement/Prospectus except as so modified or superseded.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY OF
THE SECURITIES OFFERED BY THIS JOINT PROXY STATEMENT/PROSPECTUS, OR THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER OR PROXY
SOLICITATION. NEITHER THE DELIVERY OF THIS
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JOINT PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES OFFERED
HEREBY SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF BAKER HUGHES OR
WESTERN ATLAS SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
Baker Hughes and Western Atlas are subject to the informational
requirements of the Exchange Act and, in accordance therewith, file reports,
proxy statements and other information with the SEC. Such reports and other
information may be inspected and copied at the public reference facilities that
the SEC maintains at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington D.C. 20549, and at the following Regional Offices of the SEC:
Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and Seven World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material can also be obtained from the Public Reference Section
of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The public may obtain information on the operation of the Public
Reference Section by calling the SEC at 1-800-SEC-0330. The SEC maintains a web
site that contains reports, proxy and information statements and other
information filed electronically by Baker Hughes and Western Atlas with the SEC
that can be accessed over the Internet at http://www.sec.gov. In addition,
reports, proxy statements and other information filed by each of Baker Hughes
and Western Atlas can be inspected at the offices of the NYSE, 20 Broad Street,
New York, New York 10005, and at the offices of the Pacific Exchange Inc. (the
"Pacific Exchange"), 301 Pine Street, San Francisco, California 94104.
Baker Hughes has filed with the SEC a registration statement on Form S-4
(together with all amendments, supplements and exhibits thereto, the
"Registration Statement") under the Securities Act with respect to the Baker
Hughes Common Stock to be issued in connection with the Merger. Baker Hughes has
provided the information contained herein with respect to Baker Hughes and its
subsidiaries, and Western Atlas has provided the information with respect to
Western Atlas and its subsidiaries. This Joint Proxy Statement/Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits thereto, certain parts of which are omitted in accordance with the
rules and regulations of the SEC. The Registration Statement and any amendments
hereto, including exhibits filed as a part thereof, are available for inspection
and copying as set forth above. Statements contained in this Joint Proxy
Statement/Prospectus or in any document incorporated in this Joint Proxy
Statement/Prospectus by reference as to the contents of any contract or other
document referred to herein or therein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
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TABLE OF CONTENTS
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 2
AVAILABLE INFORMATION....................................... 3
SUMMARY..................................................... 6
The Companies............................................. 6
The Meetings.............................................. 6
The Merger................................................ 8
Comparative Per Share Prices of Common Stock.............. 14
Baker Hughes Selected Historical Financial Information.... 15
Western Atlas Selected Historical Financial Information... 17
Summary Pro Forma Combined Financial Information
(Unaudited)............................................ 19
Comparative Per Share Data................................ 20
THE BAKER HUGHES SPECIAL MEETING............................ 22
General................................................... 22
Matters to Be Considered.................................. 22
Record Date; Shares Entitled to Vote; Quorum.............. 22
Votes Required; Effect of Abstentions and Non-Votes....... 22
Voting and Revocation of Proxies.......................... 23
Solicitation of Proxies; Expenses......................... 23
THE WESTERN ATLAS SPECIAL MEETING........................... 24
General................................................... 24
Matters to Be Considered.................................. 24
Record Date; Shares Entitled to Vote; Quorum.............. 24
Votes Required; Effect of Abstentions and Non-Votes....... 24
Voting and Revocation of Proxies.......................... 25
Solicitation of Proxies; Expenses......................... 25
THE MERGER.................................................. 26
General................................................... 26
The Merger................................................ 26
Baker Hughes Board After the Merger; President............ 27
Procedures for Exchange of Certificates................... 27
Fractional Shares......................................... 28
Background of the Merger.................................. 28
Reasons for the Merger.................................... 29
Recommendations of the Boards of Directors................ 32
Opinion of Merrill Lynch.................................. 32
Opinion of Credit Suisse First Boston Corporation......... 36
Certain Federal Income Tax Consequences................... 41
Regulatory Approvals...................................... 42
Accounting Treatment...................................... 42
Employee Matters.......................................... 43
Interests of Certain Persons.............................. 44
Resales of Baker Hughes Common Stock...................... 48
NYSE Listing of Baker Hughes Common Stock................. 49
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CERTAIN PROVISIONS OF THE MERGER AGREEMENT.................. 50
Representations and Warranties............................ 50
Certain Covenants -- Conduct of Business of Western Atlas
and Baker Hughes....................................... 50
Conditions to the Merger.................................. 51
Additional Agreements..................................... 53
Amendment and Waiver...................................... 54
Termination............................................... 54
Expenses and Termination Fees............................. 56
No Solicitation of Acquisition Proposals.................. 57
Reciprocal Stock Option Agreements........................ 58
DESCRIPTION OF CAPITAL STOCK................................ 61
Baker Hughes Common Stock................................. 61
Preferred Stock........................................... 61
Certain Anti-takeover Provisions.......................... 61
COMPARISON OF STOCKHOLDER RIGHTS............................ 63
Business Combinations..................................... 63
Amendments to Charter..................................... 63
Removal of Directors...................................... 64
Cumulative Voting......................................... 64
Stockholder Rights Plan................................... 64
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS................................................ 65
EXPERTS..................................................... 72
LEGAL MATTERS............................................... 72
APPENDIX A -- Agreement and Plan of Merger
APPENDIX B -- Opinion of Merrill Lynch, Pierce, Fenner & Smith
Incorporated
APPENDIX C -- Opinion of Credit Suisse First Boston Corporation
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5
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/ Prospectus and does not purport to be complete. This
Summary is qualified in its entirety by the more detailed information contained
elsewhere or incorporated by reference in this Joint Proxy Statement/Prospectus.
Stockholders are urged to carefully read this Joint Proxy Statement/Prospectus
and the Appendices hereto in their entirety.
THE COMPANIES
BAKER HUGHES............... Baker Hughes is a leading provider of products and
services for the worldwide oil, gas and continuous
process industries. Through its five oilfield
divisions, Baker Hughes provides products and
services for the drilling, completion and
production of oil and gas wells. Through its Baker
Petrolite division, Baker Hughes manufactures and
sells specialty chemicals for petroleum production,
transportation and refining and other industrial
markets. Baker Hughes' process equipment operations
manufacture and market specialty equipment for a
variety of process applications. Baker Hughes is a
Delaware corporation formed in connection with the
combination of Baker International Corporation and
Hughes Tool Company in April 1987. Merger Sub is a
direct, wholly owned subsidiary of Baker Hughes
incorporated in Delaware in May 1998 for purposes
of the Merger. The principal executive offices of
Baker Hughes and Merger Sub are located at 3900
Essex Lane, Houston, Texas 77027-5177, and their
telephone number at that location is (713)
439-8600.
WESTERN ATLAS.............. Western Atlas is a leading supplier of oilfield
services and reservoir information technologies for
the worldwide oil and gas industry. It operates
primarily through three divisions: Western
Geophysical, Western Atlas Logging Services and E&P
Services. Western Atlas specializes in land, marine
and transition-zone seismic data acquisition and
processing services; well-logging and completion
services; and reservoir characterization and
project management services. Western Atlas was
incorporated in Delaware as a wholly owned
subsidiary of Litton Industries, Inc. ("Litton") in
1984 and became an independent company, the stock
of which is publicly traded on the NYSE, in March
1994. The principal executive offices of Western
Atlas are located at 10205 Westheimer Road,
Houston, Texas 77042-3115, and its telephone number
at that address is (713) 972-4000.
THE MEETINGS
MEETINGS OF STOCKHOLDERS... The Baker Hughes Special Meeting will be held on
August 10, 1998 at 9:00 a.m., Houston time, at the
offices of Baker Hughes, 3900 Essex Lane, Suite
210, Houston, Texas.
The Western Atlas Special Meeting will be held on
August 10, 1998 at 9:00 a.m., Houston time, at the
offices of Western Atlas, 10205 Westheimer Road,
4th Floor Auditorium, Houston, Texas.
MATTERS TO BE CONSIDERED AT
THE MEETINGS............. At the Baker Hughes Special Meeting, stockholders
will be asked to approve the issuance of shares of
Baker Hughes Common Stock pursu-
6
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ant to the Merger Agreement. At the Western Atlas
Special Meeting, stockholders will be asked to
approve and adopt the Merger Agreement and the
Merger.
VOTE REQUIRED.............. Assuming a quorum is present at the Baker Hughes
Special Meeting, the affirmative vote of the
holders of a majority of the shares of Baker Hughes
Common Stock present in person or represented by
proxy and entitled to vote on the matter is
required for approval of the issuance of shares of
Baker Hughes Common Stock pursuant to the Merger
Agreement.
The affirmative vote of the holders of at least a
majority of the outstanding shares of Western Atlas
Common Stock is required to approve and adopt the
Merger Agreement and the Merger.
RECORD DATE; SHARES
ENTITLED TO VOTE......... Only stockholders of record of Baker Hughes Common
Stock at the close of business on June 17, 1998
(the "Baker Hughes Record Date") are entitled to
notice of and to vote at the Baker Hughes Special
Meeting. On that date, there were 169,765,669
shares of Baker Hughes Common Stock outstanding.
Holders of Baker Hughes Common Stock are entitled
to one vote for each share held.
Only stockholders of record of Western Atlas Common
Stock at the close of business on June 17, 1998
(the "Western Atlas Record Date") are entitled to
notice of and to vote at the Western Atlas Special
Meeting. On that date, there were 54,956,639 shares
of Western Atlas Common Stock outstanding. Holders
of Western Atlas Common Stock are entitled to one
vote for each share held.
SECURITY OWNERSHIP OF
MANAGEMENT............... Directors and executive officers of Baker Hughes
and their affiliates, who as of the Baker Hughes
Record Date beneficially owned less than 1% of the
outstanding Baker Hughes Common Stock, have
indicated that they intend to vote in favor of the
proposal to approve the issuance of shares of Baker
Hughes Common Stock pursuant to the Merger
Agreement.
Directors and executive officers of Western Atlas
and their affiliates, who as of the Western Atlas
Record Date beneficially owned approximately 2% of
the outstanding Western Atlas Common Stock, have
indicated that they intend to vote in favor of the
proposal to approve and adopt the Merger Agreement
and the Merger.
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THE MERGER
EFFECT OF THE MERGER....... In the Merger, Merger Sub will merge with and into
Western Atlas. Western Atlas will be the surviving
corporation and will become a direct, wholly owned
subsidiary of Baker Hughes.
TREATMENT OF WESTERN ATLAS
COMMON STOCK............. In the Merger, each share of Western Atlas Common
Stock will be converted into the right to receive a
number of shares of Baker Hughes Common Stock based
on the average closing price of Baker Hughes Common
Stock on the NYSE (the "Baker Hughes Share Price")
during the 20 consecutive trading days ending on
the fifth trading day prior to the closing date of
the Merger (the "Closing Date"). The number of
shares of Baker Hughes Common Stock to be received
for each share of Western Atlas Common Stock
pursuant to the Merger Agreement is referred to as
the Exchange Ratio.
The Exchange Ratio will be 2.4 if the Baker Hughes
Share Price is greater than or equal to $38.25 and
less than or equal to $42.75. If the Baker Hughes
Share Price is greater than or equal to $35.00 and
less than $38.25, the Exchange Ratio adjusts to
maintain the value (based on the Baker Hughes Share
Price) of the Baker Hughes Common Stock issued for
each share of Western Atlas Common Stock at $91.80.
Similarly, if the Baker Hughes Share Price is
greater than $42.75 and less than or equal to
$44.75, the Exchange Ratio adjusts to maintain the
value of the Baker Hughes Common Stock issued for
each share of Western Atlas Common Stock at
$102.60. If the Baker Hughes Share Price exceeds
$44.75, the Exchange Ratio is fixed at 2.293. If
the Baker Hughes Share Price is below $35.00, the
Exchange Ratio is fixed at 2.623, and Western Atlas
has the option to terminate the Merger Agreement
unless Baker Hughes then elects to issue additional
shares of Baker Hughes Common Stock to maintain the
value of the Baker Hughes Common Stock issued for
each share of Western Atlas Common Stock at $91.80.
If the Closing Date had occurred on July 1, 1998,
the Baker Hughes Share Price would have been
$35.5594 and the Exchange Ratio accordingly would
have been 2.5816.
RECOMMENDATIONS OF THE
BOARDS OF DIRECTORS...... The Board of Directors of Baker Hughes has
unanimously determined that the Merger is in the
best interests of Baker Hughes and its stockholders
and has unanimously approved the Merger Agreement
and the Merger. THE BOARD OF DIRECTORS OF BAKER
HUGHES UNANIMOUSLY RECOMMENDS THAT ALL BAKER HUGHES
STOCKHOLDERS APPROVE THE ISSUANCE OF SHARES OF
BAKER HUGHES COMMON STOCK PURSUANT TO THE MERGER
AGREEMENT.
The Board of Directors of Western Atlas has
unanimously determined that the Merger Agreement
and the transactions contemplated thereby,
including the Merger, taken together, are fair to,
and in the best interests of, Western Atlas'
stockholders and has unanimously approved the
Merger, the Merger Agreement and the transactions
contemplated thereby. THE BOARD OF DIRECTORS OF
WESTERN ATLAS UNANIMOUSLY RECOMMENDS THAT WESTERN
ATLAS STOCKHOLDERS APPROVE AND ADOPT THE MERGER
AGREEMENT AND THE MERGER.
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BAKER HUGHES BOARD OF
DIRECTORS AFTER THE
MERGER................... As of the effective time of the Merger, the Board
of Directors of Baker Hughes will be expanded, and
Alton J. Brann, John R. Russell, Joseph T. Casey
and Claire W. Gargalli, who are currently directors
of Western Atlas, will become directors of Baker
Hughes. The Baker Hughes Board of Directors
currently consists of 12 directors.
REASONS FOR THE MERGER..... The combination of Western Atlas and Baker Hughes
is expected to result in the following advantages:
- Integration of Baker Hughes and Western Atlas
technologies to provide customers with expanded
and enhanced services.
- Integrated product and service offerings for
"life of field" focus for each phase of reservoir
life: exploration, development and production.
- Customer and geographic strengths that are
expected to create revenue synergies and cost
savings.
These and other reasons for the Merger are further
described in "The Merger -- Reasons for the
Merger."
OPINIONS OF FINANCIAL
ADVISORS................. Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") has delivered its written opinion
dated May 10, 1998 to the Board of Directors of
Baker Hughes that, as of the date of such opinion
and based upon and subject to certain matters
stated therein, the Exchange Ratio was fair to
Baker Hughes from a financial point of view.
Credit Suisse First Boston Corporation ("CSFB") has
delivered its written opinion dated May 10, 1998 to
the Board of Directors of Western Atlas to the
effect that, as of the date of such opinion and
based upon and subject to certain matters stated
therein, the Exchange Ratio was fair, from a
financial point of view, to the holders of Western
Atlas Common Stock.
THE OPINIONS OF THE FINANCIAL ADVISORS ARE
ADDRESSED TO THE RESPECTIVE BOARDS OF DIRECTORS OF
BAKER HUGHES AND WESTERN ATLAS AND RELATE TO THE
FAIRNESS OF THE EXCHANGE RATIO FROM A FINANCIAL
POINT OF VIEW, DO NOT ADDRESS ANY OTHER ASPECT OF
THE PROPOSED MERGER OR ANY RELATED TRANSACTION AND
DO NOT CONSTITUTE A RECOMMENDATION TO ANY
STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE
AT EITHER OF THE MEETINGS.
For information on the assumptions made, matters
considered and limitations on the reviews
undertaken by Merrill Lynch and CSFB, see "The
Merger -- Opinion of Merrill Lynch" and "-- Opinion
of Credit Suisse First Boston Corporation."
Stockholders are urged to read in their entirety
the opinions of Merrill Lynch and CSFB, attached as
Appendices B and C, respectively, to this Joint
Proxy Statement/Prospectus.
EFFECTIVE TIME OF THE
MERGER................... The effective time of the Merger will occur on the
first business day immediately following the day on
which the last of the conditions to the Merger
contained in the Merger Agreement has been
satisfied or waived or at such other time as Baker
Hughes and Western Atlas may agree.
CONDITIONS TO THE MERGER... The obligations of Baker Hughes and Western Atlas
to consummate the Merger are subject to certain
conditions, including:
- the approvals of the requisite holders of Baker
Hughes Common Stock and Western Atlas Common
Stock;
9
<PAGE> 11
- receipt of letters from the accountants of Baker
Hughes and Western Atlas that the Merger will be
treated as a "pooling of interests" for financial
accounting purposes;
- receipt of favorable opinions of counsel to Baker
Hughes and Western Atlas, dated the Closing Date,
that the Merger will qualify as a tax-free
reorganization; and
- other conditions customary for transactions of
this nature.
REGULATORY MATTERS......... Consummation of the Merger was conditioned on the
expiration or termination of the applicable waiting
period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR
Act"), which waiting period expired on June 28,
1998, and the consent of the United States Nuclear
Regulatory Commission ("NRC") to the transfer of
control of all NRC licenses of Western Atlas, which
consent has been obtained. There are no other
material U.S. federal or state regulatory approvals
required to consummate the Merger. Certain foreign
regulatory approvals or reviews with respect to the
non-U.S. operations of Western Atlas, Baker Hughes
or the combined company have been obtained or are
being sought.
AMENDMENT AND WAIVER....... The parties may amend the Merger Agreement at any
time before or after stockholder approval.
Following stockholder approval, no amendment may be
made that by law requires the further approval of
stockholders without obtaining the required
approval.
Any party to the Merger Agreement may, to the
extent legally allowed, extend the time for
performance of any of the obligations of the other
parties, waive any inaccuracies in any
representations and warranties of the other parties
or waive compliance with any of the agreements or
conditions contained in the Merger Agreement for
the benefit of such party.
TERMINATION................ The Merger Agreement may be terminated at any time
prior to the Merger by mutual consent of Baker
Hughes and Western Atlas. It may also be terminated
by the parties in certain events, including if:
- the Merger has not been consummated by October
31, 1998, subject to extension for up to 90 days
in certain cases if Baker Hughes or Western Atlas
or both are subject to a decree, order or
injunction prohibiting the consummation of the
Merger as a result of governmental litigation
under antitrust, competition or trade regulation
law;
- a final, nonappealable order prohibits the
Merger; or
- there has been a material breach by a party to
the Merger Agreement so that the condition
relating to representations and warranties or
covenants of such party has not been satisfied
and such breach either is not curable or, if
curable, is not cured within 30 days after such
party has received written notice of such breach
from the other party.
Either Baker Hughes or Western Atlas may terminate
the Merger Agreement if the Board of Directors of
the other party has withdrawn or materially
modified its recommendation with respect to the
Merger Agreement in a manner adverse to the
terminating party or has recommended an alternative
acquisition proposal. Either Baker Hughes or
Western Atlas also may terminate the Merger
Agreement if its Board of
10
<PAGE> 12
Directors determines that proceeding with the
Merger would be inconsistent with its fiduciary
obligations by reason of an unsolicited acquisition
proposal made by a third party that is superior to
the Merger and the terminating party complies with
procedures set forth in the Merger Agreement. Upon
termination of the Merger Agreement under the
circumstances described in this paragraph and in
certain other circumstances, Western Atlas or Baker
Hughes, as the case may be, generally will be
required to pay a fee to the other of $50 million,
and an additional fee of $150 million upon
consummation of an acquisition proposal if within
one year after such termination the party enters
into a definitive agreement with respect to or
consummates an alternative acquisition proposal
with the third party that was involved in the
termination.
RECIPROCAL STOCK OPTION
AGREEMENTS............... Western Atlas has granted to Baker Hughes an
irrevocable option to purchase 10,905,763 shares of
Western Atlas Common Stock (subject to adjustment
to equal 19.9% of the outstanding Western Atlas
Common Stock) at an exercise price of the lesser of
(i) $98.70 per share and (ii) the Exchange Ratio
multiplied by the closing price of Baker Hughes
Common Stock on the date of the exercise of the
option.
Similarly, Baker Hughes has granted to Western
Atlas an irrevocable option to purchase 33,772,146
shares of Baker Hughes Common Stock (subject to
adjustment to equal 19.9% of the outstanding Baker
Hughes Common Stock) at an exercise price of
$41.125 per share.
The options may be exercised by Baker Hughes or
Western Atlas, as the case may be, in whole or in
part within one year after a termination of the
Merger Agreement giving rise to the obligation of
the other party to pay a $50 million termination
fee referred to above. The options provide for
certain restrictions on the amount of aggregate
profit a party may receive pursuant to the option,
certain dispositions of stock acquired pursuant to
the exercise of the option and all amounts received
from the other party under the termination
provisions of the Merger Agreement.
DISSENTERS' RIGHTS......... Under Delaware law, neither Baker Hughes' nor
Western Atlas' stockholders will be entitled to any
appraisal or dissenters' rights in connection with
the Merger.
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES............. The respective obligations of Baker Hughes and
Western Atlas to consummate the Merger are
conditioned upon their having received opinions of
their respective counsel, dated the Closing Date,
to the effect that, among other things, the Merger
will be treated for federal income tax purposes as
a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
If the Merger qualifies as such a reorganization,
no gain or loss will be recognized for federal
income tax purposes by Baker Hughes, Western Atlas
or Merger Sub on the transactions contemplated by
the Merger Agreement, and a citizen or resident of
the United States or a domestic corporation who
holds Western Atlas Common Stock generally will not
recognize any gain or loss for federal income tax
purposes by reason of the conversion of Western
Atlas Common Stock into Baker Hughes Common Stock,
except with respect to cash received in lieu of a
fractional share.
11
<PAGE> 13
ACCOUNTING TREATMENT....... The Merger is intended to qualify as a pooling of
interests for accounting and financial reporting
purposes. The Merger is conditioned upon receipt by
each of Baker Hughes and Western Atlas of a letter
from its independent accountants stating that the
Merger will be treated as a pooling of interests
for financial accounting purposes. Baker Hughes and
Western Atlas expect to receive such letters.
INTERESTS OF CERTAIN
PERSONS IN THE MERGER.... Certain executive officers of Western Atlas, one of
whom is also a member of the Board of Directors of
Western Atlas, have interests in the Merger that
are in addition to the interests of Western Atlas'
stockholders generally. Eight executive officers
are each a party to a change of control employment
agreement with Western Atlas that provides, among
other things, severance compensation and certain
other benefits in the event of the executive's
involuntary termination (other than for cause)
within the three-year period immediately following
a "change of control" of Western Atlas (as defined
in the change of control employment agreements) or
voluntary termination within such period for "good
reason" (as defined) or within 30 days after the
first anniversary of a "change of control" of
Western Atlas. In addition, outstanding options,
including those held by directors and executive
officers of Western Atlas, become exercisable
pursuant to the change of control provisions of
Western Atlas' stock option plans. The Merger will
result in a "change of control" under such change
of control employment agreements and stock option
plans, and pursuant to the Merger Agreement, eight
executive officers will receive payments under
their change of control employment agreements upon
consummation of the Merger. In addition, pursuant
to the Merger Agreement, outstanding options
granted under Western Atlas' stock option plans,
including those held by executive officers of
Western Atlas, will be assumed by Baker Hughes and
become exercisable for shares of Baker Hughes
Common Stock. Moreover, pursuant to the Merger
Agreement, Baker Hughes has agreed to enter into
employment agreements with the following six
executive officers of Western Atlas: John R.
Russell, James E. Brasher, Thomas B. Hix, Jr., Gary
E. Jones, Damir S. Skerl and Richard C. White.
The directors and certain executive officers of
Baker Hughes, one of whom is also a member of the
Board of Directors of Baker Hughes, have interests
in the Merger that are in addition to the interests
of Baker Hughes' stockholders generally. Each such
executive officer is party to a severance agreement
with Baker Hughes that provides, among other
things, severance compensation and other benefits
in the event of the executive's involuntary
termination, other than for "cause" (as defined in
the executive agreements), within up to two years
following a "change in control" of Baker Hughes (as
defined in the executive agreements) or, in certain
cases, in the event of the executive's voluntary
termination in the one-month period commencing on
the first anniversary of such a change of control.
In addition, directors and executive officers of
Baker Hughes have been granted options to purchase
shares of Baker Hughes Common Stock under Baker
Hughes stock option plans, and certain executive
officers of Baker Hughes have been awarded shares,
or rights to receive shares, of Baker Hughes Common
Stock under Baker Hughes stock award and bonus
plans. Many of the options and awards under these
plans are not, at present, fully exercisable by, or
vested in, the recipient.
12
<PAGE> 14
Each of these plans provides for the immediate
vesting of all outstanding options and awards upon
a "change in control" of Baker Hughes (as defined
in each plan). The Merger will constitute a "change
in control" pursuant to each executive severance
agreement and each of these plans.
COMPARISON OF STOCKHOLDER
RIGHTS................... As a result of the Merger, holders of Western Atlas
Common Stock will become stockholders of Baker
Hughes and will have certain different rights as
stockholders of Baker Hughes from those they had as
stockholders of Western Atlas.
FORWARD-LOOKING
STATEMENTS............... The statements in this Joint Proxy
Statement/Prospectus relating to matters that are
not historical facts are "forward-looking"
statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act.
These statements include, without limitation,
statements concerning the future competitive
position, tax treatments, strategic advantages,
broader service offerings, synergies, revenue and
revenue growth, financial position, results of
operations and cash flows, general business and
financing strategies, operating and industry
trends, acquisitions or combination activities, and
operations of Baker Hughes, Western Atlas or the
combined company after the Merger in the future.
When used in this Joint Proxy Statement/Prospectus,
words such as "anticipate," "believe," "expect,"
"plan," "intend," "estimate," "project," "will,"
"could," "may," "predict" and similar expressions,
as they relate to Baker Hughes, Western Atlas or
the combined company after the Merger, identify
forward-looking statements. Such forward-looking
statements involve and are dependent upon certain
risks and uncertainties, including, but not limited
to, the following, which are beyond the control of
Baker Hughes, Western Atlas and the combined
company after the Merger: dependence upon energy
industry spending, worldwide prices and demand for
oil and gas, the presence of competitors with
greater financial and other resources,
technological changes and developments, operating
risks inherent in the oilfield services industry,
regulatory uncertainties, worldwide political
stability and economic conditions, operating risks
associated with international activity, drilling
activity, weather, the legislative environment in
the United States and other countries, OPEC policy,
conflict in the Middle East and other major
petroleum-producing regions and the condition of
the capital and equity markets. In addition, actual
benefits resulting from combining Baker Hughes and
Western Atlas may be less than those anticipated by
the two companies as a result of unanticipated
difficulties in integrating their operations or
unforeseen changes in competitive conditions. The
actual results of future events described in the
forward-looking statements contained herein could
differ materially from those expressed or implied
in such statements because of the risks and
uncertainties described above, elsewhere in this
Joint Proxy Statement/Prospectus and in the reports
and filings with the SEC of Baker Hughes, Western
Atlas and the combined company after the Merger.
13
<PAGE> 15
COMPARATIVE PER SHARE PRICES OF COMMON STOCK
Baker Hughes Common Stock is traded on the NYSE, the Pacific Exchange and
the Swiss Stock Exchange under the symbol "BHI." Western Atlas Common Stock is
traded on the NYSE and the Pacific Exchange under the symbol "WAI." The
following table sets forth the high and low sales prices of Baker Hughes Common
Stock and Western Atlas Common Stock for the calendar quarters indicated, as
reported in The Wall Street Journal's NYSE Composite Transactions Reports. The
Western Atlas sales prices are adjusted to reflect the distribution on October
31, 1997 of all the shares of UNOVA, Inc. ("UNOVA"), Western Atlas' then wholly
owned industrial automation systems subsidiary, as a dividend to the Western
Atlas stockholders in a transaction structured as a tax-free spin-off (the
"Spin-off"). Certain dividend information for Baker Hughes Common Stock is also
provided below. No cash dividends were declared or paid on Western Atlas Common
Stock during any of the periods presented.
<TABLE>
<CAPTION>
BAKER HUGHES
COMMON STOCK WESTERN ATLAS
--------------------------------- COMMON
STOCK
DIVIDEND --------------------
MARKET PRICE DECLARED MARKET PRICE
-------------------- PER --------------------
HIGH LOW SHARE HIGH LOW
---- --- --------- ---- ---
<S> <C> <C> <C> <C> <C>
1996
First Quarter............................................. $29 3/4 $22 3/4 $.115 $48 33/64 $39 1/32
Second Quarter............................................ 34 1/4 28 .115 51 1/4 43 17/32
Third Quarter............................................. 35 5/8 28 7/8 .115 49 7/8 42 1/4
Fourth Quarter............................................ 38 7/8 29 1/2 .115 57 7/32 48 33/64
1997
First Quarter............................................. $41 1/4 $34 1/8 $.115 $58 63/64 $45 7/8
Second Quarter............................................ 40 1/8 32 5/8 .115 57 45/64 45 3/32
Third Quarter............................................. 47 1/4 38 3/8 .115 71 51/64 56 43/64
Fourth Quarter............................................ 49 5/8 39 .115 81 1/2 63 7/8
1998
First Quarter............................................. $44 1/8 $34 7/8 $.115 $83 7/16 $58 9/16
Second Quarter............................................ 44 33 1/8 .115 94 73 1/16
</TABLE>
The following table sets forth the closing prices per share of Baker Hughes
Common Stock and Western Atlas Common Stock on the NYSE on May 8, 1998, the
business day preceding public announcement of the Merger Agreement, and on June
30, 1998 and certain information relating to the Exchange Ratio assuming that
the effective time of the Merger had occurred on such dates:
<TABLE>
<CAPTION>
WESTERN ATLAS
BAKER HUGHES WESTERN ATLAS BAKER HUGHES EXCHANGE EQUIVALENT PER
CLOSING PRICE CLOSING PRICE SHARE PRICE RATIO SHARE PRICE
------------- ------------- ------------- -------- --------------
<S> <C> <C> <C> <C> <C>
May 8, 1998.............. $41 1/8 $81 3/8 $41.0625 2.4000 $98.70
June 30, 1998............ $34 9/16 $84 7/8 $35.6281 2.5766 $89.05
</TABLE>
Each Baker Hughes Share Price indicated above is obtained by averaging the
closing price of the Baker Hughes Common Stock on the NYSE during the 20
consecutive trading days ending on the fifth trading day prior to the date
indicated (as the assumed effective time of the Merger). Each Exchange Ratio
indicated above is calculated in accordance with the definition of the Exchange
Ratio contained in the Merger Agreement and is based on the indicated Baker
Hughes Share Price. The Western Atlas equivalent per share price indicated above
is the value of the shares of Baker Hughes Common Stock issuable in the Merger
per share of Western Atlas Common Stock, obtained by multiplying the indicated
Exchange Ratio by the closing price per share of Baker Hughes Common Stock on
the date indicated. The examples of the calculations set forth above are
illustrations only. The actual Baker Hughes Share Price and Exchange Ratio will
be determined as set forth in the Merger Agreement based on the average closing
price of the Baker Hughes Common Stock on the NYSE during the 20 consecutive
trading days ending on the fifth trading day prior to the effective time of the
Merger. See "The Merger -- The Merger."
On May 8, 1998, the high and low sales prices per share of Baker Hughes
Common Stock were $41 3/4 and $40 5/8, respectively, and the high and low sales
prices per share of Western Atlas Common Stock were $81 3/8 and $80 1/4,
respectively. Stockholders are advised to obtain current market quotations for
Baker Hughes Common Stock and Western Atlas Common Stock. No assurance can be
given as to the market price of Baker Hughes Common Stock or Western Atlas
Common Stock at or, in the case of Baker Hughes Common Stock, after consummation
of the Merger.
14
<PAGE> 16
BAKER HUGHES SELECTED HISTORICAL FINANCIAL INFORMATION
The following selected financial information has been derived from the
historical consolidated financial statements of Baker Hughes. Selected unaudited
financial data for the six months ended March 31, 1998 and 1997 include all
adjustments (consisting only of normally recurring adjustments) that Baker
Hughes considers necessary for a fair presentation of consolidated operating
results and financial position for such interim periods. Results for the interim
periods are not necessarily indicative of results for the full year. The
financial information set forth below should be read in conjunction with Baker
Hughes' consolidated financial statements, related notes and other financial
information incorporated by reference in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED MARCH 31, FISCAL YEAR ENDED SEPTEMBER 30,
-------------------- -------------------------------------------------------------------
1998 1997(1) 1997(1)(2)(3) 1996(3)(4) 1995(5) 1994(3)(6)(7) 1993(3)
-------- --------- --------------- ---------- -------- ------------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Operations:
Revenues..................... $2,290.8 $1,676.9 $3,685.4 $3,027.7 $2,637.5 $2,504.8 $2,701.7
Operating income............. 278.2 201.0 259.9 306.7 255.9 185.9 158.9
Income before income taxes,
extraordinary loss and
accounting changes......... 247.9 178.0 213.1 298.9 205.1 226.2 100.1
Income before extraordinary
loss and accounting
changes.................... 158.7 109.5 109.1 176.4 120.0 131.2 58.9
Net income................... 158.7 97.4 97.0 176.4 105.4 42.7 58.9
Per share of common stock:
Income before extraordinary
loss and accounting
changes -- basic........... $ .94 $ .74 $ .71 $ 1.23 $ .67 $ .85 $ .34
Net income -- basic.......... .94 .66 .63 1.23 .57 .22 .34
Income before extraordinary
loss and accounting
changes -- diluted......... .91 .72 .71 1.21 .67 .83 .33
Net income -- diluted........ .91 .64 .63 1.21 .57 .22 .33
Dividends.................... .23 .23 .46 .46 .46 .46 .46
Financial position:
Cash and cash equivalents.... $ 9.3 $ 7.1 $ 8.6 $ 7.7 $ 6.8 $ 69.2 $ 7.0
Working capital.............. 1,386.2 1,218.7 1,284.2 1,081.1 984.7 855.4 921.0
Total assets................. 5,133.6 3,500.4 4,756.3 3,297.4 3,166.6 2,999.7 3,143.3
Long-term debt............... 961.8 714.5 771.8 673.6 798.4 638.0 935.8
Stockholders' equity......... 2,691.7 1,814.3 2,604.6 1,689.2 1,513.5 1,638.5 1,610.6
</TABLE>
- ---------------
(1) Baker Hughes adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," effective October 1, 1996, and
recognized a charge to income of $12.1 million ($.08 per share), net of a
tax benefit of $6.0 million, as the cumulative effect of a change in
accounting in the first quarter of 1997.
(2) In July 1997, Baker Hughes acquired Petrolite Corporation ("Petrolite") and
Wm. S. Barnickel & Company, the holder of 47% of Petrolite's common stock,
by issuing 19.3 million shares of Baker Hughes Common Stock and assuming
Petrolite's outstanding employee stock options. The purchase method of
accounting was used for these acquisitions, and total consideration was
$751.2 million.
(3) In 1997, 1996, 1994 and 1993, Baker Hughes recorded unusual charges of $52.1
million, $39.6 million, $31.8 million and $42.0 million, respectively. The
1997 charge consisted primarily of costs to combine the operations of
Petrolite and Drilex International Inc. with those of Baker Hughes.
Additionally, in connection with the acquisition of Petrolite, Baker Hughes
recorded a charge of $118.0 million for acquired in-process research and
development. The 1996 charge consisted of restructurings at Baker Hughes
INTEQ, Baker Oil Tools and Baker Hughes Process Equipment Company, the
write-off of patents and the impairment of a joint venture. The 1994 charge
consisted of restructurings and reorganizations of certain divisions,
primarily Baker Hughes INTEQ and the discontinuance of a
measurement-while-drilling (MWD) product line. Offsetting these charges was
a cash recovery from
15
<PAGE> 17
certain insurance carriers in the 1993 litigation regarding Parker &
Parsley. The 1993 charge consisted primarily of litigation settlements.
(4) In 1996, Baker Hughes sold 6.3 million shares of common stock of Varco
International, Inc. ("Varco"), representing its entire investment in Varco,
and recognized a pretax gain of $44.3 million.
(5) Baker Hughes adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," effective October 1, 1994, and recognized a charge to income of
$14.6 million ($0.10 per share), net of a tax benefit of $7.9 million, as
the cumulative effect of a change in accounting in the first quarter of
1995.
(6) Baker Hughes adopted SFAS No. 109, "Accounting for Income Taxes," effective
October 1, 1993, and recognized a credit to income of $25.5 million ($0.18
per share) as the cumulative effect of a change in accounting in the first
quarter of 1994. An additional benefit of $21.9 million was allocated to
capital in excess of par value. Baker Hughes also adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions,"
effective October 1, 1993, and recognized a charge to income of $69.6
million ($0.50 per share), net of a tax benefit of $37.5 million, as the
cumulative effect of a change in accounting in the first quarter of 1994.
(7) In 1994, Baker Hughes repurchased or defeased all of its outstanding 6%
discount debentures for $205.5 million and generated an extraordinary loss
of $44.3 million ($0.31 per share), net of a tax benefit of $23.9 million.
In 1994, Baker Hughes sold the EnviroTech Pumpsystems group of companies and
recognized a pretax gain of $101.0 million.
16
<PAGE> 18
WESTERN ATLAS SELECTED HISTORICAL FINANCIAL INFORMATION
The following selected financial information has been derived from the
historical consolidated financial statements of Western Atlas. On October 31,
1997, the shares of common stock of UNOVA were distributed to Western Atlas
stockholders pursuant to the Spin-off. UNOVA's operations through October 31,
1997 are reported in Western Atlas' consolidated financial statements as
discontinued operations. Selected unaudited financial data for the three months
ended March 31, 1998 and 1997 include all adjustments (consisting only of normal
recurring adjustments) that Western Atlas considers necessary for a fair
presentation of consolidated operating results and financial position for such
interim periods. Results for the interim periods are not necessarily indicative
of results for the full year. The financial information set forth below is based
on continuing operations and should be read in conjunction with Western Atlas'
consolidated financial statements, related notes and other financial information
incorporated by reference in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED FIVE MONTHS
MARCH 31, YEAR ENDED DECEMBER 31, ENDED YEAR ENDED
------------------- ----------------------------------------- DECEMBER 31, JULY 31,
1998 1997 1997 1996 1995 1994 1993(1) 1993(1)
-------- -------- -------- -------- -------- -------- ------------ ----------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating results:
Revenue.......................... $ 490.7 $ 379.9 $1,658.2 $1,418.1 $1,282.9 $1,194.5 $ 495.2 $1,161.7
Earnings (loss) from continuing
operations..................... $ 33.6 $ 16.1 $ 91.8 $ 69.9 $ 61.4 $ 39.7 $ (190.6) $ 40.8
Earnings (loss) from discontinued
operations(2).................. 14.7 (154.9) 55.8 38.4 38.0 7.3 33.1
-------- -------- -------- -------- -------- -------- -------- --------
Earnings (loss) before cumulative
effect of a change in
accounting principle........... 33.6 30.8 (63.1) 125.7 99.8 77.7 (183.3) 73.9
Cumulative effect of a change in
accounting principle(3)........ (1.1)
-------- -------- -------- -------- -------- -------- -------- --------
Net earnings (loss)........ $ 33.6 $ 30.8 $ (63.1) $ 125.7 $ 99.8 $ 77.7 $ (183.3) $ 72.8
======== ======== ======== ======== ======== ======== ======== ========
Common share data -- diluted(4):
Earnings (loss) per share from
continuing operations.......... $ .60 $ .29 $ 1.65 $ 1.29 $ 1.14 $ .82 $ (4.18) $ .87
Earnings (loss) per share from
discontinued operations(2)..... .28 (2.78) 1.03 .72 .78 .16 .70
-------- -------- -------- -------- -------- -------- -------- --------
Earnings (loss) per share before
cumulative effect of a change
in accounting principle........ .60 .57 (1.13) 2.32 1.86 1.60 (4.02) 1.57
Cumulative effect of a change in
accounting principle(3)........ (.02)
-------- -------- -------- -------- -------- -------- -------- --------
Total...................... $ .60 $ .57 $ (1.13) $ 2.32 $ 1.86 $ 1.60 $ (4.02) $ 1.55
======== ======== ======== ======== ======== ======== ======== ========
Shares used to compute diluted
earnings (loss) per share(4)..... 56.1 54.7 55.6 54.3 53.8 48.5 45.6 47.0
Financial position at period end:
Total assets..................... $2,394.7 $2,802.8 $2,330.7 $2,499.2 $2,268.6 $2,141.6 $2,007.5 $1,756.7
Total debt....................... 751.2 704.9 808.1 503.6 498.8 531.7 771.1 185.4
Shareholders' equity............. 924.4 1,529.0 886.9 1,502.9 1,356.8 1,248.3 957.9 1,087.4
Working capital.................. 136.6 734.7 114.2 775.0 827.5 729.0 752.4 714.7
Current ratio.................... 1.3 2.2 1.2 2.9 3.8 3.3 3.5 5.1
Other selected information:
EBITDA(5)........................ $ 167.6 $ 102.1 $ 561.2 $ 456.7 $ 408.5 $ 341.3 $ (155.6) $ 311.2
Adjusted EBITDA(5)............... 167.6 102.1 569.6 456.7 408.5 341.3 86.7 313.0
Cash flows from continuing
operations:
Operating activities........... 200.8 149.6 519.1 449.6 277.6 320.7 124.0 271.8
Investing activities........... (165.3) (181.4) (758.2) (451.9) (228.0) (311.3) (143.9) (154.7)
Financing activities........... (52.5) 144.0 440.2 18.1 (22.7) 40.1 (93.9) (62.5)
</TABLE>
17
<PAGE> 19
- ---------------
(1) Western Atlas became a publicly traded company in March 1994, concurrent
with the distribution of its common stock to the shareholders of Litton.
Western Atlas' fiscal year-end was changed from July 31 to December 31 in
1993. Interest expense, income taxes, and certain general and administrative
corporate costs incurred by Litton were allocated to Western Atlas for
periods presented prior to January 1, 1994.
(2) On May 4, 1997, the Board of Directors of Western Atlas approved a plan for
the Spin-off of UNOVA. On October 31, 1997, the shares of common stock of
UNOVA were distributed to Western Atlas stockholders pursuant to the
Spin-off. UNOVA's operations through October 31, 1997 are reported in
Western Atlas' consolidated financial statements as discontinued operations.
Corporate general and administrative costs of Western Atlas were not
allocated to UNOVA for any of the periods presented. Spin-off charges of
$8.4 million were charged to continuing operations during the second quarter
of 1997.
(3) The provisions of SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," were adopted in fiscal year 1993. Immediate
recognition of the transition liability was elected. All amounts pertain to
continuing operations.
(4) The number of shares of common stock outstanding prior to 1994 was based on
the weighted-average number of shares of Litton common stock outstanding for
fiscal 1993.
(5) "EBITDA" means earnings before interest, taxes, depreciation, depletion,
amortization and minority interests. "Adjusted EBITDA" represents EBITDA
adjusted for nonrecurring items. Nonrecurring items represent Spin-off
charges of $8.4 million in the year ended December 31, 1997; restructuring
charges of $242.2 million in the five-month period ended December 31, 1993;
and cumulative effect of a change in accounting principle of $1.8 million in
the year ended July 31, 1993. EBITDA and Adjusted EBITDA are not generally
accepted accounting principles measures, may not be comparable to similarly
titled items of other companies and should not be considered as alternatives
to net income or any other generally accepted accounting principles measure
of performance as an indicator of Western Atlas' operating performance or as
a measure of liquidity. Western Atlas believes EBITDA and Adjusted EBITDA
are widely accepted financial indicators of a company's ability to service
debt.
18
<PAGE> 20
SUMMARY PRO FORMA COMBINED FINANCIAL INFORMATION (UNAUDITED)
The following tables set forth certain unaudited pro forma combined
financial information for Baker Hughes giving effect to the Merger accounted for
as a pooling of interests. The information below may not be indicative of the
results and financial position that actually would have occurred if the Merger
had been consummated or that will be obtained in the future. The summary pro
forma financial data for the periods indicated were derived from the unaudited
pro forma condensed combined financial statements and related notes appearing
elsewhere in this Joint Proxy Statement/Prospectus. The fiscal year ends of
Baker Hughes and Western Atlas are September 30 and December 31, respectively.
In applying the pooling of interests method of accounting, the historical
results of operations of Baker Hughes and Western Atlas for fiscal years prior
to the Merger will be combined. As such, the unaudited pro forma information for
the six months ended March 31, 1998 includes such combined information for Baker
Hughes and Western Atlas for such period, while the unaudited pro forma
information for each of the three years in the period ended September 30, 1997
includes such combined information of Baker Hughes for its September 30 fiscal
year ends and Western Atlas for its December 31 fiscal year ends. Consequently,
the results of operations for Western Atlas for the three months ended December
31, 1997 are included in both the unaudited pro forma condensed combined
statement of operations for the six months ended March 31, 1998 and the
unaudited pro forma condensed combined statement of operations for the year
ended September 30, 1997. Western Atlas had revenues, income from continuing
operations and diluted income from continuing operations per share for the three
months ended December 31, 1997 of $439.5 million, $31.8 million and $0.57,
respectively.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
SIX MONTHS ENDED ------------------------------
MARCH 31, 1998 1997 1996 1995
---------------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Operations:
Revenues........................................ $3,221.0 $5,343.6 $4,445.8 $3,920.4
Operating income................................ 406.0 460.5 454.1 390.8
Income from continuing operations before income
taxes and accounting changes................. 353.3 364.3 415.4 308.3
Income from continuing operations before
accounting changes........................... 224.1 200.9 246.3 181.4
Per share of common stock at Exchange Ratio of
2.4(1):
Income from continuing operations before
accounting changes -- basic.................. $ .75 $ .71 $ .91 $ .58
Income from continuing operations before
accounting changes -- diluted................ .73 .70 .90 .58
Per share of common stock at Exchange Ratio of
2.623(1):
Income from continuing operations before
accounting changes -- basic.................. $ .72 $ .68 $ .87 $ .56
Income from continuing operations before
accounting changes -- diluted................ .70 .67 .86 .55
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------
(IN MILLIONS)
<S> <C>
Financial position:
Cash and cash equivalents....................... $ 25.8
Working capital................................. 1,522.8
Total assets.................................... 7,528.3
Long-term debt.................................. 1,663.1
Stockholders' equity............................ 3,616.1
</TABLE>
- ---------------
(1) The Exchange Ratio will be 2.4 if the Baker Hughes Share Price is less than
or equal to $42.75 and greater than or equal to $38.25. If the Baker Hughes
Share Price is less than $38.25, the Exchange Ratio adjusts to maintain the
value (based on the Baker Hughes Share Price) of the Baker Hughes Common
Stock issued for each share of Western Atlas Common Stock at $91.80. If the
Baker Hughes Share Price is below $35.00, the Exchange Ratio is fixed at
2.623, and Western Atlas has the option to terminate the Merger Agreement
unless Baker Hughes then elects to increase the Exchange Ratio to maintain
the value of the Baker Hughes Common Stock issued for each share of Western
Atlas Common Stock at $91.80. The pro forma information is presented both on
the basis of an Exchange Ratio of 2.4 and an Exchange Ratio of 2.623,
illustrating the difference in the pro forma per share amounts as the
Exchange Ratio varies.
19
<PAGE> 21
COMPARATIVE PER SHARE DATA
The following tables present comparative per share information for Baker
Hughes and Western Atlas on a historical basis, for Baker Hughes on a pro forma
basis and for Western Atlas on an equivalent pro forma basis assuming that the
Merger had been consummated and accounted for as a pooling of interests. The
tables should be read in conjunction with the consolidated financial statements
of Baker Hughes and Western Atlas incorporated by reference in this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
SIX MONTHS ENDED ------------------------
MARCH 31, 1998 1997 1996 1995
---------------- ------ ------ ------
<S> <C> <C> <C> <C>
BAKER HUGHES -- HISTORICAL
Book value per common share at end of period........... $15.86 $15.40 $11.69 $10.64
Cash dividends per common share........................ .23 .46 .46 .46
Income from continuing operations before accounting
changes per common share:
Basic............................................. .94 .71 1.23 .67
Diluted........................................... .91 .71 1.21 .67
BAKER HUGHES -- PRO FORMA AT EXCHANGE RATIO OF 2.4(1)
Book value per common share at end of period........... $12.01 $11.63 $11.68 $10.64
Cash dividends per common share........................ .23 .46 .46 .46
Income from continuing operations before accounting
changes per common share:
Basic............................................. .75 .71 .91 .58
Diluted........................................... .73 .70 .90 .58
BAKER HUGHES -- PRO FORMA AT EXCHANGE RATIO OF 2.623(1)
Book value per common share at end of period........... $11.54 $11.18 $11.19 $10.19
Cash dividends per common share........................ .23 .46 .46 .46
Income from continuing operations before accounting
changes per common share:
Basic............................................. .72 .68 .87 .56
Diluted........................................... .70 .67 .86 .55
</TABLE>
20
<PAGE> 22
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
SIX MONTHS ENDED ------------------------
MARCH 31, 1998 1997 1996 1995
---------------- ------ ------ ------
<S> <C> <C> <C> <C>
WESTERN ATLAS -- EQUIVALENT PRO FORMA AT EXCHANGE RATIO
OF 2.4(1)(2)
Book value per common share at end of period........... $28.82 $27.91 $28.03 $25.54
Cash dividends per common share........................ .55 1.10 1.10 1.10
Income from continuing operations before accounting
changes per common share(3):
Basic............................................. 1.80 1.70 2.18 1.39
Diluted........................................... 1.75 1.68 2.16 1.39
WESTERN ATLAS -- EQUIVALENT PRO FORMA AT EXCHANGE RATIO
OF 2.623(1)(2)
Book value per common share at end of period........... $30.27 $29.33 $29.35 $26.73
Cash dividends per common share........................ .60 1.21 1.21 1.21
Income from continuing operations before accounting
changes per common share(3):
Basic............................................. 1.89 1.78 2.28 1.47
Diluted........................................... 1.84 1.76 2.26 1.44
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED ------------------------
MARCH 31, 1998 1997 1996 1995
---------------- ------ ------ ------
<S> <C> <C> <C> <C>
WESTERN ATLAS -- HISTORICAL
Book value per common share at end of period........... $16.87 $16.25 $27.98 $25.49
Cash dividends per common share........................ -- -- -- --
Income from continuing operations per common share(3):
Basic............................................. 1.19 1.69 1.31 1.16
Diluted........................................... 1.17 1.65 1.29 1.14
</TABLE>
- ---------------
(1) See note (1) on page 19.
(2) The Western Atlas equivalent pro forma per share amounts were calculated by
multiplying the Baker Hughes pro forma per share amounts by an assumed
Exchange Ratio of 2.4 or 2.623, as applicable.
(3) On October 31, 1997, the shares of common stock of UNOVA were distributed to
Western Atlas stockholders in connection with the Spin-off. UNOVA's
operations through October 31, 1997 are reported in Western Atlas'
consolidated financial statements as discontinued operations. Corporate
general and administrative costs of Western Atlas were not allocated to
UNOVA for any of the periods presented. Spin-off charges of $8.4 million
were charged to continuing operations during the second quarter of 1997.
21
<PAGE> 23
THE BAKER HUGHES SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to stockholders of
Baker Hughes in connection with the solicitation of proxies on behalf of the
Board of Directors of Baker Hughes (the "Baker Hughes Board") for use at the
Baker Hughes Special Meeting to be held on August 10, 1998 at the time and place
specified in the accompanying Notice of Special Meeting of Stockholders, and at
any reconvened meeting after any adjournment or postponement thereof.
MATTERS TO BE CONSIDERED
At the Baker Hughes Special Meeting, including any reconvened meeting after
any adjournment or postponement thereof, stockholders of Baker Hughes will be
asked to consider and vote upon a proposal to approve the issuance of shares of
Baker Hughes Common Stock pursuant to the Merger Agreement (the "Baker Hughes
Proposal").
THE BAKER HUGHES BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
THE MERGER AND UNANIMOUSLY RECOMMENDS THAT BAKER HUGHES STOCKHOLDERS VOTE "FOR"
THE APPROVAL OF THE BAKER HUGHES PROPOSAL.
RECORD DATE; SHARES ENTITLED TO VOTE; QUORUM
The Baker Hughes Board has fixed the close of business on June 17, 1998 as
the Baker Hughes Record Date for the determination of the Baker Hughes
stockholders entitled to receive notice of and to vote at the Baker Hughes
Special Meeting. As of the Baker Hughes Record Date, 169,765,669 shares of Baker
Hughes Common Stock were outstanding and held of record by approximately 17,535
holders. Each outstanding share of Baker Hughes Common Stock is entitled to one
vote on all matters coming before the Baker Hughes Special Meeting. The
presence, either in person or by proxy, of the holders of a majority of the
issued and outstanding shares of Baker Hughes Common Stock entitled to vote at
the Baker Hughes Special Meeting is necessary to constitute a quorum for the
transaction of business at the Baker Hughes Special Meeting.
VOTES REQUIRED; EFFECT OF ABSTENTIONS AND NON-VOTES
Approval of a majority of the votes cast by holders of Baker Hughes Common
Stock is required to approve the Baker Hughes Proposal. Under the rules of the
NYSE, such approval is required because the number of shares of Baker Hughes
Common Stock to be issued in the Merger will exceed 20% of the shares of Baker
Hughes Common Stock outstanding immediately prior to the issuance thereof
pursuant to the Merger Agreement.
The inspectors of election will treat shares of Baker Hughes Common Stock
represented by proxies that reflect abstentions as shares that are present,
entitled to vote and voting for purposes of determining the presence of a quorum
at the Baker Hughes Special Meeting and for purposes of determining the outcome
of any question submitted to the stockholders for a vote. The inspectors of
election will treat "broker non-votes" (i.e., shares held by brokers that are
represented at a meeting but with respect to which the broker does not have
discretionary authority to vote) as shares that are present and entitled to vote
for purposes of establishing a quorum. For purposes of determining the outcome
of any question as to which the broker has physically indicated on the proxy
that it does not have discretionary authority to vote, these shares will be
treated as not present and not entitled to vote with respect to that question,
even though those shares are considered entitled to vote for quorum purposes and
may be entitled to vote on other questions. Accordingly, abstentions will have
the same effect as votes against the Baker Hughes Proposal and broker non-votes
will have the effect of reducing the number of affirmative votes required to
achieve the majority vote for such business.
As of the Baker Hughes Record Date, directors and executive officers of
Baker Hughes and their affiliates beneficially owned less than 1% of the
outstanding shares of Baker Hughes Common Stock. The directors and
22
<PAGE> 24
executive officers of Baker Hughes have indicated that they intend to vote all
of their shares of Baker Hughes Common Stock for the approval of the Baker
Hughes Proposal.
VOTING AND REVOCATION OF PROXIES
Shares of Baker Hughes Common Stock represented by properly executed
proxies (or telephonic communication in lieu of physically executed proxies made
in accordance with the proxy card instructions) received at or prior to the
Baker Hughes Special Meeting, and which have not been revoked, will be voted at
the Baker Hughes Special Meeting, or any reconvened meeting after any
adjournment or postponement thereof, in accordance with the instructions of such
proxies. Baker Hughes stockholders as of the Baker Hughes Record Date may, in
lieu of attending the meeting or delivering a physical proxy, authorize by
telephone the persons indicated on the accompanying proxy card to vote by
following the instructions indicated on the accompanying proxy card. The
deadline for any such authorization by telephone is 7:00 p.m., Houston time, on
August 9, 1998, the day before the Baker Hughes Special Meeting, or such later
date that is the day before any reconvened meeting after any adjournment or
postponement thereof. If a proxy is properly executed and returned (or
telephonic communication made in accordance with the proxy card instructions) by
a stockholder of Baker Hughes without indicating any voting instructions, the
shares of Baker Hughes Common Stock represented by such proxy will be voted at
the Baker Hughes Special Meeting FOR the approval of the Baker Hughes Proposal.
A stockholder executing and returning a proxy (or telephonic communication
in lieu of physically executed proxies made in accordance with the proxy card
instructions) has the power to revoke it at any time before it is exercised
either by executing and delivering a later-dated proxy (or telephonic
communication made in accordance with the proxy card instructions) to the
Secretary of Baker Hughes, or by delivering a duly executed written revocation
of such proxy (or telephonic communication made in accordance with the proxy
card instructions) to the Secretary of Baker Hughes.
SOLICITATION OF PROXIES; EXPENSES
In connection with the Baker Hughes Special Meeting, proxies are being
solicited by, and on behalf of, the Baker Hughes Board. Baker Hughes will bear
the cost of the solicitation of proxies from its stockholders. In addition to
the solicitation of proxies by use of mail, the directors, officers and
employees of Baker Hughes may solicit proxies from stockholders personally or by
telephone, telegraph or facsimile transmissions. Such directors, officers and
employees will not be additionally compensated for such solicitation but may be
reimbursed for out-of-pocket expenses incurred in connection therewith. In
addition, Baker Hughes has engaged ChaseMellon Shareholder Services, L.L.C. for
a fee of $9,000, plus expenses, to aid in the solicitation of proxies and to
verify certain records related to the solicitation. Arrangements will also be
made with brokerage houses, banks, fiduciaries and other custodians for the
forwarding of solicitation material to the beneficial owners of stock held of
record by such persons, and Baker Hughes will reimburse such persons for their
reasonable out-of-pocket expenses in connection therewith.
23
<PAGE> 25
THE WESTERN ATLAS SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to stockholders of
Western Atlas in connection with the solicitation of proxies on behalf of the
Board of Directors of Western Atlas (the "Western Atlas Board") for use at the
Western Atlas Special Meeting to be held on August 10, 1998 at the time and
place specified in the accompanying Notice of Special Meeting of Stockholders,
and at any reconvened meeting after any adjournment or postponement thereof.
MATTERS TO BE CONSIDERED
At the Western Atlas Special Meeting, including any reconvened meeting
after any adjournment or postponement thereof, stockholders of Western Atlas
will consider and vote upon a proposal to approve and adopt the Merger Agreement
and the Merger.
THE WESTERN ATLAS BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, TAKEN
TOGETHER, ARE FAIR TO, AND IN THE BEST INTERESTS OF, WESTERN ATLAS' STOCKHOLDERS
AND HAS UNANIMOUSLY APPROVED THE MERGER, THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND UNANIMOUSLY RECOMMENDS THAT ALL WESTERN
ATLAS STOCKHOLDERS VOTE "FOR" THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND THE MERGER.
RECORD DATE; SHARES ENTITLED TO VOTE; QUORUM
The Western Atlas Board has fixed the close of business on June 17, 1998 as
the Western Atlas Record Date for the determination of the Western Atlas
stockholders entitled to receive notice of and to vote at the Western Atlas
Special Meeting. As of the Western Atlas Record Date, 54,956,639 shares of
Western Atlas Common Stock were outstanding and held of record by approximately
20,765 holders. Each outstanding share of Western Atlas Common Stock is entitled
to one vote on all matters coming before the Western Atlas Special Meeting. The
presence, either in person or by proxy, of the holders of a majority of the
issued and outstanding shares of Western Atlas Common Stock entitled to vote at
the Western Atlas Special Meeting is necessary to constitute a quorum for the
transaction of business at the Western Atlas Special Meeting.
VOTES REQUIRED; EFFECT OF ABSTENTIONS AND NON-VOTES
Under Delaware law, the affirmative vote of the holders of at least a
majority of the outstanding shares of Western Atlas Common Stock is required to
approve and adopt the Merger Agreement.
The inspectors of election will treat shares of Western Atlas Common Stock
represented by proxies that reflect abstentions as shares that are present,
entitled to vote and voting for purposes of determining the presence of a quorum
at the Western Atlas Special Meeting and for purposes of determining the outcome
of any question submitted to the stockholders for a vote. The inspectors of
election will treat "broker non-votes" (i.e., shares held by brokers that are
represented at a meeting but with respect to which the broker does not have
discretionary authority to vote) as shares that are present and entitled to vote
for purposes of establishing a quorum. For purposes of determining the outcome
of any question as to which the broker has physically indicated on the proxy
that it does not have discretionary authority to vote, these shares will be
treated as not present and not entitled to vote with respect to that question,
even though those shares are considered entitled to vote for quorum purposes and
may be entitled to vote on other questions. Accordingly, abstentions and broker
non-votes will have the same effect as votes against the approval and adoption
of the Merger Agreement.
As of the Western Atlas Record Date, directors and executive officers of
Western Atlas and their affiliates beneficially owned in the aggregate
approximately 2% of the outstanding shares of Western Atlas Common Stock. The
directors and executive officers of Western Atlas have indicated that they
intend to vote all of their shares of Western Atlas Common Stock for the
approval and adoption of the Merger Agreement and the Merger.
24
<PAGE> 26
VOTING AND REVOCATION OF PROXIES
Shares of Western Atlas Common Stock represented by properly executed
proxies (or telephonic communication in lieu of physically executed proxies made
in accordance with the proxy card instructions) received at or prior to the
Western Atlas Special Meeting, and which have not been revoked, will be voted at
the Western Atlas Special Meeting, or any reconvened meeting after any
adjournment or postponement thereof, in accordance with the instructions of such
proxies. Western Atlas stockholders as of the Western Atlas Record Date may, in
lieu of attending the meeting or delivering a physical proxy, authorize by
telephone the persons indicated on the accompanying proxy card to vote by
following the instructions indicated on the accompanying proxy card. The
deadline for any such authorization by telephone is 7:00 p.m., Houston time, on
August 9, 1998, the day before the Western Atlas Special Meeting, or such later
date that is the day before any reconvened meeting after any adjournment or
postponement thereof. If a proxy is properly executed and returned (or
telephonic communication made in accordance with the proxy card instructions) by
a stockholder of Western Atlas without indicating any voting instructions, the
shares of Western Atlas Common Stock represented by such proxy will be voted at
the Western Atlas Special Meeting FOR the approval and adoption of the Merger
Agreement and the Merger.
A stockholder executing and returning a proxy (or telephonic communication
in lieu of physically executed proxies made in accordance with the proxy card
instructions) has the power to revoke it at any time before it is exercised
either by executing and delivering a later-dated proxy (or telephonic
communication made in accordance with the proxy card instructions) to the
Secretary of Western Atlas, or by delivering a duly executed written revocation
of such proxy (or telephonic communication made in accordance with the proxy
card instructions) to the Secretary of Western Atlas.
SOLICITATION OF PROXIES; EXPENSES
In connection with the Western Atlas Special Meeting, proxies are being
solicited by, and on behalf of, the Board of Directors of Western Atlas. Western
Atlas will bear the cost of the solicitation of proxies from its stockholders.
In addition to the solicitation of proxies by use of mail, the directors,
officers and employees of Western Atlas may solicit proxies from stockholders
personally or by telephone, telegraph or facsimile transmissions. Such
directors, officers and employees will not be additionally compensated for such
solicitation but may be reimbursed for out-of-pocket expenses incurred in
connection therewith. In addition, Western Atlas has engaged Georgeson & Company
Inc. for a fee of $8,500, plus expenses, to aid in the solicitation of proxies
and to verify certain records related to the solicitation. Arrangements will
also be made with brokerage houses, banks, fiduciaries and other custodians for
the forwarding of solicitation material to the beneficial owners of stock held
of record by such persons, and Western Atlas will reimburse such persons for
their reasonable out-of-pocket expenses in connection therewith.
IF THE MERGER AGREEMENT IS APPROVED AND ADOPTED AND THE MERGER IS
CONSUMMATED, HOLDERS OF WESTERN ATLAS COMMON STOCK WILL BE SENT INSTRUCTIONS
REGARDING THE SURRENDER OF THEIR CERTIFICATES REPRESENTING SHARES OF WESTERN
ATLAS COMMON STOCK. HOLDERS OF WESTERN ATLAS COMMON STOCK SHOULD NOT SEND THEIR
STOCK CERTIFICATES UNTIL THEY RECEIVE THESE INSTRUCTIONS.
25
<PAGE> 27
THE MERGER
GENERAL
Baker Hughes, Western Atlas and Merger Sub have entered into the Merger
Agreement, which provides that, subject to the satisfaction of the conditions
thereof (see "Certain Provisions of the Merger Agreement -- Conditions to the
Merger"), the Merger will be effected. THE DESCRIPTION OF THE MERGER AGREEMENT
CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE MERGER AGREEMENT, A COPY OF WHICH IS INCLUDED AS APPENDIX A
TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED IN ITS ENTIRETY
HEREIN BY REFERENCE.
THE MERGER
The Merger Agreement provides for the merger of Merger Sub with and into
Western Atlas. Western Atlas will be the surviving corporation and will become a
direct, wholly owned subsidiary of Baker Hughes at the Effective Time (as
defined below). In the Merger, each share of Western Atlas Common Stock
outstanding immediately prior to the Effective Time will be converted
automatically into the right to receive a number of shares of Baker Hughes
Common Stock equal to the Exchange Ratio.
The Exchange Ratio will be 2.4 if the Baker Hughes Share Price is greater
than or equal to $38.25 and less than or equal to $42.75. If the Baker Hughes
Share Price is greater than $42.75 and less than or equal to $44.75, the
Exchange Ratio adjusts to maintain the value (based on the Baker Hughes Share
Price) of the Baker Hughes Common Stock issued for each share of Western Atlas
Common Stock at $102.60 and is equal to that fraction, rounded to the nearest
thousandth, or if there shall not be a nearest thousandth, to the next lower
thousandth, equal to the quotient obtained by dividing $102.60 by the Baker
Hughes Share Price. If the Baker Hughes Share Price exceeds $44.75, the Exchange
Ratio is fixed at 2.293. If the Baker Hughes Share Price is greater than or
equal to $35.00 and less than $38.25, the Exchange Ratio adjusts to maintain the
value (based on the Baker Hughes Share Price) of the Baker Hughes Common Stock
issued for each share of Western Atlas Common Stock at $91.80 and is equal to
that fraction, rounded to the nearest thousandth, or if there shall not be a
nearest thousandth, to the next higher thousandth, equal to the quotient
obtained by dividing $91.80 by the Baker Hughes Share Price. If the Baker Hughes
Share Price is below $35.00, the Exchange Ratio is fixed at 2.623, and Western
Atlas has the option to terminate the Merger Agreement unless Baker Hughes then
elects to issue additional shares of Baker Hughes Common Stock to maintain the
value (based on the Baker Hughes Shares Price) of the Baker Hughes Common Stock
issued for each share of Western Atlas Common Stock at $91.80 by causing the
Exchange Ratio to equal that fraction, rounded to the nearest thousandth, or if
there shall not be a nearest thousandth, to the next higher thousandth, equal to
the quotient obtained by dividing $91.80 by the Baker Hughes Share Price. The
Baker Hughes Share Price is the average of the per share closing prices of Baker
Hughes Common Stock on the NYSE for the 20 consecutive trading days ending on
the fifth trading day prior to the Closing Date, appropriately adjusted for any
stock splits, reverse stock splits, stock dividends, recapitalizations or other
similar transactions.
If the Closing Date had occurred on July 1, 1998, the Baker Hughes Share
Price would have been $35.5594 and the Exchange Ratio accordingly would have
been 2.5816. Based upon the capitalization of Baker Hughes and Western Atlas as
of July 1, 1998 and this Exchange Ratio, stockholders of Western Atlas would
have received in the Merger approximately 141.5 million shares of Baker Hughes
Common Stock, which would have represented approximately 45% of the outstanding
Baker Hughes Common Stock immediately after the Merger.
The closing of the Merger (the "Closing") will occur on the first business
day immediately following the day on which the last of the conditions to the
Merger contained in the Merger Agreement has been satisfied or waived or on such
other date as Baker Hughes and Western Atlas may agree. On the Closing Date, the
parties shall cause a Certificate of Merger to be filed with the Delaware
Secretary of State, and the time of such filing will be the "Effective Time"
unless otherwise provided in the Certificate of Merger.
Pursuant to the Merger Agreement, the Certificate of Incorporation of
Western Atlas and the Bylaws of Merger Sub will be the Certificate of
Incorporation and Bylaws, respectively, of the surviving corporation of
26
<PAGE> 28
the Merger (the "Surviving Corporation"). The directors of Merger Sub and the
officers of Western Atlas immediately prior to the Effective Time will be the
initial directors and officers, respectively, of the Surviving Corporation.
BAKER HUGHES BOARD AFTER THE MERGER; PRESIDENT
At the Effective Time, the Baker Hughes Board will be expanded, and Alton
J. Brann, John R. Russell, Joseph T. Casey and Claire W. Gargalli, who are
currently directors of Western Atlas, will be appointed to the Baker Hughes
Board. Mr. Russell will be appointed to the Executive Committee of the Baker
Hughes Board, and at least one of the other new directors will be appointed to
each other committee of the Baker Hughes Board. At the Effective Time, Mr.
Russell will become the President of Baker Hughes.
PROCEDURES FOR EXCHANGE OF CERTIFICATES
As of the Effective Time, Baker Hughes shall deposit or cause to be
deposited with the Exchange Agent, for the benefit of the holders of shares of
Western Atlas Common Stock immediately prior to the Effective Time, certificates
representing the shares of Baker Hughes Common Stock and cash in lieu of
fractional shares to be issued or paid pursuant to the Merger Agreement in
exchange for outstanding shares of Western Atlas Common Stock. The "Exchange
Agent" will be ChaseMellon Shareholder Services, L.L.C., the transfer agent for
Baker Hughes Common Stock, or such other party reasonably satisfactory to
Western Atlas. Promptly after the Effective Time, the Exchange Agent will mail a
transmittal form to each such former stockholder of Western Atlas. The
transmittal form will contain instructions with respect to the surrender of
stock certificates ("Certificates") formerly representing shares of Western
Atlas Common Stock to be exchanged in the Merger. STOCKHOLDERS OF WESTERN ATLAS
SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.
Upon the surrender of each Certificate by Western Atlas stockholders, the
Exchange Agent will issue a certificate representing the whole number of shares
of Baker Hughes Common Stock and a check representing the amount of any cash in
lieu of fractional shares and unpaid dividends and distributions that such
holder is entitled to receive under the Merger Agreement. Any surrendered
Certificate shall forthwith be canceled.
No dividends or other distributions declared or made after the Effective
Time with respect to Baker Hughes Common Stock with a record date after the
Effective Time will be paid to a holder of any unsurrendered Certificate with
respect to the shares of Baker Hughes Common Stock the holder is entitled to
receive, and no cash payment in lieu of fractional shares will be paid to any
holder until the surrender of such Certificate in accordance with the Merger
Agreement.
After the Effective Time, there shall be no transfers of Western Atlas
Common Stock on the stock transfer books of the Surviving Corporation. If, after
the Effective Time, Certificates formerly representing shares of Western Atlas
Common Stock are presented to the Surviving Corporation or the Exchange Agent,
such Certificates will be canceled and (subject to applicable abandoned
property, escheat and similar laws) exchanged for certificates representing the
number of shares of Baker Hughes Common Stock and any cash the holder of such
Certificates is entitled to receive under the Merger Agreement.
Promptly following the first anniversary of the Effective Time, the
Exchange Agent will deliver to Baker Hughes all cash, shares of Baker Hughes
Common Stock, Certificates and other documents in its possession relating to the
Merger, and thereafter Baker Hughes will act as the Exchange Agent. Thereafter,
each holder of a Certificate may surrender such Certificate to Baker Hughes and
(subject to applicable abandoned property, escheat and similar laws) receive in
exchange therefor the number of shares of Baker Hughes Common Stock and any cash
such holder is entitled to receive under the Merger Agreement.
None of Baker Hughes, the Surviving Corporation or the Exchange Agent shall
be liable to any holder of shares of Western Atlas Common Stock for any stock
certificates, cash or other property properly delivered to a public or
governmental official pursuant to any applicable abandoned property, escheat or
similar law.
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FRACTIONAL SHARES
No fractional shares of Baker Hughes Common Stock will be issued to any
stockholder of Western Atlas upon consummation of the Merger. For each
fractional share that would otherwise be issued, Baker Hughes will pay by check
an amount equal to such fractional portion multiplied by the Baker Hughes Share
Price.
BACKGROUND OF THE MERGER
Due to the nature of their respective businesses, Western Atlas and Baker
Hughes provide complementary products and services to many of the same
customers, and often work together on projects for customers in different but
related capacities. As a result, each of Western Atlas and Baker Hughes has
become well acquainted with the other's operations and management.
Baker Hughes and Western Atlas have held discussions from time to time with
each other and with other oilfield service companies concerning strategic
alliances, joint bidding arrangements and other ways for the separate companies
to deliver complementary services to their customers. In July 1997, Baker Hughes
made an unsolicited proposal to acquire Western Atlas, which Western Atlas
rejected as inconsistent with its strategic direction.
Western Atlas was contacted in February 1998 by another large oilfield
service company concerning that company's interest in a business combination
with Western Atlas. The discussions ended without any acquisition proposal being
made.
On February 26, 1998, Halliburton Company and Dresser Industries, Inc.
announced that they had entered into a definitive agreement to merge. On March
4, 1998, EVI, Inc. and Weatherford Enterra, Inc. also announced that they had
entered into a definitive agreement to merge. Baker Hughes and Western Atlas
believe that these transactions, which involve significant participants in the
oilfield service industry, will accelerate the trend toward integrated service
offerings. To meet the competitive challenge posed by these transactions,
Western Atlas and Baker Hughes intensified their discussions and internal
studies of the possibility of a strategic alliance or similar arrangement by
which the separate companies could jointly provide services to customers.
Each company has also separately held discussions with other oilfield
service companies concerning strategic opportunities.
In late April, Western Atlas and Baker Hughes agreed that it was unlikely
that they would be able to achieve their strategic goals through an alliance or
similar structure due to the weaknesses inherent in such structures. In light of
this conclusion and in view of the changes taking place in the competitive
landscape of the oilfield services industry, including the effects of the
transactions announced earlier in the year, Baker Hughes inquired in early May
as to whether Western Atlas would be willing to consider a possible merger of
the two companies, and Western Atlas indicated that it would be willing to
consider such a proposal if one were made.
On May 6, 1998, Mr. Lukens and other senior executives of Baker Hughes and
its advisors met with the Executive Committee of the Western Atlas Board,
consisting of Messrs. Brann, Russell and Casey, and other senior executives of
Western Atlas and its advisors. At this meeting, financial terms of a possible
merger were first discussed. The meeting resulted in a pricing structure for a
proposed merger of Western Atlas with a wholly owned subsidiary of Baker Hughes,
pursuant to which each share of Western Atlas Common Stock would be converted
into 2.4 shares of Baker Hughes Common Stock, subject to adjustment based on the
market price of Baker Hughes Common Stock over a period prior to completion of
the merger on the terms that were ultimately contained in the Exchange Ratio.
Mr. Lukens indicated that he would seek authority from the Baker Hughes Board to
formally propose a transaction incorporating these financial terms, and Mr.
Brann indicated that, if the response of the Baker Hughes Board was favorable
and the parties were able to agree on the other terms of the transaction, he
would seek approval of the Western Atlas Board.
On May 7, 1998, the legal and financial advisors to Baker Hughes and
Western Atlas discussed in greater detail the terms of the transaction and
negotiated certain of the provisions of the Merger Agreement. On May 8, 1998, at
a special meeting, the Baker Hughes Board authorized Mr. Lukens to continue the
negotiations and approved the Exchange Ratio, the Merger Agreement, the Stock
Option Agreements
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(defined below) and the Merger, with such changes as the management of Baker
Hughes deemed appropriate. Following that meeting, negotiations of the Merger
Agreement and the Stock Option Agreements continued on May 8 and 9, 1998.
On May 10, 1998, Mr. Brann and Mr. Lukens and representatives of Western
Atlas and Baker Hughes met to finalize the remaining open issues with respect to
the terms of the Merger Agreement and the Stock Option Agreements. Later that
day, the Western Atlas Board met to consider the proposed merger, and authorized
Western Atlas to enter into the Merger Agreement and the Stock Option
Agreements. The agreements were executed by Western Atlas and Baker Hughes on
May 10, 1998, and a press release announcing the transaction was issued by the
parties later that evening.
REASONS FOR THE MERGER
Baker Hughes' Reasons for the Merger
The Baker Hughes Board believes that the terms of the Merger are fair to,
and in the best interests of, Baker Hughes and its stockholders and has
unanimously approved the Merger Agreement and the Merger and unanimously
recommends that Baker Hughes stockholders vote FOR approval of the Baker Hughes
Proposal.
In reaching its conclusion, the Baker Hughes Board considered, among other
factors:
- The combined company will be strategically positioned to provide
integrated "life of field" and "reservoir management" related products
and services. These products and services are expected to span the
planning, exploration, development and production phases of an oil and
gas reservoir. The integration of Baker Hughes' drilling, completion and
production technologies with Western Atlas' reservoir information
technologies could enable oil and gas companies to increase the quantity
of oil and gas produced from an oil and gas reservoir over its life from
the historical rate of less than 40% of total hydrocarbons in place.
- The increasing demands of customers in the oil and gas industry for
their oilfield service suppliers to provide integrated product and
service offerings and project management on an outsourced basis. The
combination of Baker Hughes' drilling solutions with Western Atlas'
seismic and reservoir information integration technologies could enable
customers to improve wellbore placement, reduce the number of wells
drilled, optimize their productivity and reduce the time to first
production and economic payback.
- The leading positions of Western Atlas and Baker Hughes in their product
lines and service offerings, which will allow the combined companies to
compete effectively with the industry's largest integrated oilfield
service providers.
- The benefits that the combined entity is expected to receive from the
respective geographic strengths and customer relationships of the two
companies, including an improved global support and service network.
Global customers, especially those in remote areas, are expected to gain
performance and efficiency advantages that could improve the combined
company's competitive position.
- The financial and technological positions of competitors in the oilfield
service industry and the strength and breadth of those competitors'
product and service offerings.
- Expected combination benefits, including revenue synergies and cost
savings.
- The changing competitive landscape of the oilfield services industry.
- The complementary product and service offerings of Baker Hughes and
Western Atlas and the expected synergistic effects of the combination of
the two companies.
- Western Atlas' technological leadership in the seismic and wireline
businesses.
- The financial performance and condition, business operations and future
prospects of each of Western Atlas and Baker Hughes.
- The structure of the transaction and terms of the Merger Agreement and
the Stock Option Agreements and their impact on the accounting treatment
of possible alternative business combinations. See "Certain Provisions
of the Merger Agreement -- Reciprocal Stock Option Agreements."
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- The expected accounting treatment of the Merger as a pooling of
interests.
- The accretive cash flow per share of the combined entity as compared to
Baker Hughes on a standalone basis, and the near-term dilution to
earnings per share of the combined entity as compared to Baker Hughes on
a standalone basis.
- The relative market capitalizations of Western Atlas and Baker Hughes,
and the expected capital structure of the combined entity after the
Merger.
- The opinion of Merrill Lynch described below, including Merrill Lynch's
conclusion that the Exchange Ratio was fair, from a financial point of
view, to Baker Hughes as of the date of its opinion. The Merrill Lynch
opinion is based upon and subject to the factors and assumptions,
qualifications and limitations set forth therein.
- The compatibility of the corporate cultures of the management teams and
employees of both companies.
In determining that the Merger was fair to, and in the best interests of,
Baker Hughes' stockholders, the Baker Hughes Board considered the factors above
as a whole and did not assign specific or relative weights to those factors. The
Baker Hughes Board believes that the Merger is an opportunity for Baker Hughes'
stockholders to participate in a combined enterprise that has significantly
greater business and financial resources than Baker Hughes would have absent the
Merger.
Western Atlas' Reasons for the Merger
Western Atlas' primary reason for seeking to combine its businesses with
those of Baker Hughes is the belief of the Western Atlas Board and management
that the ability to deliver a broader range of oilfield services and products
will make Western Atlas a stronger competitor and will help enable Western Atlas
to remain competitive over the longer term. Many of Western Atlas' customers
have indicated a preference to do business with fewer but more technically and
operationally capable suppliers as a way of enhancing the efficiency of their
own exploration and production activities. While Western Atlas believes it is a
leading provider of seismic and well-logging services, it also believes that
companies offering these services in close conjunction with a full array of
oilfield services and products will be more effective competitors in the years
ahead. In addition, the ability to combine the technologies of Baker Hughes with
those of Western Atlas will create an opportunity to develop products and
services that neither company would be in a position to develop effectively on
its own.
Historically, Schlumberger Limited has led the oilfield services industry
in the ability to provide the broadest array of services and products, and has
for many years been a principal competitor of Western Atlas. The pending merger
of Halliburton Company and Dresser Industries, Inc. will, if completed, create
another industry participant with a similarly broad offering, although neither
Halliburton nor Dresser currently provides seismic services. Western Atlas has
held discussions with various oilfield service companies, including Baker
Hughes, concerning ways to coordinate their activities, either through joint
bidding, strategic alliances or other arrangements, in order to provide enhanced
services in response to industry trends. However, after studying these
opportunities, Western Atlas management concluded that cooperation between
different companies with different management and ownership would be unlikely to
yield the benefits of being able to offer a broader collection of services and
products under unified management and ownership. In addition, the joint delivery
of multiple services by separate companies has not been well accepted by
oilfield services customers. Moreover, the management of Western Atlas believes
that, collectively, Western Atlas and Baker Hughes have leading positions in
those higher value-added products and services which enable customers to better
manage their reservoirs. The Western Atlas Board believes that the combination
of Western Atlas and Baker Hughes will be well equipped to compete with
Schlumberger and Halliburton/Dresser as the industry continues to consolidate.
The Western Atlas Board also considered the possibility of adapting to the
changing conditions in the industry through acquisitions of other companies that
would add to Western Atlas' service and product offerings. In light of the
significant amounts of time and capital investment, as well as the number of
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transactions that would have been required to carry out such a strategy and the
risks of such a strategy, the Western Atlas Board decided that it was not the
best alternative.
In evaluating the proposal from Baker Hughes, the Western Atlas Board
considered the Merger to be favorable to the Western Atlas stockholders, and in
its deliberations considered, among other factors, the following:
- The effective price offered for Western Atlas was a significant
premium to the market price of Western Atlas Common Stock at the
time of the Merger Agreement, as well as a premium to the all-time
high trading price for Western Atlas Common Stock prior to the date
of the Merger Agreement ($84 7/8).
- The provisions of the Merger Agreement that specify the Exchange
Ratio protect Western Atlas stockholders from the effect of a
decline in the price of Baker Hughes Common Stock within a certain
range, below which Western Atlas has the right to terminate the
Merger Agreement unless Baker Hughes elects to increase the amount
of Baker Hughes Common Stock to be received by Western Atlas
stockholders.
- The combined company could offer a broad range of services and
products and there was no significant overlap between the current
businesses of the two companies.
- As a result of the complementary nature of the businesses of the two
companies, there was unlikely to be any significant issue raised by
the proposed combination under antitrust laws.
- The Western Atlas stockholders would obtain in the Merger an equity
investment in the combined company on a tax-free basis.
- Synergies and, to a lesser extent, cost savings obtainable from the
combination would, if realized, create additional value for the
stockholders of the combined company.
- The capital structure of the combined company would give it
sufficient flexibility to pursue additional acquisitions to add
services or products not currently offered by either Western Atlas
or Baker Hughes.
- CSFB rendered an opinion to the Western Atlas Board dated May 10,
1998 as to the fairness of the Exchange Ratio from a financial point
of view to the holders of Western Atlas Common Stock.
- The corporate cultures of the management teams and employees of both
companies were compatible.
- Western Atlas' oilfield services businesses have historically
yielded greater rates of growth in earnings and higher profit
margins than Baker Hughes' businesses based on reported results,
including nonrecurring items. Accordingly, the Western Atlas Board
considered that the combined company may experience reduced results
with respect to these measures than Western Atlas does currently.
The Western Atlas Board concluded, however, that these short-term
effects would be outweighed by the longer-term benefits of the
Merger, including potential growth in revenues attributable to the
combined company's broader array of services and products and its
competitive position as compared to Schlumberger and
Halliburton/Dresser.
- Although the Merger Agreement gives Western Atlas the right to
terminate such agreement if a superior proposal for a business
combination with Western Atlas is made, the termination fee
provisions of the Merger Agreement could have the effect of
discouraging such a proposal. In addition, the Stock Option
Agreements could have the effect of precluding any alternative
business combination with Western Atlas from being accounted for as
a pooling of interests, which could be an additional impediment to
certain alternative business combination proposals. The Western
Atlas Board accepted these provisions as a means to obtain other
terms (principally relating to the collar provisions included in the
Exchange Ratio) that are favorable to Western
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Atlas, and did not believe that such favorable terms could be otherwise
obtained in the negotiations with Baker Hughes.
In determining that the Merger was fair to, and in the best interests of,
Western Atlas' stockholders, the Western Atlas Board considered the factors
described above as a whole and did not assign specific relative weights to any
of those factors.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Recommendation of the Baker Hughes Board
FOR THE REASONS DISCUSSED ABOVE, THE BAKER HUGHES BOARD UNANIMOUSLY
RECOMMENDS THAT THE HOLDERS OF SHARES OF BAKER HUGHES COMMON STOCK VOTE TO
APPROVE THE ISSUANCE OF SHARES OF BAKER HUGHES COMMON STOCK PURSUANT TO THE
MERGER AGREEMENT.
Recommendation of the Western Atlas Board
FOR THE REASONS DISCUSSED ABOVE, THE WESTERN ATLAS BOARD UNANIMOUSLY
RECOMMENDS THAT WESTERN ATLAS STOCKHOLDERS VOTE TO APPROVE AND ADOPT THE MERGER
AGREEMENT AND THE MERGER.
OPINION OF MERRILL LYNCH
Baker Hughes retained Merrill Lynch to act as its exclusive financial
advisor in connection with the Merger. On May 8, 1998, Merrill Lynch rendered to
the Baker Hughes Board its oral opinion, confirmed in writing on May 10, 1998
(the "Merrill Lynch Opinion"), that, as of the date of the opinion and based
upon and subject to the factors and assumptions set forth therein, the Exchange
Ratio was fair from a financial point of view to Baker Hughes.
THE FULL TEXT OF THE MERRILL LYNCH OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED, AND QUALIFICATIONS AND LIMITATIONS ON THE
REVIEW UNDERTAKEN BY MERRILL LYNCH, IS ATTACHED AS APPENDIX B HERETO AND IS
INCORPORATED HEREIN BY REFERENCE. THE SUMMARY OF THE MERRILL LYNCH OPINION SET
FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION. STOCKHOLDERS OF BAKER HUGHES ARE
URGED TO READ SUCH OPINION IN ITS ENTIRETY. THE MERRILL LYNCH OPINION WAS
PROVIDED TO THE BAKER HUGHES BOARD FOR ITS INFORMATION AND IS DIRECTED ONLY TO
THE FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE EXCHANGE RATIO TO BAKER
HUGHES. THE MERRILL LYNCH OPINION DOES NOT ADDRESS THE MERITS OF THE UNDERLYING
DECISION BY BAKER HUGHES TO ENGAGE IN THE MERGER AND DOES NOT CONSTITUTE A
RECOMMENDATION TO BAKER HUGHES' STOCKHOLDERS AS TO HOW SUCH STOCKHOLDERS SHOULD
VOTE ON THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT OR ANY MATTER RELATED
THERETO.
The Exchange Ratio was determined through negotiations between Western
Atlas and Baker Hughes and was authorized by the Baker Hughes Board.
The summary set forth below does not purport to be a complete description
of the analyses underlying the Merrill Lynch Opinion or the presentation made by
Merrill Lynch to the Baker Hughes Board. The preparation of a fairness opinion
is a complex analytical process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances. Therefore, such an opinion is not
readily susceptible to partial analysis or summary description. In arriving at
its opinion, Merrill Lynch did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as to
the significance and relevance of each analysis and factor. Accordingly, Merrill
Lynch believes that its analyses must be considered as a whole and that
selecting portions of its analyses, without considering all of its analyses,
would create an incomplete view of the process underlying the Merrill Lynch
Opinion.
In performing its analyses, numerous assumptions were made with respect to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Merrill
Lynch, Western Atlas or Baker Hughes. Any estimates contained in the analyses
performed by Merrill Lynch are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than suggested
by such analyses. Additionally, estimates of the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
such businesses or securities might
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actually be sold. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty. The Merrill Lynch Opinion and Merrill
Lynch's presentation to the Baker Hughes Board were among several factors taken
into consideration by the Baker Hughes Board in making its determination to
approve the Merger Agreement. Consequently, the Merrill Lynch analyses described
below should not be viewed as determinative of the decision of the Baker Hughes
Board or Baker Hughes' management to engage in the Merger.
In arriving at the Merrill Lynch Opinion, Merrill Lynch, among other
things: (i) reviewed certain publicly available business and financial
information relating to Western Atlas and Baker Hughes that Merrill Lynch deemed
to be relevant; (ii) reviewed certain information, including financial
forecasts, relating to the business, earnings, cash flow, assets, liabilities
and prospects of Western Atlas and Baker Hughes, as well as the amount and
timing of the cost-savings and related expenses and synergies expected to result
from the Merger (the "Expected Synergies"), furnished to Merrill Lynch by Baker
Hughes; (iii) conducted discussions with members of senior management and
representatives of Western Atlas and Baker Hughes concerning the matters
described in clauses (i) and (ii) above, as well as their respective businesses
and prospects before and after giving effect to the Merger and the Expected
Synergies; (iv) reviewed the market prices and valuation multiples for the
Western Atlas Common Stock and the Baker Hughes Common Stock and compared them
with those of certain publicly traded companies that Merrill Lynch deemed to be
relevant; (v) reviewed the results of operations of Western Atlas and Baker
Hughes and compared them with those of certain publicly traded companies that
Merrill Lynch deemed to be relevant; (vi) compared the proposed financial terms
of the Merger with the financial terms of certain other transactions that
Merrill Lynch deemed to be relevant; (vii) participated in certain discussions
and negotiations among representatives of Western Atlas and Baker Hughes and
their financial and legal advisors; (viii) reviewed the potential pro forma
impacts of the Merger on Baker Hughes; (ix) reviewed a draft of the Merger
Agreement; and (x) reviewed such other financial studies and analyses and took
into account such other matters as Merrill Lynch deemed necessary, including
Merrill Lynch's assessment of general economic, market and monetary conditions.
In preparing the Merrill Lynch Opinion, Merrill Lynch assumed and relied on
the accuracy and completeness of all information supplied or otherwise made
available to Merrill Lynch, discussed with or reviewed by or for Merrill Lynch,
or publicly available, and Merrill Lynch did not assume any responsibility for
independently verifying such information, did not undertake an independent
evaluation or appraisal of any of the assets or liabilities, whether contingent
or otherwise, of Western Atlas or Baker Hughes and was not furnished with any
such evaluation or appraisal. In addition, Merrill Lynch did not assume any
obligation to conduct, nor did Merrill Lynch conduct, any physical inspection of
the properties or facilities of Western Atlas or Baker Hughes. With respect to
the financial forecast information and the Expected Synergies, Merrill Lynch
assumed that they have been reasonably prepared and reflect the best currently
available estimates and judgments of Western Atlas' or Baker Hughes' management
as to the expected future financial performance of Western Atlas or Baker
Hughes, as the case may be, and the Expected Synergies (including the estimates
of timing and expense associated therewith). Merrill Lynch relied upon the
foregoing in preparing the Merrill Lynch Opinion. Merrill Lynch further assumed
that the Merger will be accounted for as a pooling of interests under generally
accepted accounting principles and that it will qualify as a tax-free
reorganization for federal income tax purposes. In addition, Merrill Lynch
assumed that the Exchange Ratio will not exceed 2.623 shares of Baker Hughes
Common Stock. Merrill Lynch also assumed that the final form of the Merger
Agreement would be substantially similar to the last draft reviewed by Merrill
Lynch.
For purposes of rendering the Merrill Lynch Opinion, Merrill Lynch assumed,
in all respects material to its analyses, that the representations and
warranties of each party to the Merger Agreement and all related documents and
instruments contained therein were true and correct in all material respects,
that each party to such documents will perform all of the covenants and
agreements required to be performed by such party under such documents and that
all conditions to the consummation of the Merger will be satisfied without
waiver thereof.
The Merrill Lynch Opinion is necessarily based upon market, economic and
other conditions as they existed and could be evaluated on, and on the
information made available to Merrill Lynch as of, the date of such opinion.
Merrill Lynch assumed that in the course of obtaining the necessary regulatory
or other consents
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or approvals (contractual or otherwise) for the Merger, no restrictions,
including any divestiture requirements or amendments or modifications, will be
imposed that will have a material adverse effect on the contemplated benefits of
the Merger.
The following is a brief summary of the material analyses performed by
Merrill Lynch in connection with its preparation of the Merrill Lynch Opinion.
Discounted Cash Flow Analysis. Using a discounted cash flow analysis,
Merrill Lynch calculated ranges of implied firm values for Western Atlas.
Merrill Lynch utilized multiples of 2002 EBITDA ranging from 6.0x to 8.0x as the
terminal value of the enterprise and discount rates ranging from 11.0% to 15.0%.
The discount rates were based on an analysis of the weighted average cost of
capital for Western Atlas. The discounted cash flow analysis indicated a
relevant range of implied Exchange Ratios of between 2.11 and 2.91 based on
Baker Hughes Common Stock price equal to $41.00, which was the average closing
price for Baker Hughes Common Stock for the thirty trading days ended May 6,
1998 (the "Assumed Baker Hughes Common Stock Value"). The Assumed Baker Hughes
Common Stock Value is used throughout this "-- Opinion of Merrill Lynch & Co."
section in calculating ratios.
Merger Premium Analysis. Merrill Lynch examined the premiums paid for
target company shares in certain mergers and acquisitions over the
pre-announcement stock prices of such target companies. In addition, Merrill
Lynch calculated a range of implied Exchange Ratios based on the price of
Western Atlas Common Stock and a range of assumed merger premiums.
Merrill Lynch examined premiums paid over pre-announcement stock prices one
day, one week and four weeks prior to announcement in twelve selected oilfield
service merger transactions. In aggregate, such analyses indicated a relevant
range of merger premiums of between 35.4% and 39.0%. In addition, based on a
price per share of Western Atlas Common Stock of $77.79 (such price being the
average price per share for the 30 trading days ended May 6, 1998), the Assumed
Baker Hughes Common Stock Value and a range of assumed merger premiums of
between 10% and 50%, Merrill Lynch calculated a range of implied Exchange Ratios
of between 2.37 and 2.75.
Comparable Transaction Analysis. Merrill Lynch reviewed certain publicly
available information regarding selected business combination transactions in
the oilfield services industry between June 1995 and March 1998 which, in
Merrill Lynch's judgment, were generally comparable to the Merger (the
"Comparable Transactions") and compared certain financial information and
multiples from the Comparable Transactions to corresponding financial
information and multiples for Western Atlas. The Comparable Transactions and the
dates the transactions were announced are as follows: Western Atlas' acquisition
of 3-D Geophysical, Inc. (March 1998); EVI, Inc.'s proposed acquisition of
Weatherford Enterra, Inc. (March 1998); Halliburton Company's proposed
acquisition of Dresser Industries, Inc. (February 1998); Smith International,
Inc.'s acquisition of Wilson Industries, Inc. (January 1998); Castle Harlan
Partners, III, L.P. acquisition of Tidewater Compression Service, Inc. (December
1997); Halliburton Company's acquisition of NUMAR Corporation (June 1997);
National-Oilwell Inc.'s acquisition of Dreco Energy Services Ltd. (May 1997);
Baker Hughes' acquisition of Drilex International, Inc. (April 1997); Tidewater
Inc.'s acquisition of Ocean Group Plc (March 1997); Camco International, Inc.'s
acquisition of Production Operators Corp. (February 1997); Baker Hughes'
acquisition of Petrolite Corporation (February 1997); Halliburton Company's
acquisition of Landmark Graphics Corporation (July 1996); BJ Services Company's
acquisition of NOWSCO Well Service Ltd. (April 1996); Tuboscope Vetco
International Corporation's acquisition of Drexel Oilfield Services (January
1996); Tidewater Inc.'s acquisition of Hornbeck Offshore Services, Inc.
(November 1995); and Weatherford International Incorporated's acquisition of
Enterra Corporation (June 1995). Merrill Lynch reviewed the prices paid in such
transactions in terms of (i) adjusted market capitalization as a multiple of
latest twelve months' ("LTM") EBITDA and (ii) market value of equity as a
multiple of LTM after-tax cash flow. Merrill Lynch's analysis indicated
transaction values using a multiple of LTM EBITDA for the Comparable
Transactions ranging from 10.0x to 12.0x. Merrill Lynch's analysis also
indicated equity value as a multiple of LTM after-tax cash flow for the
Comparable Transactions ranging from 10.0x to 15.0x.
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Based on the foregoing Comparable Transactions multiples, Merrill Lynch
determined that the appropriate range of LTM EBITDA and LTM after-tax cash flow
multiples to be applied to Western Atlas' LTM EBITDA and LTM after-tax cash flow
were 10.0x to 12.0x and 10.0x to 15.0x, respectively. Applying these multiple
ranges to Western Atlas' LTM EBITDA and after-tax cash flow, Merrill Lynch
calculated a range of implied Exchange Ratios of 2.32 to 2.89 and 2.30 to 3.45,
respectively.
No transaction utilized in the Comparable Transaction analysis was
identical to the Merger. Accordingly, due to the inherent differences between
the Merger and the Comparable Transactions, an analysis of the results of this
comparison is not purely mathematical; rather, it involves complex
considerations and judgments concerning differences in historical and projected
financial and operating characteristics of the comparable acquired companies and
other factors that could affect the acquisition value of such companies and
Western Atlas.
Comparable Company Trading Analysis. Using publicly available information,
Merrill Lynch examined the public market multiples for a group of publicly
traded companies with financial and operating characteristics that Merrill Lynch
deemed to be comparable to Western Atlas and Baker Hughes. This group of
selected comparable companies consisted of (i) the following large
capitalization companies: Dresser Industries, Inc., Halliburton Company and
Schlumberger Limited (collectively, the "Large-Cap Comparable Companies"), and
(ii) the following mid-capitalization companies: BJ Services Company, CAMCO
International, Inc., Cooper Cameron Corporation, National-Oilwell Inc., Smith
International, Inc. and Tidewater Inc. (collectively, the "Mid-Cap Comparable
Companies"). Merrill Lynch calculated adjusted market value as market value of
the common stock plus total debt and preferred stock, less cash and cash
equivalents ("Adjusted Market Value"). The analysis indicated that (i) Adjusted
Market Value as a multiple of 1998 and 1999 estimated EBITDA for the Large-Cap
Comparable Companies ranged from 9.0x to 11.0x and from 8.0x to 10.0x,
respectively, (ii) Adjusted Market Value as a multiple of 1998 and 1999
estimated EBITDA for the Mid-Cap Comparable Companies ranged from 9.0x to 10.0x
and from 8.0x to 9.0x, respectively; (iii) Adjusted Market Value as a multiple
of 1998 and 1999 estimated EBITDA for Baker Hughes was 8.7x and 7.2x,
respectively; and (iv) Adjusted Market Value as a multiple of 1998 and 1999
estimated EBITDA for Western Atlas was 6.2x and 4.8x, respectively. Merrill
Lynch also calculated the market value of common stock as a multiple of
estimated 1998 and 1999 after-tax cash flow for the Large-Cap Comparable
Companies, the Mid-Cap Comparable Companies, Baker Hughes and Western Atlas
using estimates of after-tax cash flow obtained from Merrill Lynch and IBES, a
data service which monitors and publishes a compilation of earnings estimates
produced by selected research analysts on companies of interest to investors.
The analysis indicated (i) market value as a multiple of 1998 and 1999 estimated
after-tax cash flow for the Large-Cap Comparable Companies ranged from 12.0x to
15.5x and from 10.0x to 13.5x, respectively; (ii) market value as a multiple of
1998 and 1999 estimated after-tax cash flow for the Mid-Cap Comparable Companies
ranged from 14.0x to 16.0x and from 9.0x to 12.0x, respectively; (iii) market
value as a multiple of 1998 and 1999 estimated after-tax cash flow for Baker
Hughes was 11.6x and 9.8x, respectively; and (iv) market value as a multiple of
1998 and 1999 estimated after-tax cash flow for Western Atlas was 6.8x and 5.4x,
respectively.
Based on the foregoing analysis of trading multiples of the Large-Cap
Comparable Companies and the Mid-Cap Comparable Companies, Merrill Lynch
determined that the appropriate multiple ranges of (i) 1998 and 1999 estimated
EBITDA to be applied to Western Atlas' 1998 and 1999 estimated EBITDA were 9.0x
to 11.0x and 8.0x to 10.0x, respectively, and (ii) 1998 and 1999 estimated
after-tax cash flow to be applied to Western Atlas' 1998 and 1999 estimated
after-tax cash flow were 12.0x to 15.5x and 10.0x to 13.5x, respectively.
Applying these multiple ranges to Western Atlas' (i) 1998 and 1999 estimated
EBITDA, Merrill Lynch calculated ranges of implied Exchange Ratios of 2.82 to
3.56 and 3.26 to 4.20, respectively and (ii) 1998 and 1999 estimated after-tax
cash flow, Merrill Lynch calculated ranges of implied Exchange Ratios of 3.57 to
4.61 and 3.74 to 5.04, respectively.
Merger Consequences. Merrill Lynch analyzed certain pro forma effects which
could result from the Merger, based on financial forecasts provided by Baker
Hughes' and Western Atlas' respective managements for the fiscal years ending
September 30, 1998 through 2002. Merrill Lynch was advised by the management of
Baker Hughes that the Merger was expected to be accounted for as a pooling of
interests under generally accepted accounting principles. Management of Baker
Hughes and Western Atlas also provided Merrill
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Lynch with projections of certain combination benefits and revenue enhancements
that are expected to occur as a result of the Merger. This analysis indicated
that the Merger would be 1.9% dilutive to Baker Hughes' 1999 earnings per share
and 0.7% accretive to its 2000 earnings per share, and 29.3% and 35.3% accretive
to Baker Hughes' 1999 and 2000 cash flow from operations per share,
respectively. The actual results achieved by the combined company may vary from
projected results, and the variation may be material.
Merrill Lynch Financial Advisor Fee. Pursuant to a letter agreement between
Baker Hughes and Merrill Lynch (the "Merrill Lynch Letter Agreement"), Baker
Hughes has agreed to pay Merrill Lynch a fee of $17.5 million, if, during the
period Merrill Lynch is retained by Baker Hughes or within six months
thereafter, (i) an Acquisition Transaction (as defined in the Merrill Lynch
Letter Agreement) is consummated with Western Atlas, or (ii) Baker Hughes or a
Baker Hughes Affiliate (as defined in the Merrill Lynch Letter Agreement) enters
into an agreement with Western Atlas that subsequently results in an Acquisition
Transaction. Such fee is payable in cash upon the closing of such Acquisition
Transaction, or in the case of a tender offer or exchange offer, at such earlier
date as may be specified in the dealer manager agreement entered into in
connection with such offer. If Baker Hughes (including a Baker Hughes Affiliate)
receives or becomes entitled to receive a Break-up Fee (as defined in the
Merrill Lynch Letter Agreement) resulting from, or as a result of, the
termination of any agreement entered into by Baker Hughes (including a Baker
Hughes Affiliate) and Western Atlas, the effect of which is to effect an
Acquisition Transaction, Baker Hughes agreed to pay Merrill Lynch 20% of any
such Breakup Fee, subject to a maximum payment of $8.75 million less any amounts
paid pursuant to the dealer manager agreement. Such fee is payable immediately
in cash following receipt by Baker Hughes (including any Baker Hughes Affiliate)
of any such Break-up Fee. Baker Hughes also has agreed to reimburse Merrill
Lynch for its reasonable out-of-pocket expenses, including reasonable fees and
disbursements of its legal counsel. Additionally, Baker Hughes agreed to
indemnify Merrill Lynch and certain related persons for certain liabilities
related to or arising out of its engagement, including liabilities under federal
securities laws.
Baker Hughes retained Merrill Lynch based upon Merrill Lynch's experience
and expertise. Merrill Lynch is an internationally recognized investment banking
and advisory firm. Merrill Lynch, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. Merrill Lynch has in the past
provided financial advisory and financing services to Baker Hughes and/or its
affiliates and may continue to do so and has received, and may receive, fees for
the rendering of such services. In the ordinary course of its business, Merrill
Lynch and its affiliates may actively trade the debt and equity securities of
Western Atlas and Baker Hughes (and anticipate trading after the Merger in the
securities of Baker Hughes) for their own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
OPINION OF CREDIT SUISSE FIRST BOSTON CORPORATION
CSFB has acted as financial advisor to Western Atlas in connection with the
Merger. CSFB was selected by Western Atlas based on CSFB's experience, expertise
and familiarity with Western Atlas and its business. CSFB is an internationally
recognized investment banking firm and is regularly engaged in the valuation of
businesses and securities in connection with mergers and acquisitions, leveraged
buyouts, negotiated underwritings, competitive biddings, secondary distributions
of listed and unlisted securities, private placements and valuations for
corporate and other purposes.
In connection with CSFB's engagement, Western Atlas requested that CSFB
evaluate the fairness of the Exchange Ratio, from a financial point of view, to
holders of Western Atlas Common Stock. On May 10, 1998, the date on which the
Merger Agreement was executed, CSFB rendered to the Board of Directors of
Western Atlas a written opinion dated May 10, 1998 to the effect that, as of
such date and based upon and subject to certain matters stated in such opinion,
the Exchange Ratio was fair to the holders of Western Atlas Common Stock from a
financial point of view.
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THE FULL TEXT OF CSFB'S WRITTEN OPINION TO THE BOARD OF DIRECTORS OF
WESTERN ATLAS, WHICH SETS FORTH THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS
APPENDIX C TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN
BY REFERENCE. HOLDERS OF WESTERN ATLAS COMMON STOCK ARE URGED TO READ THIS
OPINION CAREFULLY IN ITS ENTIRETY. CSFB'S OPINION IS ADDRESSED TO THE BOARD OF
DIRECTORS OF WESTERN ATLAS AND RELATES ONLY TO THE FAIRNESS OF THE EXCHANGE
RATIO FROM A FINANCIAL POINT OF VIEW, DOES NOT ADDRESS ANY OTHER ASPECT OF THE
PROPOSED MERGER OR ANY RELATED TRANSACTION AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE
WESTERN ATLAS SPECIAL MEETING. THE SUMMARY OF THE OPINION OF CSFB SET FORTH IN
THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF SUCH OPINION.
In arriving at its opinion, CSFB reviewed the Merger Agreement and certain
publicly available business and financial information relating to Western Atlas
and Baker Hughes. CSFB also reviewed certain other information, including
financial forecasts, provided to CSFB by Western Atlas and Baker Hughes, and met
with the managements of Western Atlas and Baker Hughes to discuss the businesses
and prospects of Western Atlas and Baker Hughes. CSFB also considered certain
financial and stock market data of Western Atlas and Baker Hughes and compared
those data with similar data for other publicly held companies in businesses
similar to Western Atlas and Baker Hughes and considered, to the extent publicly
available, the financial terms of certain other business combinations and other
transactions recently effected. CSFB also considered such other information,
financial studies, analyses and investigations and financial, economic and
market criteria which CSFB deemed relevant.
In connection with its review, CSFB did not assume any responsibility for
independent verification of any of the information provided to or otherwise
reviewed by CSFB and relied on such information being complete and accurate in
all material respects. With respect to financial forecasts, CSFB assumed that
such forecasts were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the managements of Western Atlas and Baker
Hughes as to the future financial performance of Western Atlas and Baker Hughes
and the potential synergies and strategic benefits (including the amount, timing
and achievability thereof) anticipated to result from the Merger. CSFB also
assumed that the Merger will be treated as a pooling of interests in accordance
with generally accepted accounting principles and as a tax-free reorganization
for federal income tax purposes. In addition, CSFB was not requested to make and
did not make an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of Western Atlas or Baker Hughes, nor was CSFB
furnished with any such evaluations or appraisals. CSFB's opinion was
necessarily based upon information available to, and financial, economic, market
and other conditions as they existed and could be evaluated by, CSFB on the date
of its opinion. CSFB did not express any opinion as to the actual value of the
Baker Hughes Common Stock when issued pursuant to the Merger or the prices at
which the Baker Hughes Common Stock will trade subsequent to the Merger. In
connection with its engagement, CSFB was not requested to, and did not, solicit
third party indications of interest in acquiring all or any part of Western
Atlas. Although CSFB evaluated the Exchange Ratio from a financial point of view
and provided financial advice to Western Atlas during the course of
negotiations, CSFB was not requested to, and did not, recommend the specific
consideration payable in the Merger, which consideration was determined between
Western Atlas and Baker Hughes. No other limitations were imposed on CSFB with
respect to the investigations made or procedures followed by CSFB in rendering
its opinion.
In preparing its opinion to the Board of Directors of Western Atlas, CSFB
performed a variety of financial and comparative analyses, including those
described below. The summary of CSFB's analyses set forth below does not purport
to be a complete description of the analyses underlying CSFB's opinion. The
preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. In arriving at its opinion, CSFB made qualitative judgments
as to the significance and relevance of each analysis and factor considered by
it. Accordingly, CSFB believes that its analyses must be considered as a whole
and that selecting portions of its analyses and factors, without considering all
analyses and factors, could create a misleading or incomplete view of the
processes underlying such analyses and its opinion. In its analyses, CSFB
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made numerous assumptions with respect to Western Atlas, Baker Hughes, industry
performance, regulatory, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Western
Atlas and Baker Hughes. No company, transaction or business used in such
analysis as a comparison is identical to Western Atlas or Baker Hughes or the
proposed Merger, nor is an evaluation of the results of such analyses entirely
mathematical; rather, such analyses involve complex considerations and judgments
concerning financial and operating characteristics and other factors that could
affect the acquisition, public trading or other values of the companies,
business segments or transactions being analyzed. The estimates contained in
such analyses and the ranges of valuations resulting from any particular
analysis are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable than those
suggested by such analyses. In addition, analyses relating to the value of
businesses or securities do not purport to be appraisals or to reflect the
prices at which businesses or securities actually may be sold. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty. CSFB's
opinion and financial analyses were only one of many factors considered by the
Board of Directors of Western Atlas in its evaluation of the proposed Merger and
should not be viewed as determinative of the views of the Board of Directors or
management of Western Atlas with respect to the Merger or the Exchange Ratio.
The following is a summary of the material analyses performed by CSFB in
connection with its opinion dated May 10, 1998:
Discounted Cash Flow Analysis. Based on certain financial projections
provided by Western Atlas' and Baker Hughes' managements and certain
sensitivities to such projections, CSFB estimated the present value of
forecasted streams of unlevered free cash flows that Western Atlas and Baker
Hughes could produce for the period 1998 through 2002. These unlevered free cash
flows were based on certain operating and financial assumptions, estimates and
other information regarding the respective businesses of Western Atlas and Baker
Hughes discussed and developed with the managements of Western Atlas and Baker
Hughes as to revenue growth, operating margins and related capital expenditures
of the respective businesses of Western Atlas and Baker Hughes and certain
sensitivities to such estimates. This analysis indicated implied enterprise and
per share equity reference ranges for Western Atlas of approximately $6,233
million to $8,265 million, or approximately $86.97 to $121.31 per diluted common
share, and implied enterprise and per share equity reference ranges for Baker
Hughes of approximately $7,301 million to $8,877 million, or approximately
$35.90 to $45.01 per diluted common share.
Selected Companies Analysis. CSFB also compared certain financial,
operating and stock market data of Western Atlas and Baker Hughes to
corresponding data of selected publicly traded companies in the oilfield service
industry. Such companies included BJ Services Company, Camco International,
Inc., Cooper Cameron Corporation, Dresser Industries, Inc., EVI, Inc.,
Halliburton Company, Petroleum Geo-Services ASA, Schlumberger Limited, Smith
International, Inc. and Varco International, Inc. (collectively, the "Selected
Companies"). All multiples were based on closing stock prices on May 8, 1998.
Applying a range of selected multiples for the Selected Companies of (i)
enterprise value (equity value plus debt minus cash) relative to estimated 1998
and 1999 EBITDA of 7.0x to 9.0x and 6.0x to 8.0x, respectively, (ii) equity
value relative to estimated 1998 and 1999 net income of 20.0x to 25.0x and 15.0x
to 20.0x, respectively, and (iii) equity value relative to estimated 1998 and
1999 after-tax cash flow (net income plus depreciation and deferred taxes) of
7.0x to 12.0x and 7.0x to 10.0x, respectively, to corresponding financial data
of Western Atlas indicated implied enterprise and per share equity reference
ranges for Western Atlas of approximately $5,800 million to $7,500 million, or
approximately $79.65 to $108.39 per diluted common share. Applying a range of
selected multiples for the Selected Companies of (i) enterprise value relative
to estimated 1998 and 1999 EBITDA of 9.0x to 10.0x and 7.5x to 8.5x,
respectively, (ii) equity value relative to estimated 1998 and 1999 net income
of 18.0x to 20.0x and 15.0x to 19.0x, respectively, and (iii) equity value
relative to estimated 1998 and 1999 after-tax cash flow of 11.0x to 13.0x and
10.0x to 12.0x, respectively, to corresponding financial data for Baker Hughes
indicated implied enterprise and per share equity reference ranges for Baker
Hughes of approximately $8,000 million to $9,000 million, or approximately
$39.94 to $45.72 per diluted common share.
Selected Acquisitions Analysis. Using publicly available and other
information, CSFB analyzed the purchase prices and implied transaction multiples
paid in the following selected transactions in the oilfield service industry:
EVI, Inc.'s acquisition of Weatherford Enterra, Inc., Halliburton Company's
acquisition of
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Dresser Industries, Inc., Petroleum Geo-Services ASA's acquisition of Awilco
ASA, Western Atlas' acquisition of 3-D Geophysical, Inc., Western Atlas'
acquisition of Wedge Dia-Log Inc., Halliburton Company's acquisition of Numar
Corporation, National Oilwell Inc.'s acquisition of Dreco Energy Services Ltd.,
Baker Hughes' acquisition of Petrolite, Camco International, Inc.'s acquisition
of Production Operators Corp., Halliburton Company's acquisition of Landmark
Graphics Corporation, Digicon Inc.'s acquisition of Veritas Energy Services
Inc., BJ Services Company's acquisition of Nowsco Well Service Ltd., Baker
Hughes' acquisition of Teleco Oilfield Services Incorporated and Baker Hughes'
acquisition of Eastman Christensen Company (collectively, the "Selected
Acquisitions"). All multiples were based upon historical financial information
available at the time of announcement of the transaction. Applying a range of
selected multiples for the Selected Acquisitions of enterprise value relative to
latest 12 months revenue, EBITDA and earnings before interest and taxes ("EBIT")
of 3.0x to 4.0x, 9.0x to 12.0x and 20.0x to 30.0x, respectively, to
corresponding financial data of Western Atlas and Baker Hughes resulted in
implied enterprise and per share equity reference ranges for Western Atlas of
approximately $6,000 million to $8,000 million, or approximately $83.03 to
$116.84 per diluted common share, and implied enterprise and per share equity
reference ranges for Baker Hughes of approximately $8,000 million to $9,000
million, or approximately $39.94 to $45.72 per diluted common share.
Aggregate Reference Ranges. On the basis of the valuation methodologies
employed in the analyses described above, CSFB derived an aggregate enterprise
and per share equity reference range for Western Atlas of approximately $6,400
million to $7,300 million, or approximately $89.79 to $105.00 per diluted common
share, and an aggregate enterprise and per share equity reference range for
Baker Hughes of approximately $8,000 million to $9,000 million, or approximately
$39.94 to $45.72 per diluted common share. Based on the per share closing stock
price of Baker Hughes on May 8, 1998 (the last trading day prior to public
announcement of the Merger) of $41.13, the Exchange Ratio implied a per share
equity value for Western Atlas of approximately $98.70 as compared to the
closing price of Western Atlas on May 8, 1998 of $81.38 per share, reflecting a
premium of approximately 21%.
Exchange Ratio Analyses. CSFB also conducted the following relative
valuation analyses and compared the Exchange Ratio with the exchange ratios
implied by such analyses:
Historical Stock Trading Exchange Ratio Analysis. CSFB performed an
exchange ratio analysis comparing the average closing stock prices for
Western Atlas and Baker Hughes during the one day, one week, one month,
three month and post-Spin-off (November 3, 1997) periods preceding May 8,
1998. This comparison yielded implied exchange ratios ranging from 1.78 to
1.99.
Relative Contribution Exchange Ratio Analysis. Using estimated fiscal
year 1998 and 1999 financial data for Western Atlas and Baker Hughes, CSFB
performed an exchange ratio analysis comparing the relative contributions
of Western Atlas and Baker Hughes to the estimated revenues, EBITDA, EBIT,
net income and after-tax cash flow of the combined company. This analysis
yielded implied exchange ratios ranging from 1.17 to 3.30.
Aggregate Reference Ranges Exchange Ratio Analysis. CSFB performed an
exchange ratio analysis comparing the aggregate per share equity reference
ranges derived from the Discounted Cash Flow Analysis, Selected Companies
Analysis and Selected Acquisitions Analysis described above of
approximately $89.79 to $105.00 for Western Atlas and approximately $39.94
to $45.72 for Baker Hughes. Based on the midpoint of the aggregate per
share equity reference range for Baker Hughes of $42.83, this comparison
resulted in implied exchange ratios ranging from 2.10 to 2.45. Based on the
midpoint of the aggregate per share equity reference range for Western
Atlas of $97.40 and the midpoint of the aggregate per share equity
reference range for Baker Hughes of $42.83, this comparison resulted in an
implied exchange ratio of 2.27.
Pro Forma Merger Analysis. CSFB analyzed the potential pro forma effect of
the Merger on the estimated earnings per share ("EPS") and cash flow per share
("CFPS") of Baker Hughes for fiscal years 1998 and 1999, based on financial
forecasts provided by Western Atlas' and Baker Hughes' managements and after
giving effect to potential synergies estimates provided by Western Atlas' and
Baker Hughes' managements. This analysis indicated that the proposed Merger
would be dilutive to the EPS of Baker Hughes and
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accretive to the CFPS of Baker Hughes in fiscal years 1998 and 1999. CSFB also
reviewed certain estimated fiscal year 1998 pro forma credit statistics of the
combined entity resulting from the Merger, including EBITDA to estimated
interest expense, total debt to EBITDA and total debt to total book
capitalization. The actual results achieved by the combined company may vary
from projected results and the variations may be material.
Other Factors and Analyses. In the course of preparing its opinion, CSFB
performed certain other analyses and considered certain other information and
data, including, among other things, (i) the trading characteristics of Western
Atlas Common Stock and Baker Hughes Common Stock, (ii) the share price premiums
paid in certain oilfield service transactions, (iii) stockholder profiles of
Western Atlas and Baker Hughes and (iv) equity research coverage of Western
Atlas and Baker Hughes provided by securities analysts.
Miscellaneous. Pursuant to the terms of CSFB's engagement, Western Atlas
has agreed to pay CSFB for its financial advisory services in connection with
the Merger an aggregate fee equal to 0.30% of the aggregate consideration
(including certain liabilities assumed) payable in the Merger, as calculated and
payable upon the closing of the Merger. Western Atlas also has agreed to
reimburse CSFB for reasonable out-of-pocket expenses incurred by CSFB in
performing its services, including reasonable fees and expenses for legal
counsel and any other advisor retained by CSFB, and to indemnify CSFB and
certain related persons and entities against certain liabilities under the
federal securities laws, arising out of CSFB's engagement.
CSFB and its affiliates have in the past provided financial services to
Western Atlas and its affiliates and Baker Hughes and are currently providing
financial services to Western Atlas and its affiliates unrelated to the proposed
Merger, including having acted as financial advisor to Western Atlas in
connection with the Spin-off and as an underwriter for certain public securities
offerings of Western Atlas, for which services CSFB and its affiliates have
received and will receive compensation. In the ordinary course of its business,
CSFB and its affiliates may actively trade the debt and equity securities of
both Western Atlas and Baker Hughes for their own accounts and for the accounts
of customers and, accordingly, may at any time hold long or short positions in
such securities.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a description of the material federal income tax
consequences of the Merger to Baker Hughes, Merger Sub, Western Atlas and
holders of Western Atlas Common Stock who are citizens or residents of the
United States or domestic corporations. It does not discuss all the tax
consequences that may be relevant to Western Atlas stockholders in special tax
situations (such as insurance companies, financial institutions, dealers in
securities, tax exempt organizations or non-United States holders) or to Western
Atlas stockholders who acquired their shares of Western Atlas Common Stock
pursuant to the exercise of employee stock options or warrants, pursuant to an
employee stock purchase plan or otherwise as compensation. The following
description also does not discuss tax consequences to holders of outstanding
Western Atlas warrants or stock options.
Neither Baker Hughes nor Western Atlas has requested a ruling from the
Internal Revenue Service (the "IRS") with regard to any of the federal income
tax consequences of the Merger, and the opinions of counsel to Western Atlas as
to the federal income tax consequences of the Merger set forth below will not be
binding on the IRS.
Wachtell, Lipton, Rosen & Katz, special counsel to Western Atlas, is of the
opinion that, under present United States federal income tax law, and based upon
(i) certain representations of Baker Hughes and Western Atlas, and (ii) the
assumptions that the Merger and related transactions will take place as
described in the Merger Agreement and that the representations referred to in
clause (i) remain true as of the Closing Date,
(x) the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code; and
(y) no gain or loss will be recognized by Western Atlas stockholders
who exchange all of their Western Atlas Common Stock solely for Baker
Hughes Common Stock pursuant to the Merger (except with respect to cash
received in lieu of a fractional share interest in Baker Hughes Common
Stock).
Under the Merger Agreement it is a condition precedent to Western Atlas'
obligation to consummate the Merger (which condition may be waived by Western
Atlas) that an additional opinion of Wachtell, Lipton, Rosen & Katz, dated the
Closing Date, to the effect of the foregoing be delivered to Western Atlas.
Under the reorganization provisions of the Code, no gain or loss will be
recognized by stockholders of Western Atlas upon the conversion of their shares
of Western Atlas Common Stock into shares of Baker Hughes Common Stock pursuant
to the terms of the Merger (except to the extent cash is received in lieu of
fractional shares). The tax basis of the shares of Baker Hughes Common Stock
into which shares of Western Atlas Common Stock are converted pursuant to the
Merger (including any fractional shares of Baker Hughes Common Stock deemed
received) will be the same as the tax basis of such Western Atlas Common Stock
exchanged therefor. The holding period for shares of Baker Hughes Common Stock
into which shares of Western Atlas Common Stock are converted pursuant to the
Merger (including any fractional shares of Baker Hughes Common Stock deemed
received) will include the holding period for such shares of Western Atlas
Common Stock exchanged therefor, provided such shares were held as a capital
asset by the holder. In addition, neither Baker Hughes, Merger Sub nor Western
Atlas will recognize any gain or loss on the transactions contemplated by the
Merger Agreement.
A Western Atlas stockholder who receives cash in lieu of a fractional share
of Baker Hughes Common Stock will be treated for federal income tax purposes as
if such fractional share were issued in the Merger and the cash were received in
redemption of this fractional share, and such Western Atlas stockholder
therefore will generally recognize capital gain or loss equal to the difference
between the cash received and such stockholder's tax basis in the fractional
share.
If it were determined that the Merger did not qualify for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code, a stockholder of Western Atlas generally would recognize capital gain (or
loss) equal to the amount by which the value of the Baker Hughes Common Stock
received
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by such stockholder (including any fractional shares deemed received) exceeds
(or is exceeded by) such stockholder's basis in the shares exchanged for Baker
Hughes Common Stock.
THE DISCUSSION SET FORTH ABOVE IS BASED ON CURRENTLY EXISTING PROVISIONS OF
THE CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT
ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO
CHANGE, AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS
DISCUSSION. NO INFORMATION IS PROVIDED HEREIN WITH RESPECT TO THE TAX
CONSEQUENCES, IF ANY, OF THE MERGER UNDER APPLICABLE FOREIGN, STATE AND LOCAL
LAWS. WESTERN ATLAS STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS
TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN
REPORTING REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FOREIGN, STATE, LOCAL
AND OTHER APPLICABLE TAX LAWS AND THE POSSIBLE EFFECT OF ANY PROPOSED OR RECENT
CHANGES IN THE TAX LAWS.
REGULATORY APPROVALS
Under the HSR Act, and the rules promulgated thereunder by the Federal
Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division"), and specified waiting period requirements have been satisfied. Each
of Baker Hughes and Western Atlas filed premerger notification and report forms
with the FTC and the Antitrust Division, and the applicable waiting period under
the HSR Act expired on June 28, 1998.
At any time before or after the Effective Time, the Justice Department, the
FTC, a foreign governmental authority or a private person or entity could seek
under the antitrust laws, among other things, to enjoin the Merger or to cause
Baker Hughes to divest itself, in whole or in part, of Western Atlas or of other
businesses conducted by Baker Hughes. There can be no assurance that a challenge
to the Merger will not be made or that, if such a challenge is made, Baker
Hughes will prevail. The obligations of Baker Hughes and Western Atlas to
consummate the Merger are subject to the condition that there be no decree,
order or injunction of a court of competent jurisdiction that prohibits the
consummation of the Merger. Each party has agreed to use its best efforts to
have any such decree, order or injunction vacated or terminated.
Western Atlas and its subsidiaries hold licenses from the NRC under the
Atomic Energy Act of 1954, as amended. Western Atlas has obtained the consent of
the NRC to transfer control of these licenses in connection with the Merger.
There are no other material U.S. federal or state regulatory approvals
required to consummate the Merger. The parties have notified antitrust
authorities of the Merger under the applicable laws of Canada, Germany, The
Netherlands and Mexico. In Canada and Germany, the applicable waiting periods
required for those authorities to review the Merger prior to Closing have
expired or been terminated. The parties expect the applicable waiting periods in
The Netherlands and Mexico to expire or be terminated prior to the Baker Hughes
Special Meeting and the Western Atlas Special Meeting, although there can be no
assurance that authorities in these jurisdictions will not extend the periods
for further review or challenge the Merger. Pursuant to the Merger Agreement,
each of Western Atlas and Baker Hughes has agreed to use their reasonable best
efforts to cooperate with one another to determine which other filings, if any,
are required to be made before the Effective Time and to make those filings or
obtain any necessary consents, approvals, permits or authorizations required
prior to the Effective Time.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. Under this method of accounting, the recorded
historical cost basis of the assets and liabilities of Baker Hughes and Western
Atlas will be carried forward to the operations of the combined companies at
recorded amounts, results of operations of the combined companies will include
income of Baker Hughes and Western Atlas for the entire fiscal period in which
the combination occurs, and the historical results of operations of the
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separate companies for fiscal years prior to the Merger will be combined and
reported as the results of operations of the combined companies.
The receipt by Baker Hughes and Western Atlas of letters from Deloitte &
Touche LLP that the Merger will be treated as a pooling of interests is a
condition of the consummation of the Merger. For information concerning certain
restrictions to be imposed on the transferability of Baker Hughes Common Stock
held or to be received by affiliates of Baker Hughes and Western Atlas in order,
among other things, to ensure the availability of pooling of interests
accounting treatment, see "-- Resales of Baker Hughes Common Stock."
Representatives of Deloitte & Touche LLP are expected to be present at the
Baker Hughes Special Meeting and the Western Atlas Special Meeting and to be
available to respond to appropriate questions, and will have an opportunity to
make a statement if they desire to do so.
EMPLOYEE MATTERS
Pursuant to the Merger Agreement, Baker Hughes has agreed to honor certain
agreements between Western Atlas and Western Atlas' present and former employees
and executives, including those described below under "-- Interests of Certain
Persons," as well as Western Atlas' employee benefit plans (the "Western Atlas
Benefit Plans"). The consummation of the Merger or stockholder approval of the
Merger will result in a "change of control" under the above-referenced employee
and executive agreements and certain of Western Atlas' retirement and benefit
plans. Baker Hughes has agreed that (i) Western Atlas' retirement/profit sharing
plan and the benefits restoration plan (and the related cash contribution bonus
feature) (the "Profit Sharing Plans") will be continued at least through
December 31, 1998 for employees employed by Western Atlas and its subsidiaries
immediately prior to the Effective Time without any adverse amendment or
modification, (ii) Western Atlas' supplemental retirement plan and its executive
retirement plan (the "Retirement Plans") will be continued through at least
December 31, 1998 without any adverse amendment or modification, (iii) the
Profit Sharing Plans will be continued without adverse amendment or modification
for the Western Geophysical division of Western Atlas at least through the end
of Baker Hughes' fiscal year ending in 2001 (and shall be equitably adjusted by
Baker Hughes to appropriately reflect the stand-alone basis of Western
Geophysical) and (iv) the "change of control" provisions in the Profit Sharing
Plans and the Retirement Plans will not be adversely amended or modified.
Baker Hughes has agreed to cause the Surviving Corporation (i) (a) to
assume the obligations of Western Atlas under the Western Atlas Benefit Plans
and to continue to cover under such Western Atlas Benefit Plans all Western
Atlas employees and former Western Atlas employees who are participants therein
immediately prior to the Effective Time and who remain eligible to participate
in such Western Atlas Benefit Plans pursuant to the terms thereof and (b) to
provide aggregate employee benefits to such Western Atlas employees that are no
less favorable than the aggregate employee benefits provided them immediately
prior to the Effective Time; provided, that the Surviving Corporation may,
except as provided in the Merger Agreement or by the terms of such plans, amend
such plans at any time following the Effective Time to provide employee benefits
to Western Atlas employees that in the aggregate are no less favorable than
those applicable to similarly situated employees of Baker Hughes, or (ii) in
lieu thereof, except as provided in the Merger Agreement or by the terms of the
Western Atlas Benefit Plans, to provide employee benefits to such Western Atlas
employees under Baker Hughes' employee benefit plans so that the aggregate
employee benefits provided to such Western Atlas employees are no less favorable
than those that are applicable to similarly situated employees of Baker Hughes.
After the Effective Time, any Western Atlas employee entitled (or who
becomes entitled) to continued medical, dental, hospitalization, long-term
disability and life insurance coverage pursuant to a written agreement will be
entitled to participate under any Baker Hughes or Surviving Corporation medical,
dental, hospitalization, long-term disability and life insurance plan under the
same terms and for payment of the same level of premiums as those specified in
his or her Western Atlas agreement. Baker Hughes and the Surviving Corporation
shall not be obligated under such provisions to cover employees who are not
employees of Western Atlas prior to the Effective Time or who have not been
hired or offered employment by Western Atlas prior to the Effective Time. With
respect to Baker Hughes' benefit plans and any plans established by the
Surviving Corporation, Baker Hughes and the Surviving Corporation will grant to
all Western Atlas employees credit for all service with Western Atlas (and any
other service credited by Western Atlas under
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the Western Atlas Benefit Plans) prior to the Effective Time for seniority,
eligibility to participate, eligibility for benefits, benefit accrual and
vesting purposes. To the extent Baker Hughes' benefit plans provide medical or
dental welfare benefits, such plans shall waive any pre-existing conditions and
actively-at-work exclusions with respect to Western Atlas employees (but only to
the extent such employees were provided coverage under the Western Atlas Benefit
Plans) and shall provide that any expenses incurred on or before the Effective
Time by or on behalf of any such employees shall be taken into account under
Baker Hughes' benefit plans for purposes of satisfying applicable deductible,
coinsurance and maximum out-of-pocket provisions.
Baker Hughes has agreed to maintain for the benefit of Western Atlas
employees Western Atlas' severance or termination plans and practices and
Western Atlas' Corporate Office Severance Plan for a period of one year from the
Effective Time, and to maintain Western Atlas' Executive Severance Plan without
amendment except pursuant to its terms. Baker Hughes will not be required,
however, to cover under the Baker Hughes Severance Plan or Executive Severance
Plan any Western Atlas employees during the period that such employees are
covered under Western Atlas' plans.
Baker Hughes has agreed to enter into employment agreements prior to the
Effective Time with certain officers of Western Atlas, including Messrs.
Russell, Brasher, Hix, Jones, Skerl and White, on terms described below under
"-- Interests of Certain Persons -- Employment Agreements." Baker Hughes has
also agreed not to terminate or permit the Surviving Corporation to terminate,
in each case prior to January 1, 1999, other than for cause (as defined), the
employment of the following officers of Western Atlas: Rex E. Gwinn, Orval F.
Brannan, William H. Flores and J. William G. Honeybourne.
With respect to Western Atlas' 1995 Incentive Compensation Plan and its
Individual Performance Award Plan (the "Incentive Plans"), Western Atlas
employees who remain employed by Western Atlas or its affiliates as of the
Effective Time shall be paid within 30 days after the Effective Time a bonus
equal to their prorated maximum potential bonus awards under the Incentive
Plans. The bonus payable will be reduced to the extent a prorated bonus is paid
under an employment agreement. The remainder of the 1998 maximum potential bonus
awards for Western Atlas employees will be paid in January 1999 to those Western
Atlas employees who are employed with Baker Hughes or any of its affiliates on
December 31, 1998 or have been terminated prior to such date without cause or
due to death or disability. Any bonuses for periods commencing in 1999 will be
paid under Baker Hughes' plans and practices.
The Merger Agreement provides that at the Effective Time, all options
(individually, a "Western Atlas Option" and collectively, the "Western Atlas
Options") then outstanding under the Western Atlas Inc. 1993 Stock Incentive
Plan and the Western Atlas Inc. Director Stock Option Plan (the "Western Atlas
Stock Option Plans") shall remain outstanding following the Effective Time. At
the Effective Time, the Western Atlas Options shall automatically be assumed by
Baker Hughes. Each Western Atlas Option assumed by Baker Hughes shall be
exercisable upon the same terms and conditions as under the applicable Western
Atlas Stock Option Plan and the applicable option agreement issued thereunder,
except that (i) each Western Atlas Option shall be exercisable for that whole
number of shares of Baker Hughes Common Stock (rounded to the nearest whole
share) determined by multiplying the number of shares of the Western Atlas
Common Stock subject to such Western Atlas Option immediately prior to the
Effective Time by the Exchange Ratio, and (ii) the option price per share of
Baker Hughes Common Stock shall be an amount equal to the option price per share
of Western Atlas Common Stock subject to such Western Atlas Option in effect
immediately prior to the Effective Time divided by the Exchange Ratio.
INTERESTS OF CERTAIN PERSONS
Severance Arrangements and Other Benefits
Certain executive officers of Western Atlas, one of whom also is a member
of the Western Atlas Board, have interests in the Merger that are in addition to
the interests of Western Atlas' stockholders generally. Western Atlas has
entered into change of control employment agreements with such executive
officers that provide that during the three-year "employment period" following
consummation of the Merger (consummation of the Merger will constitute a "Change
of Control" under the change of control employment agreements) each executive
will be entitled to receive under such agreements (i) an annual base salary at
least equal to 12 times the highest monthly base salary paid to the executive
during the 12-month period prior to the Change of Control, and (ii) for each
fiscal year ending during the employment period an annual bonus
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at least equal to the maximum amount of bonus the executive could have received
for the fiscal year in which the Change of Control occurs ("Annual Bonus"). Upon
a termination of an executive's employment by the executive for "Good Reason"
(including termination by the executive for any reason during the 30-day period
immediately following the first anniversary of the Merger) or involuntarily
(other than for "Cause" or "Disability") during the three-year period
immediately following the Merger, the executive would receive (i) a lump sum pro
rata bonus, (ii) a lump sum payment equal to three times the sum of (A) the
executive's annual base salary and (B) the greater of the executive's Annual
Bonus or any annual bonus paid to the executive with respect to a fiscal year
during the employment period, (iii) with respect to Western Atlas' retirement
plans, (A) 15% of the amount payable under (ii) above and (B) the excess of (1)
the present value of the benefits the executive would have received under the
Western Atlas Supplemental Retirement Plan and Executive Retirement Plan if as
of his date of termination three years were added to the executive's age and
years of service (and the executive's benefits under the plans were fully
vested) and the executive's compensation during the three-year period ending on
the date of termination was equal to the base salary and annual bonus required
to be paid to the executive for the employment period, over (2) the present
value of the executive's benefits under such plans as of the date of
termination, (iv) continued welfare plan benefits for three years after the
executive's date of termination (and for purposes of determining the executive's
eligibility for retiree benefits, he will be considered to have remained
employed until three years after his date of termination) and (v) outplacement
services. In addition, the change of control employment agreements provide for a
"gross up" payment if the executive is subject to excise taxes under Section
4999 of the Code (which relates to excess parachute payments under Section 280G
of the Code). The following executive officers of Western Atlas each have
entered into a change of control employment agreement: Messrs. Russell, Brannan,
Brasher, Flores, Hix, Jones, Skerl and White. Mr. Russell also serves on the
Western Atlas Board. Pursuant to the Merger Agreement, upon consummation of the
Merger, each of such executive officers will be paid the full amount of his cash
severance benefits (including any required "gross up" payment) under his change
of control employment agreement. The aggregate amount (excluding any required
gross up payment) for the eight executive officers is approximately $27.6
million.
In addition, pursuant to the change of control provisions of Western Atlas'
stock option plans, outstanding options, including those held by executive
officers of Western Atlas, will become exercisable immediately for shares of
Baker Hughes Common Stock as a result of the consummation of the Merger.
Employment Agreements with Western Atlas Executives
John R. Russell and Thomas B. Hix, Jr. Baker Hughes has agreed to enter
into employment agreements with Messrs. Russell and Hix prior to the Effective
Time pursuant to which they will serve as the President of Baker Hughes and the
Vice President -- Finance of Baker Hughes Oilfield Operations, respectively,
through January 1, 2000, with yearly extensions if the parties agree. Mr.
Russell will also become a member of the Baker Hughes Board and of its Executive
Committee. Pursuant to their employment agreements, Messrs. Russell and Hix will
receive as compensation in 1998 their current base salaries and bonuses under
Western Atlas' benefit plans (to the extent their 1998 bonuses are not paid
pursuant to a change in control employment agreement described above in
"-- Severance Arrangements and Other Benefits"), and as compensation in 1999
their current base salaries and bonuses equal to 150% of their base salaries. If
Western Atlas has not granted options to Mr. Russell or Mr. Hix in 1998, within
90 days following the Effective Time (or at the Effective Time if Baker Hughes
has granted options in 1998 prior to the Effective Time), Baker Hughes has
agreed to grant (i) to Mr. Russell a number of options in an amount equivalent
to 90% of the 1998 options granted or to be granted to the Chief Executive
Officer of Baker Hughes and (ii) to Mr. Hix a number of options in an amount
equivalent to the 1998 options granted or to be granted by Baker Hughes to
similarly situated executives of Baker Hughes ("Peer Executives"). Such options
will have terms of 10 years and will vest (i) on December 31, 1999 if the
executive remains employed by Baker Hughes on that date or (ii) upon termination
without cause (as defined), because of death or disability, by the executive for
good reason (as defined) or upon a change in control (as defined) of Baker
Hughes.
James E. Brasher, Gary E. Jones, Damir S. Skerl and Richard C. White. Baker
Hughes has agreed to enter into employment agreements with Messrs. Brasher,
Jones, Skerl and White prior to the Effective Time pursuant to which they will
serve as the Vice President and General Counsel of Baker Hughes Oilfield
Operations and Deputy General Counsel of Baker Hughes (Brasher), Vice President
of Baker Hughes and
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President of the Logging Services division (Jones), Senior Vice President of
Baker Hughes Oilfield Operations and Vice President of Baker Hughes (Skerl) and
Vice President of Baker Hughes and President of the Western Geophysical division
(White), respectively. The term of each of these employment agreements will be
two years. Pursuant to their employment agreements, such executives will receive
as compensation in 1998 (i) base salaries no less than their 1998 base salaries,
which will be increased commencing in 1999 as necessary to be equivalent to
their Peer Executives, and (ii) bonuses under Western Atlas' benefit plans (to
the extent their 1998 bonuses are not paid pursuant to a change in control
employment agreement described above in "-- Severance Arrangements and Other
Benefits"). The executives will thereafter receive bonuses based upon target
bonus opportunities equivalent to their Peer Executives. If Western Atlas has
not granted options to the executives in 1998, within 90 days following the
Effective Time (or at the Effective Time if Baker Hughes has granted options
prior to the Effective Time), Baker Hughes has agreed to grant to Messrs.
Brasher, Jones, Skerl and White a number of options in an amount equivalent to
the 1998 options granted or to be granted by Baker Hughes to Peer Executives.
Such options will have terms of 10 years and will vest in accordance with Baker
Hughes' vesting schedules for Peer Executives, with options granted in 1998
prior to the Effective Time vesting at the Effective Time. Such options also
will vest upon termination of the executive without cause, because of his death
or disability, by the executive for good reason or upon a change in control of
Baker Hughes.
General. Messrs. Russell and Hix will receive other benefits that are no
less favorable than their current benefits and perquisites; Messrs. Brasher,
Jones, Skerl and White will receive other benefits that are no less favorable
than their Peer Executives; and each will receive upon termination certain
benefits in accordance with their current change in control employment
agreements described above in "-- Severance Arrangements and Other Benefits."
Each of Messrs. Brasher, Hix, Russell and Skerl will also receive aggregate
retirement benefits payable under Western Atlas' current retirement plans;
provided that upon termination of Mr. Brasher's or Mr. Hix's employment at the
end of the term of his agreement or upon his termination without cause, because
of his death or disability or by the executive for good reason, he shall be
treated as if he were 55 years of age and will receive certain credited service
for purposes of his retirement benefits. Mr. Russell's benefits will not be
reduced for early retirement (i.e., he will be treated for benefits purposes as
if he were 65 years of age). In addition, Mr. Russell and his spouse will
receive lifetime medical and life insurance coverage, with employee premiums
payable by him. Each of the executives will receive "gross up" payments if such
executive is subject to excise taxes under Section 4999 of the Code.
Upon termination (other than by Baker Hughes for cause or by the executive
voluntarily without good reason) of any of the executives (other than Messrs.
Jones or White) either during the term of his agreement or at the expiration of
the employment term, the executive becomes entitled to the immediate
commencement of retirement benefits. Mr. Russell will be entitled to the
immediate commencement of retirement and medical and life insurance benefits
upon any termination of employment. If the employment of any executive is
terminated without cause, because of his death or disability or by the executive
for good reason, he also becomes entitled to receive compensation under his
employment agreement for the remainder of its term and to the vesting of stock
options.
Indemnification
From and for six years following the Effective Time, Baker Hughes has
agreed to indemnify, defend and hold harmless to the fullest extent permitted
under applicable law each person who was as of the date of the Merger Agreement,
or has been at any time prior to the Effective Time, an officer or director of
Western Atlas (or any subsidiary or division thereof) and each person who served
at the request of Western Atlas as a director, officer, trustee or fiduciary of
another corporation, partnership, joint venture, trust, pension or other
employee benefit plan or enterprise (an "Indemnified Party"), against all
losses, claims, damages, liabilities, costs or expenses, judgments, fines,
penalties and amounts paid in settlement in connection with any claim, action,
suit, proceeding or investigation arising out of or pertaining to acts or
omissions, or alleged acts or omissions, by them in their capacities as such,
whether commenced, asserted or claimed before or after the Effective Time. In
the event of any such claim, action, suit, proceeding or investigation (an
"Action"), (i) Baker Hughes and the Surviving Corporation shall pay, as
incurred, the fees and expenses of counsel selected by the Indemnified Party,
which counsel shall be reasonably acceptable to Baker Hughes and the Surviving
Corporation, in advance of the final disposition of any such Action to the
fullest extent permitted by
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applicable law and, if required, upon receipt of any undertaking required by
applicable law, and (ii) Baker Hughes and the Surviving Corporation will
cooperate in the defense of any such matter; provided, however, that the
Surviving Corporation will not be liable for any settlement effected without its
written consent (which consent shall not be unreasonably withheld or delayed),
and provided further, that Baker Hughes and the Surviving Corporation shall not
be obligated to pay the fees and disbursements of more than one counsel for all
Indemnified Parties in any single Action, unless, in the good faith judgement of
any of the Indemnified Parties, there is or may be a conflict of interest
between two or more of such Indemnified Parties, in which case there may be
separate counsel for each similarly situated group.
Pursuant to the Merger Agreement, Baker Hughes and the Surviving
Corporation will cause to be maintained officers' and directors' liability
insurance covering the Indemnified Parties who are or were at any time prior to
the Effective Time covered under existing officers' and directors' liability
insurance policies maintained by Western Atlas for a period of six years from
the Effective Time, on terms substantially no less advantageous to the
Indemnified Parties than such existing insurance. After the third year following
the Effective Time, the Surviving Corporation will not be required to pay annual
premiums in excess of 250% of the last annual premium paid by Western Atlas
prior to the date of the Merger Agreement, but in such case will purchase as
much coverage as reasonably practicable for such amount.
Change in Control Provisions Applicable to Baker Hughes
The directors and certain executive officers of Baker Hughes, one of whom
is also a member of the Baker Hughes Board, have interests in the Merger that
are in addition to the interests of Baker Hughes' stockholders generally.
Baker Hughes has entered into severance agreements (each a "Severance
Agreement") with certain executive officers of Baker Hughes (each an "Officer"),
which provide for payment of certain benefits to the Officers only as a result
of termination of employment following a "change in control" of Baker Hughes (as
defined in the Severance Agreements). The initial term of the Severance
Agreements was to expire on December 31, 1999. Beginning on January 1, 1998, and
on each successive January 1 thereafter (the "Extension Date"), the term of the
Severance Agreements is automatically renewed for an additional year, unless
notice of non-extension has been given by September 30 prior to the Extension
Date. The term is automatically extended for 24 months following a change in
control. Pursuant to the Severance Agreements, severance benefits are paid to
the Officer following termination after a change in control (i) unless (x) the
Officer resigns without "good reason" (as defined in the Severance Agreements),
(y) the Officer is terminated by Baker Hughes for "cause" (as defined in the
Severance Agreements), or (z) the Officer is terminated by reason of death or
disability, or (ii) in certain circumstances, if the Officer voluntarily
terminates his employment during the one-month period following the first
anniversary of the change in control. If the Officer meets the criteria for
payment of severance benefits following a change in control as described above,
he will receive the following benefits:
(i) a lump sum payment equal to three times the sum of the Officer's
annual base salary in effect on the date of termination of employment or,
if higher, his annual base salary in effect immediately prior to the change
in control;
(ii) a lump sum payment equal to three times the sum of the average
annual bonus earned by the Officer during the three fiscal years ending
immediately prior to the fiscal year in which termination of employment
occurs or, if higher, immediately prior to the fiscal year in which the
change in control occurs; provided, that if there are fewer than three
bonuses earned immediately prior to the fiscal year in which the change in
control or date of termination occurs, the average bonus will be calculated
using such lesser number of bonuses as have been earned;
(iii) continuation of life, disability, accident and health insurance
benefits and all perquisites for an additional three years;
(iv) a lump sum payment equal to the sum of (a) any unpaid incentive
compensation that has been allocated or awarded to the Officer for a
complete fiscal year or other measuring period preceding the date
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of termination under Baker Hughes' Annual Incentive Compensation Plan and
that, as of the date of termination, is contingent only upon the continued
employment of the Officer to a subsequent date, and (b) a pro rata portion
to the date of termination of the aggregate value of all contingent
incentive compensation awards to the Officer for all then uncompleted
periods under Baker Hughes' Annual Incentive Compensation Plan; provided,
that if such termination of employment occurs during the same year in which
the change in control occurs, the pro rata bonus payment referred to in
clause (b) above shall be offset by any payments received under Baker
Hughes' Annual Incentive Compensation Plan in connection with such change
in control;
(v) a lump sum payment equal to the present value of the benefits the
Officer would have received had he continued to participate in Baker
Hughes' thrift and supplemental retirement plans for an additional three
years, assuming for this purpose that (a) the Officer's compensation during
such three-year period remained at the levels used for calculating the
severance payment described in paragraphs (i) and (ii) above, and (b) the
Officer's contributions to such plans remained at the levels in effect as
of the date of the change in control or the date of termination, whichever
is greater;
(vi) eligibility for Baker Hughes' retiree medical program if the
Officer would have become entitled to participate in such program had he or
she remained employed for an additional three years;
(vii) outplacement services for a period of three years or, if
earlier, until acceptance by the Officer of an offer of employment; and
(viii) an additional amount (a "gross-up" payment) in respect of
excise taxes that may be imposed under the "golden parachute" rules on
payments and benefits received in connection with the change in control;
the gross-up payment would make the Officer whole for such excise taxes
(and for all taxes on the gross-up payment) in respect of payments and
benefits received pursuant to all Baker Hughes' plans, agreements and
arrangements (including, for example, acceleration of equity awards).
In addition to the above, the Severance Agreements provide for full vesting
of all stock options and other equity incentive awards upon the occurrence of a
change in control of Baker Hughes. At the Effective Time, the Merger will
constitute a change in control under the Severance Agreements. The Severance
Agreements supersede any other agreements and representations made by the
Officer or Baker Hughes setting forth the terms and conditions of the Officer's
employment with Baker Hughes only if the Officer's employment with Baker Hughes
is terminated on or following a change in control by Baker Hughes other than for
cause (as defined therein) or by the Officer for good reason (as defined
therein).
In addition to the Severance Agreements, directors and executive officers
of Baker Hughes have been granted options to purchase shares of Baker Hughes
Common Stock under Baker Hughes stock option plans, and certain executive
officers of Baker Hughes have been awarded shares, or rights to receive shares,
of Baker Hughes Common Stock under Baker Hughes stock award and bonus plans.
Many of the options and awards under these plans are not, at present, fully
exercisable by, or vested in, the recipient. Each of these plans provides for
the acceleration of full exercisability of options and full vesting of awards
upon a "change of control" of Baker Hughes (as defined in each plan). The Merger
will constitute a "change of control" pursuant to each of these plans.
RESALES OF BAKER HUGHES COMMON STOCK
The issuance of Baker Hughes Common Stock to stockholders of Western Atlas
in the Merger has been registered under the Securities Act. All shares of Baker
Hughes Common Stock received by stockholders of Western Atlas upon consummation
of the Merger will be freely transferable by those holders who are not deemed to
be "affiliates" (as defined under the Securities Act but generally including
executive officers, directors and 10% or more stockholders) of Western Atlas.
Pursuant to the Merger Agreement, Western Atlas has agreed to use its best
efforts to cause each person identified by Western Atlas as an affiliate for
purposes of Rule 145 of the Securities Act (the "Rule 145 Affiliates") on the
date of the Western Atlas Special Meeting to deliver to Baker Hughes a written
agreement
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that such person will not sell, pledge, transfer or otherwise dispose of any
shares of Baker Hughes Common Stock issued to such Rule 145 Affiliates in the
Merger, except pursuant to an effective registration statement or in compliance
with Rule 145 or an exemption from the registration requirements of the
Securities Act. Western Atlas also has agreed to use its best efforts to cause
each person identified as a Rule 145 Affiliate of Western Atlas to sign, and
Baker Hughes has agreed to use its best efforts to cause each person who is an
affiliate of Baker Hughes to sign, on or prior to the 30th day prior to the
Effective Time, a written agreement that such Rule 145 Affiliate or affiliate
will not sell or in any other way reduce such party's risk relative to shares of
Baker Hughes Common Stock held or to be received in the Merger until such time
as financial results covering at least 30 days of post-merger operations of the
combined entity have been published, except as permitted by applicable SEC
Accounting Bulletins. Baker Hughes will be entitled to place restrictive legends
on any shares of Baker Hughes Common Stock issued to Rule 145 Affiliates.
NYSE LISTING OF BAKER HUGHES COMMON STOCK
It is a condition to the Merger that the shares of Baker Hughes Common
Stock to be issued pursuant to the Merger be authorized for listing on the NYSE,
subject to official notice of issuance. Baker Hughes Common Stock is traded on
the NYSE, the Pacific Exchange and the Swiss Stock Exchange under the symbol
"BHI."
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CERTAIN PROVISIONS OF THE MERGER AGREEMENT
The detailed terms of and conditions to the Merger are contained in the
Merger Agreement, which is included in full as Appendix A to this Joint Proxy
Statement/Prospectus and incorporated herein by reference. The following summary
description of certain provisions of the Merger Agreement is subject to the more
complete information set forth in the Merger Agreement.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties by
each of Baker Hughes, Merger Sub and Western Atlas relating to, among other
things: (i) the organization, good standing and foreign qualification of such
parties and their respective significant subsidiaries; (ii) the authorization,
execution, delivery and enforceability of the Merger Agreement, the Stock Option
Agreements and related matters; (iii) each of their capital structures; (iv) the
absence of violations of law and noncompliance with permits; (v) the absence of
conflicts with, violations of or defaults under the charters or bylaws of each
of such party, or any material agreement or applicable law, or resulting from
the execution or delivery of the Merger Agreement, the Stock Option Agreements
or the consummation of the transactions contemplated thereby; (vi) the documents
and reports filed by them with the SEC, their financial statements and the
accuracy of the information contained therein; (vii) the absence of litigation
against such party; (viii) the absence of certain events, changes or effects;
(ix) taxes; (x) retirement and other employee plans and matters relating to the
Employee Retirement Income Security Act of 1974, as amended (ERISA); (xi) labor
matters; (xii) environmental matters; (xiii) intellectual property matters;
(xiv) maintenance of insurance; (xv) brokerage and similar fees; (xvi) receipt
of fairness opinions; (xvii) beneficial ownership of the other party's common
stock; (xviii) qualification of the Merger as a reorganization for federal
income tax purposes; (xix) qualification of the Merger as a pooling of interests
for financial accounting purposes; (xx) the stockholder vote required in
connection with the Merger Agreement; (xxi) with respect to Western Atlas,
amendments to its Share Purchase Rights Plan; (xxii) the nonapplicability of
certain antitakeover statutes; and (xxiii) noncompetition contracts.
CERTAIN COVENANTS -- CONDUCT OF BUSINESS OF WESTERN ATLAS AND BAKER HUGHES
Each of Western Atlas and Baker Hughes has agreed (except as contemplated
by the Merger Agreement or the Stock Option Agreements, or to the extent that
the other party has otherwise consented in writing) that, prior to the Effective
Time, it will, among other things: (i) conduct its business in the ordinary
course in substantially the same manner as previously conducted; (ii) use its
commercially reasonable best efforts to preserve its business organizations and
goodwill, keep available the services of its officers and employees and maintain
satisfactory business relationships; (iii) not amend its certificate of
incorporation or by-laws; (iv) promptly notify the other party of any material
change in its condition or business or any material litigation or material
governmental complaints, investigations or hearings, or the material breach of
any of the representations and warranties of the Merger Agreement; (v) promptly
deliver to the other party any SEC filings made subsequent to the date of the
Merger Agreement; (vi) (A) except upon exercise of options, warrants and other
rights existing on the date of the Merger Agreement or permitted to be issued
thereby, issue any shares of its capital stock, effect any stock split or
otherwise change its capitalization, (B) grant any new options, warrants or
other rights not existing on the date of the Merger Agreement to acquire shares
of its capital stock, except for automatic grants to nonemployee directors under
existing plans, certain grants to new employees, and other specified option
grants, (C) increase the compensation or benefits or enter into or amend any
employment agreement with any officer or director, except as consistent with
past practice or (D) adopt any new employee benefit plan or materially amend any
existing employee benefit plan; (vii) not declare, set aside or pay any
dividends on or make other distributions in respect of any of its capital stock,
or redeem, purchase or otherwise acquire any shares of its capital stock, except
in the case of Baker Hughes, the declaration and payment of regular, quarterly
dividends, consistent with past practice, not to exceed $0.115 per share of
Baker Hughes Common Stock per quarter; (viii) not sell, lease or otherwise
dispose of any material assets, except in the ordinary course of business; (ix)
not acquire or agree to acquire any material business, entity, assets or
securities for an aggregate consideration in excess of $100 million, with
certain exceptions;
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(x) not change any material accounting principle or practice except as required
by a change in law or generally accepted accounting principles; (xi) use
reasonable efforts to maintain insurance in such amounts and against such risks
and losses customary for it; (xii) not make or rescind any material tax
election, settle or compromise any material tax liability or materially change
its methods of reporting income or deductions for federal income tax purposes
except as may be required by applicable law; (xiii) not (A) incur any
indebtedness for borrowed money, except for general corporate purposes,
refinancings of existing debt and other immaterial borrowings, or guarantee any
such indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities or guarantee any debt securities of others, (B)
except in the ordinary course of business, enter into any material lease or
create any material encumbrance on any of its property in connection with any
indebtedness or (C) make capital expenditures in excess of $75 million over its
fiscal 1998 capital budget; (xiv) not purchase any shares of Baker Hughes Common
Stock or Western Atlas Common Stock; (xv) not take any action likely to delay
materially or adversely affect the ability of any of the parties to obtain
required consents, authorizations, orders or approvals of governmental or other
regulatory authorities; (xvi) not take any action inconsistent with the
foregoing; and (xvii) not terminate, amend, modify or waive any provision of any
confidentiality or standstill agreement to which it is a party, and enforce, to
the fullest extent permitted under applicable law, the provisions of such
agreement, including by obtaining injunctions to prevent any breaches of such
agreements and to enforce specifically the terms and provisions thereof.
CONDITIONS TO THE MERGER
Conditions to Each Party's Obligation to Effect the Merger
The respective obligations of each party to effect the Merger are subject
to the satisfaction at or prior to the Closing Date of the following conditions:
Stockholder Approval. The Merger Agreement and the Merger shall have been
adopted and approved by the affirmative vote of the holders of a majority of the
issued and outstanding shares of Western Atlas Common Stock entitled to vote
thereon. The issuance of the shares of Baker Hughes Common Stock pursuant to the
Merger shall have been approved by the holders of issued and outstanding shares
of Baker Hughes Common Stock as and to the extent required by the rules of the
NYSE.
Antitrust Waiting Periods. The waiting period applicable to the
consummation of the Merger shall have expired or been terminated under (i) the
HSR Act (which period expired on June 28, 1998) and (ii) any mandatory waiting
period under any applicable foreign competition or antitrust law or regulation
where the failure to observe such waiting period referred to in this clause (ii)
would have a Material Adverse Effect (as defined below) on Baker Hughes or
Western Atlas.
No Injunctions or Restraints. None of the parties shall be subject to any
decree, order or injunction of a court of competent jurisdiction which prohibits
the consummation of the Merger; provided, however, that prior to invoking this
condition each party has agreed to comply with Section 7.5 of the Merger
Agreement (see "-- Additional Agreements"), and with respect to other matters,
to use its commercially reasonable best efforts to have any such decree, order
or injunction lifted or vacated; and no statute, rule or regulation shall have
been enacted by any governmental authority which prohibits or makes unlawful the
consummation of the Merger.
Registration Statement. The Registration Statement of which this Joint
Proxy Statement/Prospectus is a part shall have become effective and no stop
order with respect thereto shall be in effect.
NYSE Listing. The shares of Baker Hughes Common Stock to be issued pursuant
to the Merger shall have been authorized for listing on the NYSE subject to
official notice of issuance.
Pooling Letter. Baker Hughes and Western Atlas shall have received from
Deloitte & Touche LLP letters that the Merger will be treated as a "pooling of
interests" for financial accounting purposes.
NRC Consent. Western Atlas shall have received the written consent of the
NRC to the transfer of control of all NRC licenses of Western Atlas and its
subsidiaries, which consent has been received.
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Additional Conditions to Obligations of Western Atlas to Effect the Merger
The obligations of Western Atlas to effect the Merger are subject to the
satisfaction at or prior to the Closing Date of the following additional
conditions, any or all of which may be waived in whole or in part by Western
Atlas:
Covenants, Representations and Warranties. Baker Hughes shall have
performed in all material respects its covenants and agreements contained in the
Merger Agreement required to be performed on or prior to the Closing Date and
the representations and warranties of Baker Hughes and Merger Sub contained in
the Merger Agreement and in any document delivered in connection therewith shall
be true and correct in all material respects as of the date of the Merger
Agreement and as of the Closing Date (except for representations and warranties
made as of a specified date, which need be true and correct in all material
respects only as of the specified date), and Western Atlas shall have received a
certificate of Baker Hughes, executed on its behalf by the President or a Vice
President of Baker Hughes, to such effect.
Tax Opinion. Western Atlas shall have received the opinion of Wachtell,
Lipton, Rosen & Katz, counsel to Western Atlas, in form and substance reasonably
satisfactory to Western Atlas, dated the Closing Date, to the effect that (i)
the Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code and (ii) no gain or loss will
be recognized by the stockholders of Western Atlas who exchange all of their
Western Atlas Common Stock solely for Baker Hughes Common Stock pursuant to the
Merger (except with respect to cash received in lieu of a fractional share
interest in Baker Hughes Common Stock).
No Material Adverse Effect. At any time after the date of the Merger
Agreement, there shall not have been any event or occurrence that has had or is
likely to have a Material Adverse Effect on Baker Hughes. For purposes of the
Merger Agreement, "Material Adverse Effect" means a material adverse effect or
change on (a) the business or financial condition of a party and its
subsidiaries on a consolidated basis, except for such changes or effects in
general economic, capital market, regulatory or political conditions or changes
that affect generally the energy services industry or (b) the ability of the
party to consummate the transactions contemplated by the Merger Agreement or
fulfill the conditions to Closing.
Additional Conditions to Obligations of Baker Hughes and Merger Sub to Effect
the Merger
The obligations of Baker Hughes and Merger Sub to effect the Merger are
subject to the satisfaction at or prior to the Closing Date of the following
additional conditions, any or all of which may be waived in whole or in part by
Baker Hughes:
Covenants, Representations and Warranties. Western Atlas shall have
performed in all material respects its covenants and agreements contained in the
Merger Agreement required to be performed on or prior to the Closing Date and
the representations and warranties of Western Atlas contained in the Merger
Agreement and in any document delivered in connection therewith shall be true
and correct in all material respects as of the date of the Merger Agreement and
as of the Closing Date (except for representations and warranties made as of a
specified date, which need be true and correct in all material respects only as
of the specified date), and Baker Hughes shall have received a certificate of
Western Atlas, executed on its behalf by the President or a Vice President of
Western Atlas, to such effect.
Tax Opinion. Baker Hughes shall have received the opinion of Baker & Botts,
L.L.P., counsel to Baker Hughes, in form and substance reasonably satisfactory
to Baker Hughes, dated the Closing Date, to the effect that (i) the Merger will
be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code and (ii) no gain or loss will be
recognized by the stockholders of Western Atlas who exchange all of their
Western Atlas Common Stock solely for Baker Hughes Common Stock pursuant to the
Merger (except with respect to cash received in lieu of a fractional share
interest in Baker Hughes Common Stock).
No Material Adverse Effect. At any time after the date of the Merger
Agreement, there shall not have been any event or occurrence that has had or is
likely to have a Material Adverse Effect on Western Atlas.
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ADDITIONAL AGREEMENTS
Pursuant to the Merger Agreement, Baker Hughes and Western Atlas have
agreed, among other things, that: (i) they will each call meetings of their
respective stockholders to be held as promptly as practicable to consider and
vote upon (A) in the case of Baker Hughes, the issuance of shares of Baker
Hughes Common Stock pursuant to the Merger and (B) in the case of Western Atlas,
the approval and adoption of the Merger Agreement and the Merger; (ii) they will
each afford to the other parties access to their respective officers,
properties, records, files and other information as the other parties may
reasonably request; (iii) each will consult with the other parties and mutually
agree upon any press releases and other announcements regarding the Merger; (iv)
they will prepare and Baker Hughes will file the Registration Statement, and
Baker Hughes will use its best efforts to have the Registration Statement
declared effective as promptly as practicable and its reasonable best efforts
obtain all necessary state securities laws or "blue sky" permits and approvals;
(v) Baker Hughes will prepare and submit to the NYSE a listing application
covering the shares of Baker Hughes Common Stock issuable in the Merger, and
shall use its best efforts to obtain, prior to the Effective Time, approval for
the listing of such shares, subject to official notice of issuance; (vi) each
will use its reasonable best efforts to have timely delivered to the other
parties a "comfort" letter from its independent public accountants; (vii)
Western Atlas will provide a list of persons who may be its Rule 145 Affiliates
and use its best efforts to obtain from each such person an undertaking not to
transfer shares of Baker Hughes Common Stock issued to such person pursuant to
the Merger except pursuant to an effective registration statement or in
compliance with Rule 145 or an exemption from the registration requirements
under the Securities Act, and Western Atlas will use its best efforts to cause
each such person, and Baker Hughes will use its best efforts to cause its
affiliates, to agree not to sell or in any other way reduce such person's risk
with respect to shares of Baker Hughes Common Stock for a certain period before
and after the Effective Time (see "The Merger -- Resales of Baker Hughes Common
Stock"); (viii) each party will pay its own expenses incurred in connection with
the Merger and the transactions contemplated thereby, except as provided in the
Merger Agreement; (ix) Baker Hughes and the Surviving Corporation will indemnify
the officers and directors of Western Atlas and its subsidiaries and divisions
and will maintain directors' and officers' liability insurance for such officers
and directors for six years after the Effective Time (see "The
Merger -- Interests of Certain Persons -- Indemnification"); (x) Baker Hughes
will assume certain employee benefit obligations of Western Atlas (see "The
Merger -- Employee Matters"); (xi) they will not knowingly take any action or
fail to take any reasonable action that would cause the Merger not to qualify as
a reorganization under Section 368(a) of the Code; (xii) they will not knowingly
take any action or fail to take any reasonable action that would prevent the
treatment of the Merger as a pooling of interests for financial accounting
purposes; and (xiii) Western Atlas will take appropriate action to prevent the
Merger or any other transaction contemplated by the Merger Agreement or the
Stock Option Agreements from causing the rights issued pursuant to the Rights
Agreement to be exercised.
In addition, pursuant to Section 7.5 of the Merger Agreement, Baker Hughes
and Western Atlas have agreed to: (a) promptly make their respective filings and
thereafter make any other required submissions under the HSR Act with respect to
the Merger; (b) use their reasonable best efforts to cooperate with one another
in (i) determining which filings are required to be made prior to the Effective
Time with, and which consents, approvals, permits or authorizations are required
to be obtained prior to the Effective Time from, governmental or regulatory
authorities of the United States, the several states and foreign jurisdictions
in connection with the execution and delivery of the Merger Agreement and the
consummation of the Merger and the transactions contemplated thereby and (ii)
timely making all such filings and timely seeking all such consents, approvals,
permits or authorizations; (c) promptly notify each other of any communication
concerning the Merger Agreement or the Merger from any governmental authority
and permit the other party to review in advance any proposed communication
concerning the Merger Agreement or the Merger to any governmental entity; (d)
not agree to participate in any meeting or discussion with any governmental
authority in respect of any filings, investigation or other inquiry concerning
the Merger Agreement or the Merger unless it consults with the other party in
advance and, to the extent permitted by such governmental authority, gives the
other party the opportunity to attend and participate thereat; (e) furnish the
other with copies of all correspondence, filings and communications (and
memoranda setting forth the substance thereof) between them and their affiliates
and their respective representatives, on the one hand, and any government or
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regulatory authority or members or their respective staffs, on the other hand,
with respect to the Merger Agreement and the Merger; (f) furnish the other with
such necessary information and reasonable assistance as such other parties and
their respective affiliates may reasonably request in connection with their
preparation of necessary filings, registrations or submissions of information to
any governmental or regulatory authorities, including without limitation any
filings necessary or appropriate under the provisions of the HSR Act; (g) use
their best efforts to avoid the entry of, or to have vacated or terminated, any
decree, order or judgment that would restrain, prevent or delay the Closing,
including without limitation defending through litigation on the merits any
claim asserted in any court by any party; and (h) take any and all steps
necessary to avoid or eliminate each and every impediment under any antitrust,
competition or trade regulation law that may be asserted by any governmental
entity with respect to the Merger so as to enable the Closing to occur as soon
as reasonably possible (and in any event no later than 60 days following the
termination of all applicable waiting periods under the HSR Act, unless the
parties are in litigation with the government in which case at the conclusion of
such litigation), including without limitation, proposing, negotiating,
committing to and effecting, by consent decree, hold separate order or
otherwise, the sale, divestiture or disposition of such assets or businesses of
Baker Hughes or Western Atlas or any of their respective subsidiaries or
otherwise take or commit to take any action that limits its freedom of action
with respect to, or its ability to retain, any of the businesses, product lines
or assets of Baker Hughes, Western Atlas or their respective subsidiaries, as
may be required in order to avoid the entry of, or to the effect the dissolution
of, any injunction, temporary restraining order or other order in any suit or
proceeding, which would otherwise have the effect of preventing or delaying the
Closing. At the request of Baker Hughes, Western Atlas shall agree to divest,
hold separate or otherwise take or commit to take any action that limits its
freedom of action with respect to, or its ability to retain, any of the
businesses, product lines or assets of Western Atlas or any of its subsidiaries,
provided that any such action may be conditioned upon the consummation of the
Merger and the transactions contemplated thereby. Notwithstanding anything to
the contrary contained in the Merger Agreement, in connection with any filing or
submission required or action to be taken by Baker Hughes, Western Atlas or any
of their respective subsidiaries to consummate the Merger or other transactions
contemplated in the Merger Agreement, Western Atlas shall not, without Baker
Hughes' prior written consent, recommend, suggest or commit to any divestiture
of assets or businesses of Western Atlas and its subsidiaries.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties thereto, by action taken
or authorized by their respective Boards of Directors, at any time before or
after approval of the matters presented in connection with the Merger by the
stockholders of the parties, but, after any such approval, no amendment which by
law requires further approval by such stockholders shall be made without
obtaining such further approval.
At any time prior to the Effective Time, each party may by action taken by
its Board of Directors, to the extent legally allowed: (i) extend the time for
the performance of any of the obligations or other acts of the other parties;
(ii) waive any inaccuracies in the representations and warranties made to such
party contained in the Merger Agreement or in any document delivered pursuant
thereto; and (iii) waive compliance with any of the agreements or conditions for
the benefit of such party contained in the Merger Agreement.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time:
(1) by the mutual consent of Baker Hughes and Western Atlas;
(2) by Baker Hughes or Western Atlas if:
(a) the Merger shall not have been consummated by October 31, 1998;
provided, however, that in the event the condition with respect to the
HSR Act waiting period or absence of injunction or restraint or both are
the only conditions that are not satisfied or capable of being
immediately satisfied as a result of governmental litigation engaged in
by the parties pursuant to Section 7.5 of the Merger Agreement (see
"-- Additional Agreements") under any antitrust, competition or trade
regulation law, the October 31, 1998 date shall be extended for a period
not to exceed the lesser of
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90 days or the fifth business day after the entrance by the court in
which such litigation is pending of its decision (whether or not subject
to appeal or rehearing) in such litigation; and provided, further, that
the right to terminate the Merger Agreement pursuant to this clause (a)
shall not be available to any party whose failure to perform or observe
in any material respect any of its obligations under the Merger
Agreement in any manner shall have been the cause of, or resulted in,
the failure of the Merger to occur on or before such date;
(b) a meeting (including adjournments and postponements) of Western
Atlas' stockholders shall have been held and the required approval of
such stockholders shall not have been obtained;
(c) a meeting (including adjournments and postponements) of Baker
Hughes' stockholders shall have been held and the required approval of
such stockholders shall not have been obtained; or
(d) a United States federal or state court or governmental,
regulatory or administrative agency or commission shall have issued an
order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action shall have become final and
non-appealable; provided, however, that the party seeking to terminate
the Merger Agreement pursuant to this clause (d) shall have complied
with Section 7.5 of the Merger Agreement (see "-- Additional
Agreements") and with respect to other matters shall have used its
commercially reasonable best efforts to remove such injunction, order or
decree.
(3) by Western Atlas after consultation with its legal advisors, if:
(a) the Western Atlas Board determines that proceeding with the
Merger would be inconsistent with its fiduciary obligations by reason of
a Western Atlas Superior Proposal (as defined under "-- No Solicitation
of Acquisition Proposals" below) and elects to terminate the Merger
Agreement effective prior to the Cutoff Date (as defined under "-- No
Solicitation of Acquisition Proposals" below); provided that Western
Atlas may not effect such termination unless and until Baker Hughes
receives at least one week's prior written notice from Western Atlas of
its intention to effect such termination and during such week, Western
Atlas shall, and shall cause its respective financial and legal advisors
to, consider any adjustment in the terms and conditions of the Merger
Agreement that Baker Hughes may propose; and provided, further, that any
termination of the Merger Agreement pursuant to this section shall not
be effective until Western Atlas has paid to Baker Hughes the $50
million termination fee described under "-- Expenses and Termination
Fees";
(b) (i) there has been a material breach by Baker Hughes or Merger
Sub of any representation, warranty, covenant or agreement set forth in
the Merger Agreement or if any representation or warranty of Baker
Hughes or Merger Sub shall have become materially untrue and (ii) such
breach is not curable, or, if curable, is not cured within 30 days after
written notice of such breach is given to Baker Hughes by Western Atlas;
provided, however, that the right to terminate the Merger Agreement
pursuant to this section shall not be available to Western Atlas if it,
at such time, is in material breach of any representation, warranty,
covenant or agreement set forth in the Merger Agreement;
(c) the Baker Hughes Board shall have withdrawn or materially
modified, in a manner adverse to Western Atlas, its approval or
recommendation of the Merger or recommended a Baker Hughes Acquisition
Proposal (as defined under "-- No Solicitation of Acquisition
Proposals"), or resolved to do so; or
(d) on the date on which the Closing would otherwise occur, the
Baker Hughes Share Price shall be less than $35.00; provided that (i)
Baker Hughes shall receive at least three business days' prior written
notice of Western Atlas' intent to effect such termination and (ii)
during such three business day period, Baker Hughes shall not have
elected to increase the Exchange Ratio by agreeing that the proviso
limiting the Exchange Ratio to 2.623 shall not be given effect (so that
Baker Hughes would issue additional shares to increase the value of the
Baker Hughes Common Stock to be received in the Merger per share of
Western Atlas Common Stock to $91.80, based on the Baker Hughes Share
Price).
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(4) by Baker Hughes after consultation with its legal advisors, if:
(a) the Baker Hughes Board determines that proceeding with the
Merger would be inconsistent with its fiduciary obligations by reason of
a Baker Hughes Superior Proposal (as defined under "-- No Solicitation
of Acquisition Proposals" below) and elects to terminate the Merger
Agreement effective prior to the Cutoff Date; provided that Baker Hughes
may not effect such termination pursuant to this section unless and
until Western Atlas receives at least one week's prior written notice
from Baker Hughes of its intention to effect such termination pursuant
to this section and during such week, Baker Hughes shall, and shall
cause its respective financial and legal advisors to, consider any
adjustment in the terms and conditions of the Merger Agreement that
Western Atlas may propose; and provided, further, that any termination
of the Merger Agreement pursuant to this section shall not be effective
until Baker Hughes has paid to Western Atlas the $50 million termination
fee described under "-- Expenses and Termination Fees"; or
(b) (i) there has been a material breach by Western Atlas of any
representation, warranty, covenant or agreement set forth in the Merger
Agreement or if any representation or warranty of Western Atlas shall
have become materially untrue and (ii) such breach is not curable, or,
if curable, is not cured within 30 days after written notice of such
breach is given by Baker Hughes to Western Atlas; provided, however,
that the right to terminate the Merger Agreement pursuant to this
section shall not be available to Baker Hughes if it, at such time, is
in material breach of any representation, warranty, covenant or
agreement set forth in the Merger Agreement; or
(c) the Western Atlas Board shall have withdrawn or materially
modified, in a manner adverse to Baker Hughes, its approval or
recommendation of the Merger or recommended a Western Atlas Acquisition
Proposal (as defined under "-- No Solicitation of Acquisition
Proposals"), or resolved to do so.
EXPENSES AND TERMINATION FEES
Whether or not the Merger is consummated, all costs and expenses incurred
in connection with the Merger Agreement and the transactions contemplated
thereby shall be paid by the party incurring such expenses except as expressly
provided in the Merger Agreement.
If the Merger Agreement is terminated (i) by Western Atlas pursuant to
section (3)(a) in "-- Termination" above, (ii) by Baker Hughes or Western Atlas
pursuant to section (2)(b) in "-- Termination" after the public announcement of
a Western Atlas Acquisition Proposal or (iii) by Baker Hughes pursuant to
section (4)(c) in "-- Termination" after receipt by the Western Atlas Board or
the public announcement of a Western Atlas Acquisition Proposal, then Western
Atlas shall pay to Baker Hughes a cash termination fee of $50 million (subject
to reduction pursuant to the Western Atlas Stock Option Agreement described
below) at the time of such termination. In addition, if within one year after
such termination, Western Atlas enters into a definitive agreement with respect
to a Western Atlas Acquisition or a Western Atlas Acquisition is consummated, in
either case with the person making the Western Atlas Acquisition Proposal
related to the termination or any affiliate thereof, then upon the consummation
of such Western Atlas Acquisition, Western Atlas shall pay Baker Hughes an
additional cash fee of $150 million (subject to reduction pursuant to the
Western Atlas Stock Option Agreement) at the time of such consummation. "Western
Atlas Acquisition" refers to (i) a consolidation, exchange of shares or merger
of Western Atlas with any person, other than Baker Hughes or one of its
subsidiaries, and, in the case of a merger, in which Western Atlas shall not be
the continuing or surviving corporation, (ii) a merger of Western Atlas with a
person, other than Baker Hughes or one of its subsidiaries, in which Western
Atlas shall be the continuing or surviving corporation but the then outstanding
shares of Western Atlas Common Stock shall be changed into or exchanged for
stock or other securities of Western Atlas or any other person or cash or any
other property or the shares of Western Atlas Common Stock outstanding
immediately before such merger shall after such merger represent less than 50%
of the voting stock of Western Atlas outstanding immediately after the merger,
(iii) the acquisition of beneficial ownership of 50% or more of the voting stock
of Western Atlas by any person (as such term is used
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under Section 13(d) of the Exchange Act), or (iv) a sale, lease or other
transfer of 50% or more of the assets of Western Atlas to any person, other than
Baker Hughes or one of its subsidiaries.
If the Merger Agreement is terminated (i) by Baker Hughes pursuant to
section (4)(a) in "-- Termination" above, (ii) by Baker Hughes or Western Atlas
pursuant to section (2)(c) in "-- Termination" after the public announcement of
a Baker Hughes Acquisition Proposal or (iii) by Western Atlas pursuant to
section (3)(c) in "-- Termination" after receipt by the Baker Hughes Board or
the public announcement of a Baker Hughes Acquisition Proposal, then Baker
Hughes shall pay to Western Atlas a cash termination fee of $50 million (subject
to reduction pursuant to the Baker Hughes Stock Option Agreement described
below) at the time of such termination. In addition, if within one year after
such termination, Baker Hughes enters into a definitive agreement with respect
to a Baker Hughes Acquisition or a Baker Hughes Acquisition is consummated, in
either case with the person making the Baker Hughes Acquisition Proposal related
to the termination or any affiliate thereof, then upon the consummation of such
Baker Hughes Acquisition, Baker Hughes shall pay Western Atlas an additional
cash fee of $150 million (subject to reduction pursuant to the Baker Hughes
Stock Option Agreement) at the time of such consummation. "Baker Hughes
Acquisition" refers to (i) a consolidation, exchange of shares or merger of
Baker Hughes with any person, other than Western Atlas or one of its
subsidiaries, and, in the case of a merger, in which Baker Hughes shall not be
the continuing or surviving corporation, (ii) a merger of Baker Hughes with a
person, other than Western Atlas or one of its subsidiaries, in which Baker
Hughes shall be the continuing or surviving corporation but the then outstanding
shares of Baker Hughes Common Stock shall be changed into or exchanged for stock
or other securities of Baker Hughes or any other person or cash or any other
property or the shares of Baker Hughes Common Stock outstanding immediately
before such merger shall after such merger represent less than 50% of the voting
stock of Baker Hughes outstanding immediately after the merger, (iii) the
acquisition of beneficial ownership of 50% or more of the voting stock of Baker
Hughes by any person (as such term is used under Section 13(d) of the Exchange
Act), or (iv) a sale, lease or other transfer of 50% or more of the assets of
Baker Hughes to any person, other than Western Atlas or one of its subsidiaries.
NO SOLICITATION OF ACQUISITION PROPOSALS
Western Atlas has agreed that neither it nor any of its subsidiaries shall,
and shall not knowingly permit any of its officers, directors, employees, agents
or representatives to, solicit, initiate or knowingly encourage (including by
way of furnishing material non-public information) any inquiry, proposal or
offer with respect to a tender offer, merger, consolidation, business
combination or similar transaction involving, or any purchase of 20% or more of
the assets on a consolidated basis or 20% or more of any class of capital stock
of, Western Atlas (any such proposal, offer or transaction being referred to as
a "Western Atlas Acquisition Proposal") or participate or engage in any
discussions or negotiations concerning a Western Atlas Acquisition Proposal;
provided that nothing contained in the Merger Agreement shall prevent Western
Atlas or its Board of Directors from (A) complying with Rule 14e-2 promulgated
under the Exchange Act with regard to a Western Atlas Acquisition Proposal, or
(B) prior to the Cutoff Date, providing information (pursuant to a
confidentiality agreement in reasonably customary form) to or engaging in any
negotiations or discussions with any person or entity who has made an
unsolicited bona fide Western Atlas Acquisition Proposal with respect to all the
outstanding Western Atlas Common Stock or all or substantially all the assets of
Western Atlas that, in the good faith judgment of the Western Atlas Board,
taking into account the likelihood of consummation, after consultation with its
financial advisors, is superior to the Merger (a "Western Atlas Superior
Proposal"), if the Western Atlas Board, after consultation with its outside
legal counsel, determines that the failure to do so would be inconsistent with
its fiduciary obligations.
Prior to taking any action referred to in the prior paragraph, if Western
Atlas intends to participate in any such discussions or negotiations or provide
any such information to any such third party, Western Atlas shall give prompt
prior notice to Baker Hughes of each such action. Western Atlas will immediately
notify Baker Hughes of any such requests for such information or the receipt of
any Western Atlas Acquisition Proposal, including the identity of the person or
group engaging in such discussions or negotiations, requesting such information
or making such Western Atlas Acquisition Proposal, and the material terms and
conditions of any Western Atlas Acquisition Proposal.
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Baker Hughes has agreed that neither it nor any of its subsidiaries shall,
and shall not knowingly permit any of its officers, directors, employees, agents
or representatives to, solicit, initiate or knowingly encourage (including by
way of furnishing material non-public information) any inquiry, proposal or
offer with respect to a tender offer, merger, consolidation, business
combination or similar transaction involving, or any purchase of 20% or more of
the assets on a consolidated basis or 20% or more of any class of capital stock
of, Baker Hughes (any such proposal, offer or transaction being referred to as a
"Baker Hughes Acquisition Proposal") or participate or engage in any discussions
or negotiations concerning a Baker Hughes Acquisition Proposal; provided that
nothing contained in the Merger Agreement shall prevent Baker Hughes or its
Board of Directors from (A) complying with Rule 14e-2 promulgated under the
Exchange Act with regard to a Baker Hughes Acquisition Proposal, or (B) prior to
the Cutoff Date, providing information (pursuant to a confidentiality agreement
in reasonably customary form) to or engaging in any negotiations or discussions
with any person or entity who has made an unsolicited bona fide Baker Hughes
Acquisition Proposal with respect to all the outstanding Baker Hughes Common
Stock or all or substantially all the assets of Baker Hughes that, in the good
faith judgment of the Baker Hughes Board, taking into account the likelihood of
consummation, after consultation with its financial advisors, is superior to the
Merger (a "Baker Hughes Superior Proposal"), if the Baker Hughes Board, after
consultation with its outside legal counsel, determines that the failure to do
so would be inconsistent with its fiduciary obligations.
Prior to taking any action referred to in the prior paragraph, if Baker
Hughes intends to participate in any such discussions or negotiations or provide
any such information to any such third party, Baker Hughes shall give prompt
prior notice to Western Atlas of each such action. Baker Hughes will immediately
notify Western Atlas of any such requests for such information or the receipt of
any Baker Hughes Acquisition Proposal, including the identity of the person or
group engaging in such discussions or negotiations, requesting such information
or making such Baker Hughes Acquisition Proposal, and the material terms and
conditions of any Baker Hughes Acquisition Proposal.
For purposes hereof, the "Cutoff Date" means the date the conditions in the
Merger Agreement with respect to stockholder approvals of both parties are
satisfied.
RECIPROCAL STOCK OPTION AGREEMENTS
General. In connection with, and as an inducement to, the execution and
delivery of the Merger Agreement, Baker Hughes and Western Atlas entered into
(i) a stock option agreement (the "Baker Hughes Stock Option Agreement")
pursuant to which Baker Hughes granted to Western Atlas an option to purchase up
to 33,772,146 shares of Baker Hughes Common Stock (or such number of shares of
Baker Hughes Common Stock as represents 19.9% of the then outstanding shares of
Baker Hughes Common Stock) at a price per share of $41.125 (the last sales price
of the Baker Hughes Common Stock on the NYSE on May 8, 1998) and (ii) a stock
option agreement (the "Western Atlas Stock Option Agreement") pursuant to which
Western Atlas granted to Baker Hughes an option to purchase up to 10,905,763
shares of Western Atlas Common Stock (or such number of shares of Western Atlas
Common Stock as represents 19.9% of the then outstanding shares of Western Atlas
Common Stock) at a price per share equal to the lesser of (a) $98.70 ($41.125
multiplied by 2.4) and (b) the Exchange Ratio (calculated as if the Baker Hughes
Share Price were equal to the closing price of the Baker Hughes Common Stock on
the date of exercise of the option) multiplied by the closing price of Baker
Hughes Common Stock on the date of exercise of the option.
The following is a summary of certain provisions of the Baker Hughes Stock
Option Agreement and the Western Atlas Stock Option Agreement (together, the
"Stock Option Agreements"). The terms of the Stock Option Agreements are
identical except with respect to the number of shares that may be purchased
pursuant thereto and the exercise prices thereof. In the discussion below,
"Grantee" refers to the party entitled to purchase shares under the applicable
Stock Option Agreement and "Issuer" refers to the party issuing the shares
subject to such Stock Option Agreement. The Stock Option Agreements are filed as
exhibits to the Registration Statement and are incorporated herein by reference.
Exercise of the Options. An option will be exercisable, in whole or in
part, at any time and from time to time following the occurrence of any event
(an "Exercise Event") giving rise to an obligation of the Issuer to
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<PAGE> 60
pay the Grantee the $50 million fee pursuant to the Merger Agreement as
described above under "-- Expenses and Termination Fees." That option will
remain exercisable until the earliest to occur of (i) the Effective Time, (ii)
the termination of the Merger Agreement in accordance with its terms prior to
the occurrence of an Exercise Event and (iii) the first anniversary of the
Grantee's receipt of written notice from the Issuer of the occurrence of an
Exercise Event (the "Option Term"). If the closing of the purchase and sale
pursuant to the option cannot be effected because of the application of any law,
regulation or order of any governmental authority or the NYSE, the date of such
closing will be extended to the tenth business day following the expiration or
termination of the restriction imposed by such law, regulation or order
(provided that if such closing shall not have occurred within nine months after
the date of such written notice as a result of one or more such restrictions,
the option shall be deemed to have expired).
Repurchase at the Option of Grantee. At the request of the Grantee made at
any time and from time to time after the occurrence of an Exercise Event and
prior to the earlier of (i) 120 days after the expiration of the Option Term and
(ii) 120 days after the conditions to the payment by the Issuer of the
additional $150 million fee pursuant to the Merger Agreement have occurred (the
"Put Period"), the Issuer will, at the election of the Grantee, repurchase from
the Grantee (a) any unexercised portion of the option (or any portion that has
been exercised but as to which the closing has not occurred) and (b) all or any
portion of the shares of common stock purchased by the Grantee pursuant to the
Stock Option Agreement that the Grantee still owns.
The aggregate price of such repurchase will be equal to the sum of (i) the
aggregate exercise price paid for any shares sold; (ii) the excess of the
Applicable Price over the exercise price paid by the Grantee for each share sold
multiplied by the number of such shares; and (iii) the excess, if any, of (x)
the Applicable Price over (y) the exercise price multiplied by the number of
shares subject to the unexercised portion of the option as to which the Grantee
is exercising the repurchase right. For purposes of the Stock Option Agreements,
"Applicable Price" means the highest of (i) the highest purchase price per share
paid pursuant to a third party's tender or exchange offer made for shares of the
Issuer's common stock, (ii) the price per share to be paid by any third person
for shares of the Issuer's common stock pursuant to an agreement for certain
business combination transactions, and (iii) the average of the closing prices
of the Issuer's common stock during a 10 consecutive trading day period ending
on and including the trading day immediately prior to the date of such
repurchase (the "Current Market Price").
Repurchase at the Option of the Issuer. To the extent the Grantee has not
previously exercised its repurchase rights, at the request of the Issuer made at
any time during the 120-day period commencing at the expiration of the Put
Period, the Issuer may repurchase from the Grantee all (but not less than all)
of the shares of the Issuer's common stock acquired by the Grantee pursuant to
an exercise of the option that the Grantee still owns at a price per share equal
to the greater of (i) the Current Market Price and (ii) the exercise price per
share in respect of the shares so acquired.
Right of First Refusal. Subject to the repurchase rights described above,
at any time after the first occurrence of an Exercise Event and prior to the
second anniversary of the first purchase of shares pursuant to the option, if
the Grantee desires to transfer or dispose of shares or other securities
acquired by it pursuant to the option, it shall make an offer to the Issuer on
the same terms and at the same price at which the Grantee is proposing to
transfer or dispose of such shares or other securities. If the Issuer fails or
refuses to purchase all of such shares or other securities so offered, the
Grantee may sell all, but not less than all, of such shares or other securities
to the proposed transferee at no less than the price specified and on terms no
more favorable than those offered to the Issuer. The right of first refusal
shall not apply to certain dispositions provided for in the Stock Option
Agreements.
Registration Rights. The Grantee will have certain rights to require the
registration under the securities laws with respect to any or all shares
purchased pursuant to the option if necessary for the Grantee to be able to sell
such shares.
Profit Limitation. The Stock Option Agreements limit the amount of
aggregate profit that the Grantee may receive pursuant to the option, the
repurchase of shares under the put features of the option, the sale of shares
acquired upon exercise of the option and the amount of any termination fee paid
or payable to the
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<PAGE> 61
Grantee. The limit is $50 million (or $200 million if the conditions to the
payment of the additional $150 million fee pursuant to the Merger Agreement have
been satisfied).
Effect of Stock Option Agreements. The Stock Option Agreements are intended
to increase the likelihood that the Merger will be consummated on the terms set
forth in the Merger Agreement. Consequently, certain aspects of the Stock Option
Agreements may have the effect of discouraging persons who might now or prior to
the Effective Time be interested in acquiring all of or a significant interest
in either Baker Hughes or Western Atlas from considering or proposing such an
acquisition, even if such persons were prepared to offer higher consideration
per share for Western Atlas Common Stock than that implicit in the Exchange
Ratio or a higher price per share for Baker Hughes Common Stock than the market
price. If an option becomes exercisable, the Issuer under that option may become
ineligible to participate in a transaction treated as a pooling of interests for
financial accounting purposes.
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<PAGE> 62
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Baker Hughes consists of 400,000,000 shares
of Baker Hughes Common Stock and 15,000,000 shares of preferred stock, par value
$1.00 per share. The following description of the capital stock of Baker Hughes
is subject to the applicable provisions of Baker Hughes' Restated Certificate of
Incorporation and Bylaws, which are incorporated by reference herein.
BAKER HUGHES COMMON STOCK
Baker Hughes is authorized by its Restated Certificate of Incorporation to
issue 400,000,000 shares of Baker Hughes Common Stock, of which approximately
169,795,957 shares were issued and outstanding as of June 30, 1998.
The holders of shares of Baker Hughes Common Stock are entitled to one vote
for each share held on all matters submitted to a vote of holders of Baker
Hughes Common Stock. The Baker Hughes Common Stock does not have cumulative
voting rights, which means that the holders of a majority of the shares of Baker
Hughes Common Stock outstanding can elect all the directors if they choose to do
so. In such event, the holders of the remaining shares will not be able to elect
any directors.
Each share of Baker Hughes Common Stock is entitled to participate equally
in dividends, as and when declared by the Baker Hughes Board, and in the
distribution of assets in the event of liquidation, subject in all cases to any
prior rights of outstanding shares of preferred stock. The shares of Baker
Hughes Common Stock have no preemptive or conversion rights, redemption
provisions or sinking fund provisions. The outstanding shares of Baker Hughes
Common Stock are duly and validly issued, fully paid and nonassessable.
PREFERRED STOCK
Pursuant to Baker Hughes' Restated Certificate of Incorporation, Baker
Hughes is authorized to issue 15,000,000 shares of preferred stock, and the
Baker Hughes Board by resolution may establish one or more series of preferred
stock having such number of shares, designation, relative voting rights,
dividend rates, liquidation and other rights, preferences and limitations as may
be fixed by the Baker Hughes Board without any further stockholder approval. No
shares of preferred stock were issued and outstanding as of June 30, 1998.
CERTAIN ANTI-TAKEOVER PROVISIONS
The provisions of Baker Hughes' Restated Certificate of Incorporation
summarized in the succeeding paragraphs may be deemed to have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider in such stockholder's best interest, including those
attempts that might result in a premium over the market price for the shares of
Baker Hughes Common Stock held by stockholders.
The Baker Hughes Board is divided into three classes that are elected for
staggered three-year terms. Stockholders may only remove a director for cause.
Pursuant to Baker Hughes' Restated Certificate of Incorporation, the Baker
Hughes Board by resolution may establish one or more series of Baker Hughes
preferred stock having such number of shares, designation, relative voting
rights, dividend rates, liquidation and other rights, preferences and
limitations as may be fixed by the Baker Hughes Board without any further
stockholder approval. Such rights, preferences, privileges and limitations as
may be established could have the effect of impeding or discouraging the
acquisition of control of Baker Hughes.
Baker Hughes' Restated Certificate of Incorporation contains a "fair price"
provision that requires the approval of holders of not less than 75% of the
outstanding shares of voting stock of Baker Hughes (including not less than
66 2/3% of the outstanding shares of voting stock not owned, directly or
indirectly, by persons who are Related Persons, as defined below) as a condition
for mergers, consolidations and certain other business combinations involving
Baker Hughes and any Related Person; provided that the 66 2/3% voting
requirement is
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<PAGE> 63
not applicable if the business combination is approved by the holders of not
less than 90% of the outstanding shares of voting stock of Baker Hughes. Related
Persons include the holder of 10% or more of Baker Hughes' outstanding voting
stock and any affiliate of such person. The 75% voting requirement of the "fair
price" provision is not applicable to a business combination involving a holder
of 10% or more of Baker Hughes' outstanding voting stock if the acquisition by
such holder of such stock or the transaction is approved in advance of such
person's becoming a holder of 10% of Baker Hughes' outstanding voting stock by
not less than 75% of the directors of Baker Hughes then holding office or the
following conditions are met: (i) the transaction is a merger or consolidation
proposed to occur within one year of the time such holder acquired 10% of Baker
Hughes' outstanding voting stock and the price to be paid to holders of Baker
Hughes Common Stock is at least as high as the highest price per share paid by
such holder in acquiring any of its Baker Hughes Common Stock, (ii) the
consideration to be paid in the transaction is cash or the same form of
consideration paid by such holder to acquire a majority of its holdings of Baker
Hughes Common Stock, (iii) between the date of the acquisition by such holder of
10% of Baker Hughes' outstanding voting stock and the transaction there has been
no failure to declare and pay preferred stock dividends and no reduction in
common stock dividends (except as approved by a majority of the unaffiliated
directors), no further acquisition of voting stock by such holder and no
benefit, direct or indirect, received by such holder through loans or other
financial assistance from Baker Hughes or tax credits or other tax advantages
provided by Baker Hughes, and (iv) a proxy statement shall have been mailed to
stockholders of record at least 30 days prior to the consummation of the
transaction for the purpose of soliciting stockholder approval of such
transaction.
Baker Hughes' Restated Certificate of Incorporation further provides that
(i) stockholders may act only at an annual or special meeting of stockholders
and may not act by written consent; (ii) special meetings of stockholders can be
called only by the Baker Hughes Board; (iii) a 75% vote of the outstanding
voting stock is required for the stockholders to amend Baker Hughes' By-laws;
and (iv) a 75% vote of the outstanding voting stock is required to amend the
Restated Certificate of Incorporation with respect to certain matters,
including, without limitation, the matters set forth in clauses (i) and (iii)
above and the 75% voting requirement required for certain business combinations
described in the preceding paragraph.
Baker Hughes' By-laws establish advance notice procedures with regard to
the nomination, other than by or at the direction of the Baker Hughes Board or a
committee thereof, of candidates for election as directors and with regard to
certain matters to be brought before an annual meeting of stockholders of Baker
Hughes. These procedures provide that the notice of proposed stockholder
nominations for the election of directors must be timely given in writing to the
Secretary of Baker Hughes prior to the meeting at which directors are to be
elected. The procedures also provide that at an annual meeting, and subject to
any other applicable requirements, only such business may be conducted as has
been brought before the meeting by, or at the direction of, the Board of
Directors or by a stockholder who has given timely prior written notice to the
Secretary of Baker Hughes of such stockholder's intention to bring such business
before the meeting. In the case of nominations for election of directors, to be
timely, notice must be received at the principal executive offices of Baker
Hughes not less than 30 days nor more than 60 days prior to the meeting (or if
fewer than 40 days' notice or prior public disclosure of the meeting date is
given or made by Baker Hughes, not later than the 10th day following the day on
which the notice was mailed or such public disclosure was made). In all other
cases, to be timely, notice must be received at the principal executive offices
of Baker Hughes not less than 120 days prior to the first anniversary of the
date of the proxy statement sent to stockholders in connection with the previous
year's annual meeting (or if no annual meeting was held in the previous year or
if the date of the meeting has been changed by more than 30 days from the date
contemplated at the time of the previous year's proxy statement, not later than
the 10th day following the day on which the notice of the meeting date was
mailed or public disclosure of such date was made). The notice must contain
certain information specified in the By-laws.
Baker Hughes is a Delaware corporation and is subject to Section 203 of the
General Corporation Law of the State of Delaware ("DGCL"). The following summary
of Section 203 does not purport to be complete and is qualified in its entirety
by reference thereto. In general, Section 203 prevents an "interested
stockholder" (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with a Delaware corporation for three years following
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<PAGE> 64
the date such person became an interested stockholder unless (i) before such
person became an interested stockholder, the board of directors of the
corporation approved the transaction in which the interested stockholder became
an interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owns at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced (excluding stock held by directors who are also officers of the
corporation and by employee stock plans that do not provide employees with the
rights to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer); or (iii) following the transaction
in which such person became an interested stockholder, the business combination
is approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of two-thirds of
the outstanding voting stock of the corporation not owned by the interested
stockholder. Under Section 203, the restrictions described above also do not
apply to certain business combinations proposed by an interested stockholder
following the announcement or notification of one of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors, if such extraordinary transaction is approved or not opposed by a
majority of the directors who were directors prior to any person becoming an
interested stockholder during the previous three years or were recommended for
election or elected to succeed such directors by a majority of such directors.
COMPARISON OF STOCKHOLDER RIGHTS
As a result of the Merger, holders of Western Atlas Common Stock will
become stockholders of Baker Hughes, and the rights of the former holders of
Western Atlas Common Stock will thereafter be governed by the Baker Hughes
Restated Certificate of Incorporation, the Baker Hughes By-laws and the DGCL.
The rights of the Western Atlas stockholders currently are governed by the
Western Atlas Restated Certificate of Incorporation, the Western Atlas By-laws
and the DGCL. Because Baker Hughes and Western Atlas are both Delaware
corporations, the law governing the rights of Western Atlas stockholders will
not change. The following summary sets forth the material differences between
the Restated Certificates of Incorporation and By-laws of the companies, which
are incorporated by reference herein.
BUSINESS COMBINATIONS
Under Delaware law, approval by the affirmative vote of the holders of a
majority of the outstanding stock of a corporation entitled to vote generally is
required for a merger or consolidation or sale, lease or exchange of all or
substantially all of the corporation's assets. Unless the corporate charter
provides otherwise, no vote of the stockholders of a surviving corporation is
required to approve a merger if (i) the merger does not amend in any respect the
surviving corporation's charter, (ii) each share of the surviving corporation's
stock outstanding immediately prior to the merger is to remain outstanding
unchanged, and (iii) the number of shares of common stock of the surviving
corporation to be issued or delivered under the plan of merger (plus those
issuable upon conversion of any securities to be issued under the plan) does not
exceed 20% of the surviving corporation's common stock outstanding immediately
prior to the merger. Additionally, when certain conditions are met, no vote of
stockholders is required for the merger of a Delaware corporation into a
corporation that holds at least 90% of the outstanding shares of each class of
the corporation.
The Baker Hughes Restated Certificate of Incorporation provides that the
affirmative vote of 75% of the outstanding shares of voting stock, including the
affirmative vote of at least 66 2/3% of stock not owned by a Related Person, is
required for the approval of a business combination between Baker Hughes and a
Related Person. The Western Atlas Restated Certificate of Incorporation contains
no similar provision.
AMENDMENTS TO CHARTER
Section 242 of the DGCL provides that an amendment to a corporation's
certificate of incorporation must be adopted by a resolution of the board of
directors declaring the advisability of the amendment and approved by the
affirmative vote of the holders of at least a majority of the outstanding stock
entitled to vote thereon,
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and a majority of the outstanding stock of each class entitled to vote thereon,
unless the certificate of incorporation requires a greater percentage. The Baker
Hughes Restated Certificate of Incorporation requires the affirmative vote of
not less than 75% of the total voting power of stockholders entitled to vote in
the election of directors and, in certain circumstances, the affirmative vote of
66 2/3% of such total voting power excluding shares owned by a Related Person to
approve certain amendments to the Baker Hughes Restated Certificate of
Incorporation. The Western Atlas Restated Certificate of Incorporation requires
the affirmative vote of the holders of not less than 80% of all shares entitled
to vote in the election of directors to amend or repeal certain provisions of
the Western Atlas Restated Certificate of Incorporation.
REMOVAL OF DIRECTORS
Under Section 141 of the DGCL, any director or the entire board of
directors may be removed, with or without cause, by the holders of a majority of
the shares entitled to vote at an election of directors, except (i) in the case
of a corporation having a classified board, stockholders may effect such removal
only for cause, unless the certificate of incorporation otherwise provides, and
(ii) in the case of a corporation having cumulative voting, if less than the
entire board is to be removed, no director may be removed without cause if the
votes cast against such director's removal would be sufficient to elect such
director if then cumulatively voted at an election of the entire board of
directors or, if the board is classified, at an election of the class of
directors of which he is a part. The Baker Hughes Restated Certificate of
Incorporation provides that no director may be removed during his term except
for cause. The Baker Hughes By-laws provide that any director may be removed for
cause by the holders of a majority of the shares of Baker Hughes Common Stock
entitled to vote in the election of directors and that stockholders may not
remove any director without cause. The Western Atlas Restated Certificate of
Incorporation and By-laws provide that directors may be removed only for cause
and only by the affirmative vote of the holders of at least 80% of the voting
power of all shares generally entitled to vote for directors.
CUMULATIVE VOTING
Under Section 214 of the DGCL, the certificate of incorporation of a
corporation may provide for cumulative voting in the election of directors.
Neither the Baker Hughes Restated Certificate of Incorporation nor the Western
Atlas Restated Certificate of Incorporation provides for cumulative voting.
Baker Hughes Restated Certificate of Incorporation provides that no article
imposing cumulative voting in the election of directors may be added to the
Baker Hughes Restated Certificate of Incorporation unless such action is
approved by the affirmative vote of the holders of not less than 75% of the
shares of stock entitled to vote in the election of directors.
STOCKHOLDER RIGHTS PLAN
On August 17, 1994, the Western Atlas Board adopted a Share Purchase Rights
Plan (the "Rights Plan") and, in accordance with the Rights Plan, each
outstanding share of Western Atlas Common Stock has attached to it one preferred
share purchase right (the "Rights"). The Rights are designed to cause
substantial dilution to any person or group (other than Unitrin, Inc.) that
acquires beneficial ownership of 15% or more of the Western Atlas Common Stock
(an "Acquiring Person"). The Rights are redeemable by the Western Atlas Board
for $.01 per Right prior to the time that any person or group becomes an
Acquiring Person. The purpose of the Rights is to deter any acquisition of 15%
or more of the Western Atlas Common Stock except pursuant to a transaction that
has been approved by the Western Atlas Board.
In connection with the execution of the Merger Agreement and the Stock
Option Agreements, the Rights Plan was amended to provide that such agreements
and the transactions contemplated thereby would not cause Baker Hughes to become
an Acquiring Person or otherwise trigger any consequences under the Rights Plan.
In addition, if the Merger is completed, the Rights will expire immediately
prior to the Effective Time without any payment being made with respect to the
Rights.
Baker Hughes has no similar rights plan.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following tables set forth certain unaudited pro forma condensed
combined financial information for Baker Hughes giving effect to the Merger
accounted for as a pooling of interests. The information presented is derived
from, should be read in conjunction with, and is qualified in its entirety by
reference to, the separate historical financial statements and the notes thereto
of Baker Hughes and Western Atlas incorporated in this Joint Proxy
Statement/Prospectus by reference.
The unaudited pro forma condensed combined balance sheet was prepared using
the historical balance sheets of Baker Hughes and Western Atlas as of March 31,
1998. The fiscal year ends of Baker Hughes and Western Atlas are September 30
and December 31, respectively. The unaudited pro forma condensed combined
statements of operations for each of the three years in the period ended
September 30, 1997 were prepared using the historical statements of operations
of Baker Hughes for the years ended September 30, 1997, 1996 and 1995 and of
Western Atlas for the years ended December 31, 1997, 1996 and 1995. The
unaudited pro forma condensed combined statement of operations for the six
months ended March 31, 1998 was prepared using the historical statements of
operations of Baker Hughes and Western Atlas for such period. As such, the
results of operations for Western Atlas for the three months ended December 31,
1997 are included in both the unaudited pro forma condensed combined statement
of operations for the six months ended March 31, 1998 and the unaudited pro
forma condensed combined statement of operations for the year ended September
30, 1997. Western Atlas had revenues, income from continuing operations and
diluted income from continuing operations per share for the three months ended
December 31, 1997 of $439.5 million, $31.8 million and $0.57, respectively.
The unaudited pro forma condensed combined financial information was
included for comparative purposes only and does not purport to be indicative of
the results of operations or financial position that actually would have been
obtained if the Merger had been effected at the dates indicated or of the
financial position or results of operations that may be obtained in the future.
See "Incorporation of Certain Documents by Reference," "Summary -- Baker Hughes
Selected Historical Financial Information," "-- Western Atlas Selected
Historical Financial Information," "-- Summary Pro Forma Combined Financial
Information (Unaudited)" and "-- Comparative Per Share Data."
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BAKER HUGHES INCORPORATED
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------- -------------------------
BAKER WESTERN
HUGHES ATLAS ADJUSTMENTS COMBINED
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents..................... $ 9.3 $ 16.5 $ 25.8
Accounts receivable, net...................... 1,105.7 450.0 1,555.7
Inventories................................... 1,197.2 39.4 1,236.6
Other current assets.......................... 141.6 83.5 225.1
-------- -------- --------
Total current assets.................. 2,453.8 589.4 3,043.2
Property, net................................. 1,129.6 967.7 2,097.3
Multiclient seismic data and other assets..... 312.5 510.1 822.6
Goodwill and intangible assets................ 1,237.7 327.5 1,565.2
-------- -------- --------
Total Assets.......................... $5,133.6 $2,394.7 $7,528.3
======== ======== ========
Current liabilities:
Notes payable and current portion of long-term
debt....................................... $ 219.9 $ 49.8 $ 269.7
Accounts payable and accrued liabilities...... 664.4 330.9 995.3
Payroll and related expenses.................. 183.3 72.1 255.4
-------- -------- --------
Total current liabilities............. 1,067.6 452.8 1,520.4
-------- -------- --------
Long-term debt................................ 961.8 701.3 1,663.1
-------- -------- --------
Deferred income taxes......................... 249.0 $ 3.0(A) 252.0
-------- --------
Deferred revenue and other long-term
liabilities................................ 163.5 316.2 (3.0)(A) 476.7
-------- -------- --------
Stockholders' equity:
Common stock.................................. 169.7 54.8 76.7(B) 301.2(B)
Capital in excess of par value................ 2,246.3 689.0 (76.7)(B) 2,858.6(B)
Retained earnings............................. 403.4 184.1 587.5
Foreign currency translation adjustment....... (159.7) (159.7)
Unrealized gain on securities available for
sale....................................... 32.0 32.0
Pension liability adjustments................. (3.5) (3.5)
-------- -------- --------
Total Stockholders' Equity............ 2,691.7 924.4 3,616.1
-------- -------- --------
Total Liabilities and Stockholders'
Equity.............................. $5,133.6 $2,394.7 $7,528.3
======== ======== ========
</TABLE>
(The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Combined Financial Statements.)
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BAKER HUGHES INCORPORATED
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1998
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------- --------------------------
BAKER WESTERN
HUGHES ATLAS ADJUSTMENTS COMBINED
-------- ------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Sales....................................... $1,565.4 $1,565.4
Services and rentals........................ 725.4 $930.2 1,655.6
-------- ------ --------
Total............................... 2,290.8 930.2 3,221.0
-------- ------ --------
Costs and Expenses:
Cost of sales............................... 969.5 969.5
Cost of services and rentals................ 406.5 555.1 $205.5(A)(B) 1,167.1
Research and technology..................... 28.3 (28.3)(A)
Selling, general and administrative......... 616.0 34.6 .8(B) 651.4
Amortization of goodwill and other
intangibles.............................. 20.6 6.4(B) 27.0
Depreciation, depletion and amortization.... 184.4 (184.4)(B)
-------- ------ --------
Total............................... 2,012.6 802.4 2,815.0
-------- ------ --------
Operating income.............................. 278.2 127.8 406.0
Interest income............................... 1.8 1.0 2.8
Interest expense.............................. (32.1) (23.4) (55.5)
-------- ------ --------
Income from continuing operations before
income taxes................................ 247.9 105.4 353.3
Income taxes.................................. (89.2) (40.0) (129.2)
-------- ------ --------
Income from continuing operations............. $ 158.7 $ 65.4 $ 224.1
======== ====== ========
At Exchange Ratio of 2.4:
Income from continuing operations per share:
Basic.................................... $ .94 $ .75
Diluted.................................. .91 .73
Shares used in computing per share amounts:
Basic.................................... 169.4 130.5 299.9
Diluted.................................. 178.0 134.3 312.3
At Exchange Ratio of 2.623:
Income from continuing operations per share:
Basic.................................... $ .94 $ .72
Diluted.................................. .91 .70
Shares used in computing per share amounts:
Basic.................................... 169.4 142.6 312.0
Diluted.................................. 178.0 146.7 324.7
</TABLE>
(The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Combined Financial Statements.)
67
<PAGE> 69
BAKER HUGHES INCORPORATED
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------- ----------------------------
BAKER WESTERN
HUGHES ATLAS ADJUSTMENTS COMBINED
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Sales....................................... $2,466.7 $2,466.7
Services and rentals........................ 1,218.7 $1,658.2 2,876.9
-------- -------- --------
Total............................... 3,685.4 1,658.2 5,343.6
-------- -------- --------
Costs and Expenses:
Cost of sales............................... 1,573.3 1,573.3
Cost of services and rentals................ 682.9 962.7 $ 412.7(A)(B) 2,058.3
Research and technology..................... 59.2 (59.2)(A)
Selling, general and administrative......... 966.9 66.8 2.4(B) 1,036.1
Amortization of goodwill and other
intangibles.............................. 32.3 13.0(B) 45.3
Depreciation, depletion and amortization.... 368.9 (368.9)(B)
Unusual charge.............................. 52.1 52.1
Acquired in-process research and
development.............................. 118.0 118.0
-------- -------- --------
Total............................... 3,425.5 1,457.6 4,883.1
-------- -------- --------
Operating income.............................. 259.9 200.6 460.5
Interest income............................... 1.8 1.8 3.6
Interest expense.............................. (48.6) (42.8) (91.4)
Spin-off related costs........................ (8.4) (8.4)
-------- -------- --------
Income from continuing operations before
income taxes and accounting change.......... 213.1 151.2 364.3
Income taxes.................................. (104.0) (59.4) (163.4)
-------- -------- --------
Income from continuing operations before
accounting change........................... $ 109.1 $ 91.8 $ 200.9
======== ======== ========
At Exchange Ratio of 2.4:
Income from continuing operations before
accounting change per share:
Basic.................................... $ .71 $ .71
Diluted.................................. .71 .70
Shares used in computing per share amounts:
Basic.................................... 153.1 130.3 283.4
Diluted.................................. 154.7 133.4 288.1
At Exchange Ratio of 2.623:
Income from continuing operations before
accounting change per share:
Basic.................................... $ .71 $ .68
Diluted.................................. .71 .67
Shares used in computing per share amounts:
Basic.................................... 153.1 142.4 295.5
Diluted.................................. 154.7 145.8 300.5
</TABLE>
(The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Combined Financial Statements.)
68
<PAGE> 70
BAKER HUGHES INCORPORATED
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1996
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------- ----------------------------
BAKER WESTERN
HUGHES ATLAS ADJUSTMENTS COMBINED
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Sales....................................... $2,046.8 $2,046.8
Services and rentals........................ 980.9 $1,418.1 2,399.0
-------- -------- --------
Total............................... 3,027.7 1,418.1 4,445.8
-------- -------- --------
Costs and Expenses:
Cost of sales............................... 1,278.1 1,278.1
Cost of services and rentals................ 559.5 834.7 $ 350.5(A)(B) 1,744.7
Research and technology..................... 54.8 (54.8)(A)
Selling, general and administrative......... 814.2 72.0 3.0(B) 889.2
Amortization of goodwill and other
intangibles.............................. 29.6 10.5(B) 40.1
Depreciation, depletion and amortization.... 309.2 (309.2)(B)
Unusual charge.............................. 39.6 39.6
-------- -------- --------
Total............................... 2,721.0 1,270.7 3,991.7
-------- -------- --------
Operating income.............................. 306.7 147.4 454.1
Interest income............................... 3.4 1.5 4.9
Interest expense.............................. (55.5) (32.4) (87.9)
Gain on Varco Stock........................... 44.3 44.3
-------- -------- --------
Income from continuing operations before
income taxes................................ 298.9 116.5 415.4
Income taxes.................................. (122.5) (46.6) (169.1)
-------- -------- --------
Income from continuing operations............. $ 176.4 $ 69.9 $ 246.3
======== ======== ========
At Exchange Ratio of 2.4:
Income from continuing operations per share:
Basic.................................... $ 1.23 $ .91
Diluted.................................. 1.21 .90
Shares used in computing per share amounts:
Basic.................................... 143.3 128.4 271.7
Diluted.................................. 151.3 130.3 281.6
At Exchange Ratio of 2.623:
Income from continuing operations per share:
Basic.................................... $ 1.23 $ .87
Diluted.................................. 1.21 .86
Shares used in computing per share amounts:
Basic.................................... 143.3 140.3 283.6
Diluted.................................. 151.3 142.4 293.7
</TABLE>
(The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Combined Financial Statements.)
69
<PAGE> 71
BAKER HUGHES INCORPORATED
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1995
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------- ----------------------------
BAKER WESTERN
HUGHES ATLAS ADJUSTMENTS COMBINED
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Sales...................................... $1,805.1 $1,805.1
Services and rentals....................... 832.4 $1,282.9 2,115.3
-------- -------- --------
Total.............................. 2,637.5 1,282.9 3,920.4
-------- -------- --------
Costs and Expenses:
Cost of sales.............................. 1,133.6 1,133.6
Cost of services and rentals............... 475.1 742.9 $ 320.8(A)(B) 1,538.8
Research and technology.................... 59.8 (59.8)(A)
Selling, general and administrative........ 743.0 71.7 3.5(B) 818.2
Amortization of goodwill and other
intangibles............................. 29.9 9.1(B) 39.0
Depreciation, depletion and amortization... 273.6 (273.6)(B)
-------- -------- --------
Total.............................. 2,381.6 1,148.0 3,529.6
-------- -------- --------
Operating income............................. 255.9 134.9 390.8
Interest income.............................. 4.8 1.8 6.6
Interest expense............................. (55.6) (33.5) (89.1)
-------- -------- --------
Income from continuing operations before
income taxes and accounting change......... 205.1 103.2 308.3
Income taxes................................. (85.1) (41.8) (126.9)
-------- -------- --------
Income from continuing operations before
accounting change.......................... $ 120.0 $ 61.4 $ 181.4
======== ======== ========
At Exchange Ratio of 2.4:
Income from continuing operations before
accounting change per share:
Basic................................... $ .67 $ .58
Diluted................................. .67 .58
Shares used in computing per share amounts:
Basic................................... 141.2 127.4 268.6
Diluted................................. 141.4 129.1 270.5
At Exchange Ratio of 2.623:
Income from continuing operations before
accounting change per share:
Basic................................... $ .67 $ .56
Diluted................................. .67 .55
Shares used in computing per share amounts:
Basic................................... 141.2 139.3 280.5
Diluted................................. 141.4 141.1 282.5
</TABLE>
(The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Combined Financial Statements.)
70
<PAGE> 72
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Combined Financial Statements were
prepared for comparative purposes only and do not purport to indicate what would
have occurred had Baker Hughes and Western Atlas been merged at the beginning of
the periods presented, or what results may be in the future.
The Exchange Ratio will be 2.4 if the Baker Hughes Share Price is less than
or equal to $42.75 and greater than or equal to $38.25. If the Baker Hughes
Share Price is less than $38.25, the Exchange Ratio adjusts to maintain the
value (based on the Baker Hughes Share Price) of the Baker Hughes Common Stock
issued for each share of Western Atlas Common Stock at $91.80. If the Baker
Hughes Share Price is below $35.00, the Exchange Ratio is fixed at 2.623, and
Western Atlas has the option to terminate the Merger Agreement unless Baker
Hughes then elects to increase the Exchange Ratio to maintain the value of the
Baker Hughes Common Stock issued for each share of Western Atlas Common Stock at
$91.80. If the Closing Date had occurred on July 1, 1998, the Baker Hughes Share
Price would have been $35.5594 and the Exchange Ratio accordingly would have
been 2.5816. The Unaudited Pro Forma Condensed Combined Statements of Operations
are presented both on the basis of an Exchange Ratio of 2.4 and an Exchange
Ratio of 2.623, illustrating the difference in the pro forma per share amounts
as the Exchange Ratio varies. The only impact of the difference in Exchange
Ratio on the Unaudited Pro Forma Condensed Balance Sheet is noted in note (B)
thereto.
The Unaudited Pro Forma Condensed Combined Balance Sheet reflects the
conversion of each outstanding share of Western Atlas Common Stock into 2.4
shares of Baker Hughes Common Stock (2.623 shares of Baker Hughes Common Stock
as described in note (B) below) at the date and for the periods presented and
reflects the following reclassifications to give pro forma effect to the Merger:
(A) To reclassify deferred income taxes from deferred revenue and other
long-term liabilities.
(B) To reflect the assumed issuance of 131.5 million shares of Baker Hughes
Common Stock at an Exchange Ratio of 2.4. At an Exchange Ratio of
2.623, 143.7 million shares of Baker Hughes Common Stock would be
issued, resulting in pro forma combined common stock of $313.4 million
and pro forma combined capital in excess of par value of $2,846.4
million.
The Unaudited Pro Forma Condensed Combined Statements of Operations were
prepared to reflect the following reclassifications to give pro forma effect to
the Merger:
(A) To reclassify research and technology expense to cost of services and
rentals.
(B) To reclassify depreciation, depletion and amortization to the Baker
Hughes presentation.
In computing Baker Hughes and pro forma combined diluted per share amounts,
the following after tax interest expense amounts related to the Baker Hughes
Liquid Yield Option Notes ("LYONS") are added to income: 1998 -- $3.4 million
and 1996 -- $6.0 million. (The LYONS are anti-dilutive in 1997 and 1995).
Additionally, preferred stock dividends (including the effect of preferred stock
repurchase) of $25.6 million are deducted in 1995 in computing Baker Hughes and
pro forma combined per share amounts available to common stockholders.
It is anticipated that nonrecurring charges in the amount of approximately
$85 million will be expensed in connection with the Merger. Such expenses are
not reflected in the Unaudited Pro Forma Condensed Combined Statements of
Operations.
71
<PAGE> 73
EXPERTS
The consolidated financial statements incorporated in this Joint Proxy
Statement/Prospectus by reference from Baker Hughes' Annual Report on Form 10-K
for the year ended September 30, 1997 have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report (which expresses an
unqualified opinion and includes an explanatory paragraph relating to the change
in the method of accounting for postemployment benefits and for impairment of
long-lived assets to be disposed of to conform with SFAS No. 112 and SFAS No.
121, respectively, as discussed in Note 1), which is incorporated herein by
reference and has been so incorporated in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
The consolidated financial statements incorporated in this Joint Proxy
Statement/Prospectus by reference from Western Atlas' Annual Report on Form 10-K
for the year ended December 31, 1997, as amended, have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
LEGAL MATTERS
Certain legal matters in connection with the Merger and the shares of Baker
Hughes Common Stock issued in connection with the Merger are being passed on for
Baker Hughes by Baker & Botts, L.L.P., Houston, Texas. Wachtell, Lipton, Rosen &
Katz, New York, New York, is acting as special counsel for Western Atlas in
connection with certain legal matters, including certain United States federal
income tax matters, relating to the Merger.
72
<PAGE> 74
================================================================================
AGREEMENT AND PLAN OF MERGER
AMONG
BAKER HUGHES INCORPORATED,
BAKER HUGHES DELAWARE I, INC.
AND
WESTERN ATLAS INC.
DATED AS OF MAY 10, 1998
================================================================================
<PAGE> 75
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1
THE MERGER
Section 1.1 The Merger.................................................. A-1
Section 1.2 The Closing................................................. A-1
Section 1.3 Effective Time.............................................. A-1
ARTICLE 2
CERTIFICATE OF INCORPORATION AND BYLAWS
OF THE SURVIVING CORPORATION
Section 2.1 Certificate of Incorporation................................ A-2
Section 2.2 Bylaws...................................................... A-2
ARTICLE 3
DIRECTORS AND OFFICERS OF THE
SURVIVING CORPORATION AND PARENT
Section 3.1 Directors of Surviving Corporation.......................... A-2
Section 3.2 Officers of Surviving Corporation........................... A-2
Section 3.3 Parent Board of Directors; President........................ A-2
ARTICLE 4
CONVERSION OF COMPANY COMMON STOCK
Section 4.1 Certain Definitions......................................... A-2
Section 4.2 Conversion of Company Stock................................. A-3
Section 4.3 Exchange of Certificates Representing Company Common
Stock....................................................... A-4
Section 4.4 Adjustment of Exchange Ratio................................ A-5
Section 4.5 Rule 16b-3 Approval......................................... A-2
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 5.1 Existence; Good Standing; Corporate Authority............... A-6
Section 5.2 Authorization, Validity and Effect of Agreements............ A-6
Section 5.3 Capitalization.............................................. A-6
Section 5.4 Significant Subsidiaries.................................... A-6
Section 5.5 No Violation of Law......................................... A-7
Section 5.6 No Conflict................................................. A-7
Section 5.7 SEC Documents............................................... A-7
Section 5.8 Litigation.................................................. A-8
Section 5.9 Absence of Certain Changes.................................. A-8
Section 5.10 Taxes....................................................... A-8
Section 5.11 Employee Benefit Plans...................................... A-9
Section 5.12 Labor Matters............................................... A-10
Section 5.13 Environmental Matters....................................... A-10
Section 5.14 Intellectual Property....................................... A-10
Section 5.15 Insurance................................................... A-11
Section 5.16 No Brokers.................................................. A-11
Section 5.17 Opinion of Financial Advisor................................ A-11
Section 5.18 Parent Stock Ownership...................................... A-11
Section 5.19 Reorganization.............................................. A-11
Section 5.20 Pooling..................................................... A-11
Section 5.21 Vote Required............................................... A-11
Section 5.22 Amendment to the Company Rights Agreement................... A-11
</TABLE>
A-i
<PAGE> 76
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 5.23 Certain Approvals........................................... A-12
Section 5.24 Certain Contracts........................................... A-12
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB
Section 6.1 Existence; Good Standing; Corporate Authority............... A-12
Section 6.2 Authorization, Validity and Effect of Agreements............ A-12
Section 6.3 Capitalization.............................................. A-12
Section 6.4 Significant Subsidiaries.................................... A-13
Section 6.5 No Violation of Law......................................... A-13
Section 6.6 No Conflict................................................. A-13
Section 6.7 SEC Documents............................................... A-14
Section 6.8 Litigation.................................................. A-14
Section 6.9 Absence of Certain Changes.................................. A-14
Section 6.10 Taxes....................................................... A-15
Section 6.11 Employee Benefit Plans...................................... A-15
Section 6.12 Labor Matters............................................... A-16
Section 6.13 Environmental Matters....................................... A-16
Section 6.14 Intellectual Property....................................... A-16
Section 6.15 Insurance................................................... A-17
Section 6.16 No Brokers.................................................. A-17
Section 6.17 Opinion of Financial Advisor................................ A-17
Section 6.18 Company Stock Ownership..................................... A-17
Section 6.19 Reorganization.............................................. A-17
Section 6.20 Pooling..................................................... A-17
Section 6.21 Vote Required............................................... A-17
Section 6.22 Certain Approvals........................................... A-17
Section 6.23 Certain Contracts........................................... A-17
ARTICLE 7
COVENANTS
Section 7.1 Conduct of Businesses....................................... A-18
Section 7.2 No Solicitation by the Company.............................. A-20
Section 7.3 No Solicitation by Parent................................... A-21
Section 7.4 Meetings of Stockholders.................................... A-21
Section 7.5 Filings; Best Efforts....................................... A-22
Section 7.6 Inspection.................................................. A-23
Section 7.7 Publicity................................................... A-23
Section 7.8 Registration Statement...................................... A-23
Section 7.9 Listing Application......................................... A-24
Section 7.10 Letters of Accountants...................................... A-24
Section 7.11 Agreements of Rule 145 Affiliates........................... A-24
Section 7.12 Expenses.................................................... A-24
Section 7.13 Indemnification and Insurance............................... A-25
Section 7.14 Certain Benefits............................................ A-25
Section 7.15 Reorganization; Pooling..................................... A-27
Section 7.16 Rights Agreement............................................ A-28
</TABLE>
A-ii
<PAGE> 77
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 8
CONDITIONS
Section 8.1 Conditions to Each Party's Obligation to Effect the
Merger...................................................... A-28
Section 8.2 Conditions to Obligation of the Company to Effect the
Merger...................................................... A-29
Section 8.3 Conditions to Obligation of Parent and Merger Sub to Effect
the Merger.................................................. A-29
ARTICLE 9
TERMINATION
Section 9.1 Termination by Mutual Consent............................... A-30
Section 9.2 Termination by Parent or the Company........................ A-30
Section 9.3 Termination by the Company.................................. A-30
Section 9.4 Termination by Parent....................................... A-31
Section 9.5 Effect of Termination....................................... A-31
Section 9.6 Extension; Waiver........................................... A-33
ARTICLE 10
GENERAL PROVISIONS
Section 10.1 Nonsurvival of Representations, Warranties and Agreements... A-33
Section 10.2 Notices..................................................... A-33
Section 10.3 Assignment; Binding Effect; Benefit......................... A-34
Section 10.4 Entire Agreement............................................ A-34
Section 10.5 Amendments.................................................. A-34
Section 10.6 Governing Law............................................... A-34
Section 10.7 Counterparts................................................ A-34
Section 10.8 Headings.................................................... A-34
Section 10.9 Interpretation.............................................. A-34
Section 10.10 Waivers..................................................... A-35
Section 10.11 Incorporation of Exhibits................................... A-35
Section 10.12 Severability................................................ A-35
Section 10.13 Enforcement of Agreement.................................... A-35
Section 10.14 Obligation of Parent........................................ A-35
Section 10.15 Subsidiaries................................................ A-35
</TABLE>
A-iii
<PAGE> 78
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of May 10,
1998 is among Baker Hughes Incorporated, a Delaware corporation ("Parent"),
Baker Hughes Delaware I, Inc., a Delaware corporation and a direct, wholly owned
subsidiary of Parent ("Merger Sub"), and Western Atlas Inc., a Delaware
corporation (the "Company").
RECITALS
WHEREAS, Parent and the Company have each determined to engage in a
strategic business combination with the other;
WHEREAS, in furtherance thereof, the parties hereto desire to merge Merger
Sub with and into the Company (the "Merger"), with the Company surviving as a
direct, wholly owned subsidiary of Parent, pursuant to which each share of the
Company Common Stock (as defined in Section 4.1) will be converted into the
right to receive Parent Common Stock (as defined in Section 4.1);
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the
Company have determined the Merger, in the manner contemplated herein, to be
desirable and in the best interests of their respective corporations and
stockholders and to be consistent with, and in furtherance of, their respective
business strategies and goals, and, by resolutions duly adopted, have approved
and adopted this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the Merger
qualify as a reorganization within the meaning of section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code");
WHEREAS, for financial accounting purposes, it is intended that the Merger
be accounted for as a "pooling of interests" under U.S. generally accepted
accounting principles;
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.3), Merger Sub shall
be merged with and into the Company in accordance with this Agreement, and the
separate corporate existence of Merger Sub shall thereupon cease. The Company
shall be the surviving corporation in the Merger (sometimes hereinafter referred
to as the "Surviving Corporation"). The Merger shall have the effects specified
in the Delaware General Corporation Law (the "DGCL").
SECTION 1.2 The Closing. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "Closing") shall take place (a) at the
offices of Baker & Botts, L.L.P., One Shell Plaza, 910 Louisiana, Houston,
Texas, at 9:00 a.m., local time, on the first business day immediately following
the day on which the last to be fulfilled or waived of the conditions set forth
in Article 8 shall be fulfilled or waived in accordance herewith or (b) at such
other time, date or place as Parent and the Company may agree. The date on which
the Closing occurs is hereinafter referred to as the "Closing Date."
SECTION 1.3 Effective Time. If all the conditions to the Merger set forth
in Article 8 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 9, Parent,
Merger Sub and the Company shall cause a certificate of merger (the "Certificate
of Merger") meeting the requirements of section 251 of the DGCL to be properly
executed and filed in accordance with such section on the Closing Date. The
Merger shall become effective at the time of filing of the Certificate of Merger
with the Secretary of State of the State of Delaware in accordance with the
DGCL, or at such later time that the parties hereto shall have agreed upon and
designated in such filing as the effective time of the Merger (the "Effective
Time").
A-1
<PAGE> 79
ARTICLE 2
CERTIFICATE OF INCORPORATION AND BYLAWS
OF THE SURVIVING CORPORATION
SECTION 2.1 Certificate of Incorporation. The certificate of incorporation
of the Company in effect immediately prior to the Effective Time shall be the
certificate of incorporation of the Surviving Corporation, until duly amended in
accordance with applicable law.
SECTION 2.2 Bylaws. The bylaws of Merger Sub in effect immediately prior to
the Effective Time shall be the bylaws of the Surviving Corporation, until duly
amended in accordance with applicable law.
ARTICLE 3
DIRECTORS AND OFFICERS OF THE
SURVIVING CORPORATION AND PARENT
SECTION 3.1 Directors of Surviving Corporation. The directors of Merger Sub
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation as of the Effective Time.
SECTION 3.2 Officers of Surviving Corporation. The officers of the Company
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation as of the Effective Time.
SECTION 3.3 Parent Board of Directors; President. John R. Russell shall be
elected as President of Parent as of the Effective Time, and Max L. Lukens shall
continue as Chairman of the Board of Directors and Chief Executive Officer of
Parent. The Board of Directors of Parent will take such action as may be
necessary to cause the election or appointment of Alton J. Brann, John R.
Russell and two other persons designated by the Company after consultation with
the Parent to be directors of Parent as of the Effective Time; provided that the
Company shall not designate any person not currently a member of the Company's
Board of Directors to which the Parent shall have reasonably objected. Such new
directors shall be designated into the classes of directors of Parent in
accordance with the Parent's bylaws in such classes as the Company shall
indicate, John R. Russell shall be appointed to the Executive Committee of
Parent's Board of Directors and not less than one such new director shall be
appointed to each of the other committees of such Board.
ARTICLE 4
CONVERSION OF COMPANY COMMON STOCK
SECTION 4.1 Certain Definitions. For purposes of this Agreement, the
following terms shall have the following meanings:
(a) "Company Common Stock" shall mean the common stock, par value
$1.00 per share, of the Company.
(b) "Parent Common Stock" shall mean the common stock, par value $1.00
per share, of Parent.
(c) "Exchange Ratio" shall equal (i) 2.4, if the Parent Share Price is
greater than or equal to $38.25 but less than or equal to $42.75; (ii) if
the Parent Share Price is greater than $42.75 but less than or equal to
$44.75, that fraction, rounded to the nearest thousandth, or if there shall
not be a nearest thousandth, to the next lower thousandth, equal to the
quotient obtained by dividing $102.60 by the Parent Share Price; (iii) if
the Parent Share Price is greater than $44.75, 2.293; and (iv) if the
Parent Share Price is less than $38.25, that fraction, rounded to the
nearest thousandth, or if there shall not be a nearest thousandth, to the
next higher thousandth, equal to the quotient obtained by dividing $91.80
by the Parent Share Price; provided, however, that except as provided in
Section 9.3(d), the Exchange Ratio shall in no event be greater than 2.623,
notwithstanding that the Parent Share Price is less than $35.00.
(d) "Parent Share Price" shall mean the average of the per share
closing prices of Parent Common Stock as reported on the consolidated
transaction reporting system for securities traded on the New York
A-2
<PAGE> 80
Stock Exchange, Inc. ("NYSE") (as reported in the New York City edition of
The Wall Street Journal or, if not reported thereby, another authoritative
source) for the 20 consecutive trading days ending on the fifth trading day
prior to the Closing Date, appropriately adjusted for any stock splits,
reverse stock splits, stock dividends, recapitalizations or other similar
transactions.
(e) "Stock Option Agreements" shall mean (i) the Stock Option
Agreement dated the date hereof between Parent and the Company pursuant to
which Parent has granted to the Company an option to purchase a certain
number of shares of Parent Common Stock and (ii) the Stock Option Agreement
dated the date hereof between the Company and Parent pursuant to which the
Company has granted to Parent an option to purchase a certain number of
shares of Company Common Stock.
SECTION 4.2 Conversion of Company Stock.
(a) At the Effective Time, each share of the common stock, par value $0.01
per share, of Merger Sub outstanding immediately prior to the Effective Time
shall be converted into and become one fully paid and non-assessable share of
Common Stock, par value $1.00 per share, of the Surviving Corporation.
(b) At the Effective Time, each share of the Company Common Stock issued
and outstanding immediately prior to the Effective Time (other than shares of
Company Common Stock (i) held in the Company's treasury or (ii) owned by Parent,
Merger Sub or any other wholly owned Subsidiary (as defined in Section 10.15) of
Parent or the Company) shall, by virtue of the Merger and without any action on
the part of the holder thereof, be converted into the right to receive a number
of shares of Parent Common Stock equal to the Exchange Ratio.
(c) As a result of the Merger and without any action on the part of the
holder thereof, each share of the Company Common Stock shall cease to be
outstanding and shall be canceled and retired and shall cease to exist, and each
holder of a certificate (a "Certificate") representing any shares of the Company
Common Stock shall thereafter cease to have any rights with respect to such
shares of the Company Common Stock, except the right to receive, without
interest, Parent Common Stock and cash for fractional shares of Parent Common
Stock in accordance with Sections 4.3(b) and 4.3(e) upon the surrender of such
Certificate.
(d) Each share of the Company Common Stock issued and held in the Company's
treasury, and each share of the Company Common Stock owned by Parent, Merger Sub
or any other wholly owned Subsidiary of Parent or the Company shall, at the
Effective Time and by virtue of the Merger, cease to be outstanding and shall be
canceled and retired without payment of any consideration therefor, and no stock
of Parent or other consideration shall be delivered in exchange therefor.
(e) (i) At the Effective Time, all options (individually, a "Company
Option" and collectively, the "Company Options") then outstanding under the
Western Atlas Inc. 1993 Stock Incentive Plan and the Western Atlas Inc. Director
Stock Option Plan (collectively, the "Company Stock Option Plans") shall remain
outstanding following the Effective Time. At the Effective Time, the Company
Options shall, by virtue of the Merger and without any further action on the
part of the Company or the holder of any Company Option, be assumed by Parent in
such manner that Parent (i) is a corporation "assuming a stock option in a
transaction to which section 424(a) applied" within the meaning of section 424
of the Code or (ii) to the extent that section 424 of the Code does not apply to
any Company Option, would be such a corporation were section 424 of the Code
applicable to such option. Each Company Option assumed by Parent shall be
exercisable upon the same terms and conditions as under the applicable Company
Stock Option Plan and the applicable option agreement issued thereunder, except
that (i) each Company Option shall be exercisable for that whole number of
shares of Parent Common Stock (rounded to the nearest whole share) into which
the number of shares of the Company Common Stock subject to such Company Option
immediately prior to the Effective Time would be converted under Section 4.2(b),
and (ii) the option price per share of Parent Common Stock shall be an amount
equal to the option price per share of Company Common Stock subject to such
Company Option in effect immediately prior to the Effective Time divided by the
Exchange Ratio (the price per share, as so determined, being rounded upward to
the nearest full cent).
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(ii) Parent shall take all corporate action necessary to reserve for
issuance a number of shares of Parent Common Stock equal to the number of shares
of Parent Common Stock issuable upon the exercise of the Company Options assumed
by Parent pursuant to this Section 4.2(e). From and after the date of this
Agreement, except as provided in Section 7.1(f), no additional options shall be
granted by the Company or its Subsidiaries under the Company Stock Option Plans
or otherwise. At the Effective Time or as soon as practicable, but in no event
more than three business days, thereafter, Parent shall file with the Securities
and Exchange Commission (the "SEC") a Registration Statement on Form S-8
covering all shares of Parent Common Stock to be issued upon exercise of the
Company Options and shall cause such registration statement to remain effective
for as long as there are outstanding any Company Options.
SECTION 4.3 Exchange of Certificates Representing Company Common Stock.
(a) As of the Effective Time, Parent shall deposit, or shall cause to be
deposited, with an exchange agent selected by Parent, which shall be Parent's
transfer agent for the Parent Common Stock or such other party reasonably
satisfactory to the Company (the "Exchange Agent"), for the benefit of the
holders of shares of Company Common Stock, for exchange in accordance with this
Article 4, certificates representing the shares of Parent Common Stock and the
cash in lieu of fractional shares (such cash and certificates for shares of
Parent Common Stock, together with any dividends or distributions with respect
thereto, being hereinafter referred to as the "Exchange Fund") to be issued
pursuant to Section 4.2 and paid pursuant to this Section 4.3 in exchange for
outstanding shares of Company Common Stock.
(b) Promptly after the Effective Time, Parent shall cause the Exchange
Agent to mail to each holder of record of one or more Certificates (other than
to holders of Company Common Stock that, pursuant to Section 4.2(d), are
canceled without payment of any consideration therefor): (A) a letter of
transmittal (the "Letter of Transmittal") which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Parent and the Company may
reasonably specify and (B) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of Parent
Common Stock and cash in lieu of fractional shares. Upon surrender of a
Certificate for cancellation to the Exchange Agent together with such Letter of
Transmittal, duly executed and completed in accordance with the instructions
thereto, the holder of such Certificate shall be entitled to receive in exchange
therefor (x) a certificate representing that number of whole shares of Parent
Common Stock and (y) a check representing the amount of cash in lieu of
fractional shares, if any, and unpaid dividends and distributions, if any, which
such holder has the right to receive in respect of the Certificate surrendered
pursuant to the provisions of this Article 4, after giving effect to any
required withholding tax, and the Certificate so surrendered shall forthwith be
canceled. No interest will be paid or accrued on the cash in lieu of fractional
shares and unpaid dividends and distributions, if any, payable to holders of
Certificates. In the event of a transfer of ownership of Company Common Stock
which is not registered in the transfer records of the Company, a certificate
representing the proper number of shares of Parent Common Stock, together with a
check for the cash to be paid in lieu of fractional shares, shall be issued to
such a transferee if the Certificate representing such Company Common Stock is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
(c) Notwithstanding any other provisions of this Agreement, no dividends or
other distributions declared or made after the Effective Time with respect to
Parent Common Stock with a record date after the Effective Time shall be paid
with respect to the shares to be issued upon conversion of any Certificate until
such Certificate is surrendered for exchange as provided herein. Subject to the
effect of applicable laws, following surrender of any such Certificate, there
shall be paid to the holder of the certificates representing whole shares of
Parent Common Stock issued in exchange therefor, without interest, (i) at the
time of such surrender, the amount of dividends or other distributions with a
record date after the Effective Time theretofore payable with respect to such
whole shares of Parent Common Stock and not paid, less the amount of any
withholding taxes which may be required thereon, and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender and a payment date subsequent
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to surrender payable with respect to such whole shares of Parent Common Stock,
less the amount of any withholding taxes which may be required thereon.
(d) At or after the Effective Time, there shall be no transfers on the
stock transfer books of the Company of the shares of Company Common Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation, the
presented Certificates shall be canceled and exchanged for certificates for
shares of Parent Common Stock and cash in lieu of fractional shares, if any,
deliverable in respect thereof pursuant to this Agreement in accordance with the
procedures set forth in this Article 4. Certificates surrendered for exchange by
any person constituting an "affiliate" of the Company for purposes of Rule
145(c) under the Securities Act of 1933, as amended (the "Securities Act"),
shall not be exchanged until Parent has received a written agreement from such
person as provided in Section 7.11.
(e) No fractional shares of Parent Common Stock shall be issued pursuant
hereto. In lieu of the issuance of any fractional share of Parent Common Stock
pursuant to Section 4.2(b), cash adjustments will be paid to holders in respect
of any fractional share of Parent Common Stock that would otherwise be issuable,
and the amount of such cash adjustment shall be equal to such fractional
proportion of the Parent Share Price.
(f) Any portion of the Exchange Fund (including the proceeds of any
investments thereof and any shares of Parent Common Stock) that remains
unclaimed by the former stockholders of the Company one year after the Effective
Time shall be delivered to Parent. Any former stockholders of the Company who
have not theretofore complied with this Article 4 shall thereafter look only to
Parent for payment of their shares of Parent Common Stock, cash in lieu of
fractional shares and unpaid dividends and distributions on the Parent Common
Stock deliverable in respect of each Certificate such former stockholder holds
as determined pursuant to this Agreement.
(g) None of Parent, the Surviving Corporation, the Exchange Agent or any
other person shall be liable to any former holder of shares of Company Common
Stock for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(h) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by the Surviving
Corporation, the posting by such person of a bond in such reasonable amount as
the Surviving Corporation may direct as indemnity against any claim that may be
made against it with respect to such Certificate, the Exchange Agent will issue
in exchange for such lost, stolen or destroyed Certificate the shares of Parent
Common Stock and cash in lieu of fractional shares, and unpaid dividends and
distributions on shares of Parent Common Stock as provided in Section 4.3(c),
deliverable in respect thereof pursuant to this Agreement.
SECTION 4.4 Adjustment of Exchange Ratio. In the event that, subsequent to
the date of this Agreement but prior to the Effective Time, the Company changes
the number of shares of Company Common Stock, or Parent changes the number of
shares of Parent Common Stock, issued and outstanding as a result of a stock
split, reverse stock split, stock dividend, recapitalization or other similar
transaction, the Exchange Ratio and other items dependent thereon shall be
appropriately adjusted.
SECTION 4.5 Rule 16b-3 Approval. Parent agrees that the Parent Board of
Directors or the Compensation Committee of the Parent Board of Directors shall
at or prior to the Effective Time adopt resolutions specifically approving, for
purposes of Rule 16b-3 ("Rule 16b-3") under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), the receipt, pursuant to Section 4.2, of Parent
Common Stock and Parent stock options by officers and directors of the Company
who will become officers or directors of the Parent subject to Rule 16b-3.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure letter delivered to Parent
concurrently with the execution hereof (the "Company Disclosure Letter") or as
disclosed with reasonable specificity in the Company Reports (as defined in
Section 5.7), the Company represents and warrants to Parent that:
SECTION 5.1 Existence; Good Standing; Corporate Authority. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation. The Company is duly qualified to do
business as a foreign corporation and is in good standing under the laws of any
jurisdiction in which the character of the properties owned or leased by it
therein or in which the transaction of its business makes such qualification
necessary, except where the failure to be so qualified would not have,
individually or in the aggregate, a Company Material Adverse Effect (as defined
in Section 10.9). The Company has all requisite corporate power and authority to
own, operate and lease its properties and to carry on its business as now
conducted. The copies of the Company's certificate of incorporation and bylaws
previously made available to Parent are true and correct and contain all
amendments as of the date hereof.
SECTION 5.2 Authorization, Validity and Effect of Agreements. The Company
has the requisite corporate power and authority to execute and deliver this
Agreement, the Stock Option Agreements and all other agreements and documents
contemplated hereby. The consummation by the Company of the transactions
contemplated hereby and by the Stock Options Agreements has been duly authorized
by all requisite corporate action, other than, with respect to the Merger, the
approval and adoption of this Agreement by the Company's stockholders. This
Agreement and the Stock Option Agreements constitute the valid and legally
binding obligations of the Company, enforceable in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights and general principles of
equity.
SECTION 5.3 Capitalization. The authorized capital stock of the Company
consists of 150,000,000 shares of Company Common Stock and 25,000,000 shares of
preferred stock, par value $1.00 per share, of the Company ("Company Preferred
Stock") and, as of April 30, 1998, there were 54,802,834 shares of Company
Common Stock issued and outstanding and 4,360,254 shares of Company Common Stock
reserved for issuance upon exercise of outstanding Company Options, and no
shares of Company Preferred Stock issued and outstanding. All such issued and
outstanding shares of Company Common Stock are duly authorized, validly issued,
fully paid, nonassessable and free of preemptive rights. One right to purchase
Series A Junior Participating Preferred Stock (each, a "Company Right") issued
pursuant to the Rights Agreement, dated as of August 17, 1994 (the "Company
Rights Agreement"), as amended, between the Company and Chemical Trust Company
of California is associated with and attached to each outstanding share of
Company Common Stock. As of the date of this Agreement, except as set forth in
this Section 5.3 or in the Stock Option Agreements and except for any shares of
Company Common Stock issued pursuant to Company Stock Option Plans described in
the Company Reports filed prior to the date of this Agreement, there are no
outstanding shares of capital stock and there are no options, warrants, calls,
subscriptions, convertible securities, or other rights, agreements or
commitments which obligate the Company or any of its Subsidiaries to issue,
transfer or sell any shares of capital stock or other voting securities of the
Company or any of its Subsidiaries. The Company has no outstanding bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or which are convertible into or exercisable for securities having the
right to vote) with the stockholders of the Company on any matter.
SECTION 5.4 Significant Subsidiaries. For purposes of this Agreement,
"Significant Subsidiary" shall mean significant subsidiary as defined in Rule
1-02 of Regulation S-X of the Exchange Act. Each of the Company's Significant
Subsidiaries is a corporation or partnership duly organized, validly existing
and in good standing (where applicable) under the laws of its jurisdiction of
incorporation or organization, has the corporate or partnership power and
authority to own, operate and lease its properties and to carry on its business
as it is now being conducted, and is duly qualified to do business and is in
good standing (where applicable) in each jurisdiction in which the ownership,
operation or lease of its property or the conduct of its business requires such
qualification, except for jurisdictions in which such failure to be so qualified
or to be in
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good standing would not have a Company Material Adverse Effect. All of the
outstanding shares of capital stock of, or other ownership interests in, each of
the Company's Significant Subsidiaries is duly authorized, validly issued, fully
paid and nonassessable, and is owned, directly or indirectly, by the Company
free and clear of all liens, pledges, security interests, claims or other
encumbrances ("Liens"). Schedule 5.4 to the Company Disclosure Letter sets forth
for each Significant Subsidiary of the Company, its name and jurisdiction of
incorporation or organization.
SECTION 5.5 No Violation of Law. Neither the Company nor any of its
Subsidiaries is in violation of any order of any court, governmental authority
or arbitration board or tribunal, or any law, ordinance, governmental rule or
regulation to which the Company or any of its Subsidiaries or any of their
respective properties or assets is subject, except as would not have,
individually or in the aggregate, a Company Material Adverse Effect. The Company
and its Subsidiaries hold all permits, licenses, variances, exemptions, orders,
franchises and approvals of all governmental authorities necessary for the
lawful conduct of their respective businesses (the "Company Permits"), except
where the failure so to hold would not have a Company Material Adverse Effect.
The Company and its Subsidiaries are in compliance with the terms of the Company
Permits, except where the failure so to comply would not have a Company Material
Adverse Effect. To the knowledge of the Company, no investigation by any
governmental authority with respect to the Company or any of its Subsidiaries is
pending or threatened, other than those the outcome of which would not have a
Company Material Adverse Effect.
SECTION 5.6 No Conflict.
(a) Neither the execution and delivery by the Company of this Agreement or
the Stock Option Agreements nor the consummation by the Company of the
transactions contemplated hereby or thereby in accordance with the terms hereof
or thereof will: (i) conflict with or result in a breach of any provisions of
the certificate of incorporation or bylaws of the Company; (ii) violate, or
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination or in a right of
termination or cancellation of, or give rise to a right of purchase under, or
accelerate the performance required by, or result in the creation of any Lien
upon any of the properties of the Company or its Subsidiaries under, or result
in being declared void, voidable, or without further binding effect, or
otherwise result in a detriment to the Company or any of its Subsidiaries under,
any of the terms, conditions or provisions of, any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, lease, contract,
agreement, joint venture or other instrument or obligation to which the Company
or any of its Subsidiaries is a party, or by which the Company or any of its
Subsidiaries or any of their properties is bound or affected; or (iii)
contravene or conflict with or constitute a violation of any provision of any
law, rule, regulation, judgment, order or decree binding upon or applicable to
the Company or any of its Subsidiaries, except, in the case of matters described
in clause (ii) or (iii), as would not have, individually or in the aggregate, a
Company Material Adverse Effect.
(b) Neither the execution and delivery by the Company of this Agreement or
the Stock Option Agreements nor the consummation by the Company of the
transactions contemplated hereby or thereby in accordance with the terms hereof
or thereof will require any consent, approval or authorization of, or filing or
registration with, any governmental or regulatory authority, other than (i) the
filings provided for in Article 1 and (ii) filings required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Exchange Act, the Securities Act or applicable state securities and
"Blue Sky" laws and applicable foreign competition or antitrust laws ((i) and
(ii) collectively, the "Regulatory Filings"), and listing on the NYSE of the
Company Common Stock to be issued upon exercise of the option granted to Parent
pursuant to the applicable Stock Option Agreement, except for any consent,
approval or authorization the failure of which to obtain and for any filing or
registration the failure of which to make would not have a Company Material
Adverse Effect.
SECTION 5.7 SEC Documents. The Company has made available to Parent each
registration statement, report, proxy statement or information statement (other
than preliminary materials) filed by the Company with the SEC since January 1,
1997, each in the form (including exhibits and any amendments thereto) filed
with the SEC (collectively, the "Company Reports"). As of their respective
dates, the Company Reports
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(i) were prepared in all material respects in accordance with the applicable
requirements of the Securities Act, the Exchange Act, and the rules and
regulations thereunder and (ii) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in the light of the circumstances
under which they were made, not misleading except for such statements, if any,
as have been modified by subsequent filings with the SEC prior to the date
hereof. Each of the consolidated balance sheets included in or incorporated by
reference into the Company Reports (including the related notes and schedules)
fairly presents in all material respects the consolidated financial position of
the Company and its Subsidiaries as of its date and each of the consolidated
statements of income, cash flows and changes in stockholders' equity of the
Company included in or incorporated by reference into the Company Reports
(including any related notes and schedules) fairly presents in all material
respects the results of operations, cash flows or changes in stockholders'
equity, as the case may be, of the Company and its Subsidiaries for the periods
set forth therein (subject, in the case of unaudited statements, to (x) such
exceptions as may be permitted by Form 10-Q of the SEC and (y) normal year-end
audit adjustments), in each case in accordance with generally accepted
accounting principles consistently applied during the periods involved, except
as may be noted therein. Except as and to the extent set forth on the
consolidated balance sheet of the Company and its Subsidiaries at December 31,
1997, including all notes thereto, as of such date, neither the Company nor any
of its Subsidiaries had any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) that would be required to be
reflected on, or reserved against in, a balance sheet of the Company or in the
notes thereto prepared in accordance with generally accepted accounting
principles consistently applied, other than liabilities or obligations which
would not have, individually or in the aggregate, a Company Material Adverse
Effect.
SECTION 5.8 Litigation. There are no actions, suits or proceedings pending
against the Company or any of its Subsidiaries or, to the Company's knowledge,
threatened against the Company or any of its Subsidiaries, at law or in equity,
or before or by any federal, state or foreign commission, board, bureau, agency
or instrumentality, that are likely to have, individually or in the aggregate, a
Company Material Adverse Effect. There are no outstanding judgments, decrees,
injunctions, awards or orders against the Company or any of its Subsidiaries
that are likely to have, individually or in the aggregate, a Company Material
Adverse Effect.
SECTION 5.9 Absence of Certain Changes. Since December 31, 1997, there has
not been (i) any event or occurrence that has had or is likely to have a
Material Adverse Effect with respect to the Company, (ii) any material change by
the Company or any of its Subsidiaries, when taken as a whole, in any of its
accounting methods, principles or practices or any of its tax methods, practices
or elections, (iii) any declaration, setting aside or payment of any dividend or
distribution in respect of any capital stock of the Company or any redemption,
purchase or other acquisition of any of its securities, or (iv) any increase in
or establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option, stock purchase or other
employee benefit plan, except in the ordinary course of business.
SECTION 5.10 Taxes.
(a) Each of the Company, its Subsidiaries and each affiliated,
consolidated, combined, unitary or similar group of which any such corporation
is or was a member has (i) duly filed (or there has been filed on its behalf) on
a timely basis with appropriate governmental authorities all tax returns,
statements, reports, declarations, estimates and forms ("Returns") required to
be filed by or with respect to it, except to the extent that any failure to file
would not have, individually or in the aggregate, a Company Material Adverse
Effect, and (ii) duly paid or deposited in full on a timely basis or made
adequate provisions in accordance with generally accepted accounting principles
(or there has been paid or deposited or adequate provision has been made on its
behalf) for the payment of all taxes required to be paid by it, except to the
extent that any failure to pay or deposit or make adequate provision for the
payment of such taxes would not have, individually or in the aggregate, a
Company Material Adverse Effect. The Company's aggregate adjusted basis for
federal income tax purposes in its shares of Unova, Inc. immediately before the
distribution by the Company to its stockholders of such shares was equal to at
least $500 million.
(b) (i) Except as set forth in the Company Disclosure Letter, the federal
income tax returns of the Company and each of its Subsidiaries have been
examined by the Internal Revenue Service (the "IRS") (or
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the applicable statutes of limitation for the assessment of federal income taxes
for such periods have expired) for all periods; (ii) except to the extent being
contested in good faith, all material deficiencies asserted as a result of such
examinations and any other examinations of the Company and its Subsidiaries by
any taxing authority have been paid fully, settled or adequately provided for in
the financial statements contained in the Company Reports; (iii) as of the date
hereof, neither the Company nor any of its Subsidiaries has granted any
requests, agreements, consents or waivers to extend the statutory period of
limitations applicable to the assessment of any taxes with respect to any
Returns of the Company or any of its Subsidiaries; (iv) neither the Company nor
any of its Subsidiaries is a party to, is bound by or has any obligation under
any tax sharing, allocation or indemnity agreement or any similar agreement or
arrangement that would have a Company Material Effect; and (v) neither the
Company nor any of its Subsidiaries is a party to an agreement that provides for
the payment of any amount that would constitute a "parachute payment" within the
meaning of section 280G of the Code.
For purposes of this Agreement, "tax" or "taxes" means all federal, state,
county, local, foreign or other net income, gross income, gross receipts, sales,
use, ad valorem, transfer, accumulated earnings, personal holding company,
excess profits, franchise, profits, license, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property, disability, capital
stock, or windfall profits taxes, customs duties or other taxes, fees,
assessments or governmental charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts imposed by
any taxing authority (domestic or foreign).
SECTION 5.11 Employee Benefit Plans.
(a) Schedule 5.11 of the Company Disclosure Letter contains a list of all
U.S. Company Benefit Plans. The term "Company Benefit Plans" means all material
employee benefit plans and other material benefit arrangements, including all
"employee benefit plans" as defined in the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), covering employees of the Company and its
Subsidiaries. True and complete copies of the U.S. Company Benefit Plans and, if
applicable, the most recent Form 5500 and annual reports for each such plan have
been made available to Parent.
(b) Except as would not have, individually or in the aggregate, a Company
Material Adverse Effect: all applicable reporting and disclosure requirements
have been met with respect to the Company Benefit Plans; there has been no
"reportable event," as that term is defined in section 4043 of ERISA, with
respect to the Company Benefit Plans subject to Title IV of ERISA; to the extent
applicable, the Company Benefit Plans comply, in all material respects, with the
requirements of ERISA and the Code, and any Company Benefit Plan intended to be
qualified under section 401(a) of the Code has been determined by the IRS to be
so qualified; the Company Benefit Plans have been maintained and operated, in
all material respects, in accordance with their terms, and there are no breaches
of fiduciary duty in connection with the Company Benefit Plans; to the Company's
knowledge, there are no pending or threatened claims against or otherwise
involving any Company Benefit Plan and no suit, action or other litigation
(excluding claims for benefits incurred in the ordinary course of Company
Benefit Plan activities) has been brought against or with respect to any such
Company Benefit Plan; all material contributions required to be made as of the
date hereof to the Company Benefit Plans have been made or provided for; the
Company does not maintain or contribute to any material plan or arrangement
which provides or has any liability to provide life insurance, medical or other
employee welfare benefits to any employee or former employee upon his retirement
or termination of employment and the Company has not represented, promised or
contracted (whether in oral or written form) to any employee or former employee
that such benefits would be provided; with respect to the Company Benefit Plans
or any "employee pension benefit plans," as defined in section 3(2) of ERISA,
that are subject to Title IV of ERISA and have been maintained or contributed to
within six years prior to the Effective Time by the Company, its Subsidiaries or
any trade or business (whether or not incorporated) which is under common
control, or which is treated as a single employer, with the Company or any of
its Subsidiaries under sections 414(b), (c), (m), or (o) of the Code, (i)
neither the Company nor any of its Subsidiaries has incurred any direct or
indirect liability under title IV of ERISA in connection with any termination
thereof or withdrawal therefrom; (ii) there does not exist any accumulated
funding deficiency within the meaning of section 412 of the Code or section 302
of ERISA, whether or not waived; and (iii) the actuarial value of the
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assets equal or exceed the actuarial present value of the benefit liabilities,
within the meaning of section 4041 of ERISA, based upon reasonable actuarial
assumptions and asset valuation principles; and no prohibited transaction has
occurred with respect to any Company Benefit Plan that would result in the
imposition of any excise tax or other liability under the Code or ERISA.
(c) Neither the Company nor any of its Subsidiaries nor any trade or
business (whether or not incorporated) which is under common control, or which
is treated as a single employer, with the Company or any of its Subsidiaries
under sections 414(b), (c), (m), or (o) of the Code, contributes to, or has an
obligation to contribute to, and has not within six years prior to the Effective
Time contributed to, or had an obligation to contribute to, a multiemployer plan
within the meaning of section 3(37) of ERISA. The execution of, and performance
of the transactions contemplated in, this Agreement will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any benefit plan, policy, arrangement or agreement or any trust or loan
that will or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligations to fund benefits with respect to any employee of the
Company or any Subsidiary thereof.
SECTION 5.12 Labor Matters. Except as would not have a Company Material
Adverse Effect, (i) neither the Company nor any of its Subsidiaries is a party
to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a U.S. labor union or U.S. labor organization
and (ii) to the Company's knowledge, there are no organizational efforts with
respect to the formation of a collective bargaining unit presently being made or
threatened involving employees of the Company or any of its Subsidiaries.
SECTION 5.13 Environmental Matters. Except as would not have, individually
or in the aggregate, a Company Material Adverse Effect:
(a) there are not any past or present conditions or circumstances that
interfere with the conduct of the business of the Company and each of its
Subsidiaries in the manner now conducted or which interfere with compliance
with any order of any court, governmental authority or arbitration board or
tribunal, or any law, ordinance, governmental rule or regulation related to
human health or the environment ("Environmental Law");
(b) there are not any past or present conditions or circumstances at,
or arising out of, any current or former businesses, assets or properties
of the Company or any Subsidiary of the Company, including but not limited
to on-site or off-site disposal or release of any chemical substance,
product or waste, which could reasonably be expected to give rise to: (i)
liabilities or obligations for any cleanup, remediation, disposal or
corrective action under any Environmental Law or (ii) claims arising for
personal injury, property damage, or damage to natural resources; and
(c) neither the Company nor any of its Subsidiaries has (i) received
any notice of noncompliance with, violation of, or liability or potential
liability under any Environmental Law or (ii) entered into any consent
decree or order or is subject to any order of any court or governmental
authority or tribunal under any Environmental Law or relating to the
cleanup of any hazardous materials contamination.
SECTION 5.14 Intellectual Property. Except as previously disclosed to
Parent in writing, the Company and its Subsidiaries own or possess adequate
licenses or other valid rights to use all patents, patent rights, trademarks,
trademark rights and proprietary information used or held for use in connection
with their respective businesses as currently being conducted, except where the
failure to own or possess such licenses and other rights would not have,
individually or in the aggregate, a Company Material Adverse Effect, and there
are no assertions or claims challenging the validity of any of the foregoing
which are likely to have, individually or in the aggregate, a Company Material
Adverse Effect. The conduct of the Company's and its Subsidiaries' respective
businesses as currently conducted does not conflict with any patents, patent
rights, licenses, trademarks, trademark rights, trade names, trade name rights
or copyrights of others in any way likely to have, individually or in the
aggregate, a Company Material Adverse Effect. There is no material infringement
of any proprietary right owned by or licensed by or to the Company or any of its
Subsidiaries which is likely to have, individually or in the aggregate, a
Company Material Adverse Effect. The computer
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software operated, sold or licensed by the Company that is material to its
business or its internal operations is capable of providing or is being or will
be adapted, or is capable of being replaced, to provide uninterrupted millennium
functionality to record, store, process and present calendar dates falling on or
after January 1, 2000 in substantially the same manner and with substantially
the same functionality as such software records, stores, processes and presents
such calendar dates falling on or before December 31, 1999, except as would not
have a Company Material Adverse Effect. The costs of the adaptations and
replacements referred to in the prior sentence will not have a Company Material
Adverse Effect.
SECTION 5.15 Insurance. The Company and its Subsidiaries maintain insurance
coverage reasonably adequate for the operation of their respective businesses
(taking into account the cost and availability of such insurance).
SECTION 5.16 No Brokers. The Company has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of the Company or Parent to pay any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby, except that the Company has retained Credit Suisse First Boston
Corporation as its financial advisor, the arrangements with which have been
disclosed in writing to Parent prior to the date hereof.
SECTION 5.17 Opinion of Financial Advisor. The Board of Directors of the
Company has received the opinion of Credit Suisse First Boston Corporation to
the effect that, as of the date of this Agreement, the Exchange Ratio is fair,
from a financial point of view, to the holders of the Company Common Stock; it
being understood and acknowledged by Parent that such opinion has been rendered
for the benefit of the Board of Directors of the Company, and is not intended
to, and may not, be relied upon by Parent, its affiliates or their respective
Subsidiaries.
SECTION 5.18 Parent Stock Ownership. Neither the Company nor any of its
Subsidiaries owns any shares of capital stock of Parent or any other securities
convertible into or otherwise exercisable to acquire capital stock of Parent.
SECTION 5.19 Reorganization. Neither the Company nor any of its
Subsidiaries has taken or failed to take any action, as a result of which the
Merger would not qualify as a reorganization within the meaning of section
368(a) of the Code.
SECTION 5.20 Pooling. Neither the Company nor any of its Subsidiaries has
taken or failed to take any action, as a result of which the Merger would not
qualify as a "pooling of interests" for financial accounting purposes.
SECTION 5.21 Vote Required. The affirmative vote of the holders of at least
a majority of the outstanding shares of Company Common Stock is the only vote of
the holders of any class or series of Company capital stock necessary to approve
this Agreement and the transactions contemplated hereby.
SECTION 5.22 Amendment to the Company Rights Agreement. The Company has
amended or taken other action under the Company Rights Agreement so that none of
the execution and delivery of this Agreement or the Stock Option Agreements, the
conversion of shares of Company Common Stock into the right to receive Parent
Common Stock in accordance with Article 4 of this Agreement, the issuance of
shares of Company Common Stock upon exercise of the option granted to Parent
pursuant to the applicable Stock Option Agreement, and the consummation of the
Merger or any other transaction contemplated hereby or by the Stock Option
Agreement, will cause (i) the Company Rights to become exercisable under the
Company Rights Agreement, (ii) Parent or any of its Subsidiaries to be deemed an
"Acquiring Person" (as defined in the Company Rights Agreement), (iii) any such
event to be an event described in Section 11(a)(ii) or 13 of the Company Rights
Agreement or (iv) the "Shares Acquisition Date" or the "Distribution Date" (each
as defined in the Company Rights Agreement) to occur upon any such event, and so
that the Company Rights will expire immediately prior to the Effective Time. The
Company has delivered to Parent a true and complete copy of the Company Rights
Agreement, as amended to date.
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SECTION 5.23 Certain Approvals. The Company Board of Directors has taken
any and all necessary and appropriate action to render inapplicable to the
Merger and the transactions contemplated by this Agreement and the Stock Option
Agreements the provisions of Section 203 of the DGCL. No other state takeover or
business combination statute applies or purports to apply to the Merger or the
transactions contemplated by this Agreement or the Stock Option Agreements.
SECTION 5.24 Certain Contracts. Neither the Company nor any of its
Subsidiaries is a party to or bound by any non-competition agreement or any
other agreement or obligation which purports to limit in any material respect
the manner in which, or the localities in which, all or any material portion of
the current business of the Company and its Subsidiaries, taken as a whole, or
the Parent and its Subsidiaries, taken as a whole, is conducted.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB
Except as set forth in the disclosure letter delivered to the Company
concurrently with the execution hereof (the "Parent Disclosure Letter") or as
disclosed with reasonable specificity in the Parent Reports (as defined in
Section 6.7), Parent and Merger Sub, jointly and severally, represent and
warrant to the Company that:
SECTION 6.1 Existence; Good Standing; Corporate Authority. Parent and
Merger Sub are corporations duly incorporated, validly existing and in good
standing under the laws of their respective jurisdictions of incorporation.
Parent is duly qualified to do business as a foreign corporation and is in good
standing under the laws of any jurisdiction in which the character of the
properties owned or leased by it therein or in which the transaction of its
business makes such qualification necessary, except where the failure to be so
qualified would not have, individually or in the aggregate, a Parent Material
Adverse Effect (as defined in Section 10.9). Parent has all requisite corporate
power and authority to own, operate and lease its properties and to carry on its
business as now conducted. The copies of Parent's certificate of incorporation
and bylaws previously made available to the Company are true and correct and
contain all amendments as of the date hereof.
SECTION 6.2 Authorization, Validity and Effect of Agreements. Each of
Parent and Merger Sub has the requisite corporate power and authority to execute
and deliver this Agreement, the Stock Option Agreements and all other agreements
and documents contemplated hereby to which it is a party. Each of the
consummation by Parent and Merger Sub of the transactions contemplated hereby,
including the issuance and delivery by Parent of shares of Parent Common Stock
pursuant to the Merger, and the consummation by Parent of the transactions
contemplated by the Stock Option Agreements, has been duly authorized by all
requisite corporate action, other than approval of the issuance of the shares of
Parent Common Stock pursuant to the Merger contemplated hereby by Parent's
stockholders as required by the rules of the NYSE. This Agreement and the Stock
Option Agreements constitute the valid and legally binding obligations of each
of Parent and Merger Sub to the extent it is a party, enforceable in accordance
with their respective terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights and general
principles of equity.
SECTION 6.3 Capitalization. The authorized capital stock of Parent consists
of 400,000,000 shares of Parent Common Stock and 15,000,000 shares of preferred
stock, par value $1.00 per share, of Parent ("Parent Preferred Stock"), and, as
of May 1, 1998, there were 169,709,279 shares of Parent Common Stock issued and
outstanding and 6,286,974 shares of Parent Common Stock reserved for issuance
upon exercise of outstanding Parent options and no shares of Parent Preferred
Stock issued and outstanding. All such issued and outstanding shares of Parent
Common Stock are duly authorized, validly issued, fully paid, nonassessable and
free of preemptive rights. The shares of Parent Common Stock to be issued in
connection with the Merger, when issued in accordance with this Agreement, will
be validly issued, fully paid and nonassessable. As of the date of this
Agreement, except as set forth in this Section 6.3 or in the Stock Option
Agreements and except for any shares of Parent Common Stock issued pursuant to
plans described in the Parent Reports
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filed prior to the date of this Agreement, there are no outstanding shares of
capital stock and there are no options, warrants, calls, subscriptions,
convertible securities or other rights, agreements or commitments which obligate
Parent or any of its Subsidiaries to issue, transfer or sell any shares of
capital stock or other voting securities of Parent or any of its Subsidiaries.
Parent has no outstanding bonds, debentures, notes or other obligations the
holders of which have the right to vote (or which are convertible into or
exercisable for securities having the right to vote) with the stockholders of
Parent on any matter.
SECTION 6.4 Significant Subsidiaries.
(a) Each of Parent's Significant Subsidiaries is a corporation or
partnership duly organized, validly existing and in good standing (where
applicable) under the laws of its jurisdiction of incorporation or organization,
has the corporate or partnership power and authority to own, operate and lease
its properties and to carry on its business as it is now being conducted, and is
duly qualified to do business and is in good standing (where applicable) in each
jurisdiction in which the ownership, operation or lease of its property or the
conduct of its business requires such qualification, except for jurisdictions in
which such failure to be so qualified or to be in good standing would not have a
Parent Material Adverse Effect. All of the outstanding shares of capital stock
of, or other ownership interests in, each of the Parent's Significant
Subsidiaries is duly authorized, validly issued, fully paid and nonassessable,
and is owned, directly or indirectly, by the Parent free and clear of all Liens.
Schedule 6.4 to the Parent Disclosure Letter sets forth for each Significant
Subsidiary of Parent its name and jurisdiction of incorporation or organization.
(b) All of the outstanding shares of capital stock of Merger Sub are owned
directly by Parent. Merger Sub was formed solely for the purpose of engaging in
the transactions contemplated hereby and has not engaged in any activities other
than in connection with the transactions contemplated by this Agreement.
SECTION 6.5 No Violation of Law. Neither Parent nor any of its Subsidiaries
is in violation of any order of any court, governmental authority or arbitration
board or tribunal, or any law, ordinance, governmental rule or regulation to
which Parent or any of its Subsidiaries or any of their respective properties or
assets is subject, except as would not have, individually or in the aggregate, a
Parent Material Adverse Effect. Parent and its Subsidiaries hold all permits,
licenses, variances, exemptions, orders, franchises and approvals of all
governmental authorities necessary for the lawful conduct of their respective
businesses (the "Parent Permits"), except where the failure so to hold would not
have a Parent Material Adverse Effect. Parent and its Subsidiaries are in
compliance with the terms of the Parent Permits, except where the failure so to
comply would not have a Parent Material Adverse Effect. To the knowledge of
Parent, no investigation by any governmental authority with respect to Parent or
any of its Subsidiaries is pending or threatened, other than those the outcome
of which would not have a Parent Material Adverse Effect.
SECTION 6.6 No Conflict.
(a) Neither the execution and delivery by Parent and Merger Sub of this
Agreement, the execution and delivery by Parent of the Stock Option Agreements
nor the consummation by Parent and Merger Sub of the transactions contemplated
hereby or thereby in accordance with the terms hereof or thereof will: (i)
conflict with or result in a breach of any provisions of the certificate of
incorporation or bylaws of Parent or Merger Sub; (ii) violate, or conflict with,
or result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination or in a right of termination or cancellation of, or
give rise to a right of purchase under or accelerate the performance required
by, or result in the creation of any Lien upon any of the properties of Parent
or its Subsidiaries under, or result in being declared void, voidable, or
without further binding effect, or otherwise result in a detriment to Parent or
any of its Subsidiaries under any of the terms, conditions or provisions of, any
note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
lease, contract, agreement, joint venture or other instrument or obligation to
which Parent or any of its Subsidiaries is a party, or by which Parent or any of
its Subsidiaries or any of their properties is bound or affected; or (iii)
contravene or conflict with or constitute a violation of any provision of any
law, rule, regulation, judgment, order or decree binding upon or applicable to
Parent or any of its Subsidiaries, except, in the case of matters described in
clause (ii) or (iii), as would not have, individually or in the aggregate, a
Parent Material Adverse Effect.
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(b) Neither the execution and delivery by Parent or Merger Sub of this
Agreement, the execution and delivery by Parent of the Stock Option Agreements
nor the consummation by Parent or Merger Sub of the transactions contemplated
hereby or thereby in accordance with the terms hereof or thereof will require
any consent, approval or authorization of, or filing or registration with, any
governmental or regulatory authority, other than Regulatory Filings, and listing
of the Parent Common Stock to be issued in the Merger and upon exercise of the
option granted to the Company pursuant to the applicable Stock Option Agreement
under the rules of the NYSE, except for any consent, approval or authorization
the failure of which to obtain and for any filing or registration the failure of
which to make would not have a Parent Material Adverse Effect.
SECTION 6.7 SEC Documents. Parent has made available to the Company each
registration statement, report, proxy statement or information statement (other
than preliminary materials) filed by Parent with the SEC since September 30,
1996, each in the form (including exhibits and any amendments thereto) filed
with the SEC (collectively, the "Parent Reports"). As of their respective dates,
the Parent Reports (i) were prepared in all material respects in accordance with
the applicable requirements of the Securities Act, the Exchange Act, and the
rules and regulations thereunder and (ii) did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading except for such
statements, if any, as have been modified by subsequent filings with the SEC
prior to the date hereof. Each of the consolidated balance sheets included in or
incorporated by reference into the Parent Reports (including the related notes
and schedules) fairly presents in all material respects the consolidated
financial position of Parent and its Subsidiaries as of its date and each of the
consolidated statements of income, cash flows and changes in stockholders'
equity included in or incorporated by reference into the Parent Reports
(including any related notes and schedules) fairly presents in all material
respects the results of operations, cash flows or changes in stockholders'
equity, as the case may be, of Parent and its Subsidiaries for the periods set
forth therein (subject, in the case of unaudited statements, to (x) such
exceptions as may be permitted by Form 10-Q of the SEC and (y) normal year-end
audit adjustments), in each case in accordance with generally accepted
accounting principles consistently applied during the periods involved, except
as may be noted therein. Except as and to the extent set forth on the
consolidated balance sheet of Parent and its Subsidiaries at September 30, 1997,
including all notes thereto, as of such date, neither Parent nor any of its
Subsidiaries had any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) that would be required to be reflected on, or
reserved against in, a balance sheet of Parent or in the notes thereto prepared
in accordance with generally accepted accounting principles consistently
applied, other than liabilities or obligations which would not have,
individually or in the aggregate, a Parent Material Adverse Effect.
SECTION 6.8 Litigation. There are no actions, suits or proceedings pending
against Parent or any of its Subsidiaries or, to Parent's knowledge, threatened
against Parent or any of its Subsidiaries, at law or in equity, or before or by
any federal, state or foreign commission, board, bureau, agency or
instrumentality, that are likely to have, individually or in the aggregate, a
Parent Material Adverse Effect. There are no outstanding judgments, decrees,
injunctions, awards or orders against Parent or any of its Subsidiaries that are
likely to have, individually or in the aggregate, a Parent Material Adverse
Effect.
SECTION 6.9 Absence of Certain Changes. Since December 31, 1997, there has
not been (i) any event or occurrence that has had or is likely to have a
Material Adverse Effect with respect to Parent, (ii) any material change by
Parent or any of its Subsidiaries, when taken as a whole, in any of its
accounting methods, principles or practices or any of its tax methods, practices
or elections, (iii) any declaration, setting aside or payment of any dividend or
distribution in respect of any capital stock of Parent or any redemption,
purchase or other acquisition of any of its securities, except dividends on the
Parent Common Stock at a rate of not more than $0.115 per share per quarter, or
(iv) any increase in or establishment of any bonus, insurance, severance,
deferred compensation, pension, retirement, profit sharing, stock option, stock
purchase or other employee benefit plan, except in the ordinary course of
business.
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SECTION 6.10 Taxes.
(a) Each of Parent, its Subsidiaries and each affiliated, consolidated,
combined, unitary or similar group of which any such corporation is or was a
member has (i) duly filed (or there has been filed on its behalf) on a timely
basis with appropriate governmental authorities all Returns required to be filed
by or with respect to it, except to the extent that any failure to file would
not have, individually or in the aggregate, a Parent Material Adverse Effect,
and (ii) duly paid or deposited in full on a timely basis or made adequate
provisions in accordance with generally accepted accounting principles (or there
has been paid or deposited or adequate provision has been made on its behalf)
for the payment of all taxes required to be paid by it, except to the extent
that any failure to pay or deposit or make adequate provision for the payment of
such taxes would not have, individually or in the aggregate, a Parent Material
Adverse Effect.
(b) (i) The federal income tax returns of Parent and each of its
Subsidiaries have been examined by the IRS (or the applicable statutes of
limitation for the assessment of federal income taxes for such periods have
expired) for all periods through and including September 30, 1993; (ii) except
to the extent being contested in good faith, all material deficiencies asserted
as a result of such examinations and any other examinations of Parent and its
Subsidiaries by any taxing authority have been paid fully, settled or adequately
provided for in the financial statements contained in the Parent Reports; (iii)
as of the date hereof, neither Parent nor any of its Subsidiaries has granted
any requests, agreements, consents or waivers to extend the statutory period of
limitations applicable to the assessment of any taxes with respect to any
Returns of Parent or any of its Subsidiaries, except that Parent and its
Subsidiaries have agreed to extend the applicable Federal statutory period of
limitations to December 31, 1998 for the fiscal year ended October 1, 1994; (iv)
neither Parent nor any of its Subsidiaries is a party to, is bound by or has any
obligation under any tax sharing, allocation or indemnity agreement or any
similar agreement or arrangement that would have a Parent Material Adverse
Effect; and (v) neither Parent nor any of its Subsidiaries is a party to an
agreement that provides for the payment of any amount that would constitute a
"parachute payment" within the meaning of Section 280G of the Code.
SECTION 6.11 Employee Benefit Plans.
(a) Schedule 6.11 of the Parent Disclosure Letter contains a list of all
U.S. Parent Benefit Plans. The term "Parent Benefit Plans" means all material
employee benefit plans and other material benefit arrangements, including all
"employee benefit plans" as defined in ERISA, covering employees of Parent and
its Subsidiaries. True and complete copies of the U.S. Parent Benefit Plans and,
if applicable, the most recent Form 5500 and annual reports for each such plan
have been made available to the Company.
(b) Except as would not have, individually or in the aggregate, a Parent
Material Adverse Effect: all applicable reporting and disclosure requirements
have been met with respect to the Parent Benefit Plans; there has been no
"reportable event," as that term is defined in section 4043 of ERISA, with
respect to the Parent Benefit Plans subject to Title IV of ERISA; to the extent
applicable, the Parent Benefit Plans comply, in all material respects, with the
requirements of ERISA and the Code, and any Parent Benefit Plan intended to be
qualified under section 401(a) of the Code has been determined by the IRS to be
so qualified; the Parent Benefit Plans have been maintained and operated, in all
material respects, in accordance with their terms, and there are no breaches of
fiduciary duty in connection with the Parent Benefit Plans; to Parent's
knowledge, there are no pending or threatened claims against or otherwise
involving any Parent Benefit Plan and no suit, action or other litigation
(excluding claims for benefits incurred in the ordinary course of Parent Benefit
Plan activities) has been brought against or with respect to any such Parent
Benefit Plan; all material contributions required to be made as of the date
hereof to the Parent Benefit Plans have been made or provided for; Parent does
not maintain or contribute to any material plan or arrangement which provides or
has any liability to provide life insurance, medical or other employee welfare
benefits to any employee or former employee upon his retirement or termination
of employment and Parent has not represented, promised or contracted (whether in
oral or written form) to any employee or former employee that such benefits
would be provided; with respect to the Parent Benefit Plans or any "employee
pension benefit plans," as defined in section 3(2) of ERISA, that are subject to
Title IV of ERISA and have been maintained or contributed to within six years
prior to the Effective Time by Parent, its Subsidiaries or any trade or business
(whether or not incorporated)
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which is under common control, or which is treated as a single employer, with
Parent or any of its Subsidiaries under sections 414(b), (c), (m), or (o) of the
Code, (i) neither Parent nor any of its Subsidiaries has incurred any direct or
indirect liability under title IV of ERISA in connection with any termination
thereof or withdrawal therefrom; (ii) there does not exist any accumulated
funding deficiency within the meaning of section 412 of the Code or section 302
of ERISA, whether or not waived; and (iii) the actuarial value of the assets
equal or exceed the actuarial present value of the benefit liabilities, within
the meaning of section 4041 of ERISA, based upon reasonable actuarial
assumptions and asset valuation principles; and no prohibited transaction has
occurred with respect to any Parent Benefit Plan that would result in the
imposition of any excise tax or other liability under the Code or ERISA.
(c) Neither Parent nor any of its Subsidiaries nor any trade or business
(whether or not incorporated) which is under common control, or which is treated
as a single employer, with Parent or any of its Subsidiaries under sections
414(b), (c), (m), or (o) of the Code, contributes to, or has an obligation to
contribute to, and has not within six years prior to the Effective Time
contributed to, or had an obligation to contribute to, a multiemployer plan
within the meaning of section 3(37) of ERISA. The execution of, and performance
of the transactions contemplated in, this Agreement will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any benefit plan, policy, arrangement or agreement or any trust or loan
that will or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligations to fund benefits with respect to any employee of Parent
or any Subsidiary thereof.
SECTION 6.12 Labor Matters. Neither Parent nor any of its Subsidiaries is
subject to a dispute, strike or work stoppage with respect to any collective
bargaining agreement, contract or other agreement or understanding with a labor
union or labor organization to which it is a party or by which it is bound which
would have a Parent Material Adverse Effect. To Parent's knowledge, there are no
organizational efforts with respect to the formation of a collective bargaining
unit presently being made or threatened involving employees of Parent or any of
its Subsidiaries, except for those the formation of which would not have a
Parent Material Adverse Effect.
SECTION 6.13 Environmental Matters. Except as would not have, individually
or in the aggregate, a Parent Material Adverse Effect:
(a) there are not any past or present conditions or circumstances that
interfere with the conduct of the business of Parent and each of its
Subsidiaries in the manner now conducted or which interfere with compliance
with any order of any court, governmental authority or arbitration board or
tribunal, or any Environmental Law;
(b) there are not any past or present conditions or circumstances at,
or arising out of, any current or former businesses, assets or properties
of Parent or any Subsidiary of Parent, including but not limited to on-site
or off-site disposal or release of any chemical substance, product or
waste, which could reasonably be expected to give rise to: (i) liabilities
or obligations for any cleanup, remediation, disposal or corrective action
under any Environmental Law or (ii) claims arising for personal injury,
property damage, or damage to natural resources; and
(c) neither Parent nor any of its Subsidiaries has (i) received any
notice of noncompliance with, violation of, or liability or potential
liability under any Environmental Law or (ii) entered into any consent
decree or order or is subject to any order of any court or governmental
authority or tribunal under any Environmental Law or relating to the
cleanup of any hazardous materials contamination.
SECTION 6.14 Intellectual Property. Except as previously disclosed to the
Company in writing, Parent and its Subsidiaries own or possess adequate licenses
or other valid rights to use all patents, patent rights, trademarks, trademark
rights and proprietary information used or held for use in connection with their
respective businesses as currently being conducted, except where the failure to
own or possess such licenses and other rights would not have, individually or in
the aggregate, a Parent Material Adverse Effect, and there are no assertions or
claims challenging the validity of any of the foregoing which are likely to
have, individually or in the aggregate, a Parent Material Adverse Effect. The
conduct of Parent's and its Subsidiaries' respective
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businesses as currently conducted does not conflict with any patents, patent
rights, licenses, trademarks, trademark rights, trade names, trade name rights
or copyrights of others in any way likely to have, individually or in the
aggregate, a Parent Material Adverse Effect. There is no material infringement
of any proprietary right owned by or licensed by or to Parent or any of its
Subsidiaries which is likely to have, individually or in the aggregate, a Parent
Material Adverse Effect. The computer software operated, sold or licensed by
Parent that is material to its business or its internal operations is capable of
providing or is being or will be adapted, or is capable of being replaced, to
provide uninterrupted millennium functionality to record, store, process and
present calendar dates falling on or after January 1, 2000 in substantially the
same manner and with substantially the same functionality as such software
records, stores, processes and presents such calendar dates falling on or before
December 31, 1999, except as would not have a Parent Material Adverse Effect.
The costs of the adaptations and replacements referred to in the prior sentence
will not have a Parent Material Adverse Effect.
SECTION 6.15 Insurance. Parent and its Subsidiaries maintain insurance
coverage reasonably adequate for the operation of their respective businesses
(taking into account the cost and availability of such insurance).
SECTION 6.16 No Brokers. Parent has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of the Company or Parent to pay any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby, except that Parent has retained Merrill Lynch & Co. as its financial
advisor, the arrangements with which have been disclosed in writing to the
Company prior to the date hereof.
SECTION 6.17 Opinion of Financial Advisor. The Board of Directors of Parent
has received the opinion of Merrill Lynch & Co. to the effect that, as of the
date thereof, the Exchange Ratio is fair to Parent from a financial point of
view.
SECTION 6.18 Company Stock Ownership. Neither Parent nor any of its
Subsidiaries owns any shares of capital stock of the Company or any other
securities convertible into or otherwise exercisable to acquire capital stock of
the Company.
SECTION 6.19 Reorganization. Neither Parent nor any of its Subsidiaries has
taken or failed to take any action, as a result of which the Merger would not
qualify as a reorganization within the meaning of section 368(a) of the Code.
SECTION 6.20 Pooling. Neither Parent nor any of its Subsidiaries has taken
or failed to take any action, as a result of which the Merger would not qualify
as a "pooling of interests" for financial accounting purposes.
SECTION 6.21 Vote Required. The vote of holders of Parent Common Stock
required by the rules of the NYSE is the only vote of the holders of any class
or series of Parent capital stock necessary to approve the issuance of Parent
Common Stock pursuant to this Agreement and the transactions contemplated
hereby.
SECTION 6.22 Certain Approvals. The Parent Board of Directors has taken any
and all necessary and appropriate action to render inapplicable to the Merger
and the transactions contemplated by this Agreement and the Stock Option
Agreements the provisions of Section 203 of the DGCL. No other state takeover or
business combination statute applies or purports to apply to the Merger or the
transactions contemplated by this Agreement or the Stock Option Agreements.
SECTION 6.23 Certain Contracts. Neither the Parent nor any of its
Subsidiaries is a party to or bound by any non-competition agreement or any
other agreement or obligation which purports to limit in any material respect
the manner in which, or the localities in which, all or any material portion of
the current business of
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the Parent and its Subsidiaries, taken as a whole, or the Company and its
Subsidiaries, taken as a whole, is conducted.
ARTICLE 7
COVENANTS
SECTION 7.1 Conduct of Businesses. Prior to the Effective Time, except as
set forth in the Company Disclosure Letter or as expressly contemplated by any
other provision of this Agreement or the Stock Option Agreements, unless the
Parent or the Company, respectively, has consented in writing thereto, each of
the Company and Parent:
(a) shall, and shall cause each of its Subsidiaries to, conduct its
operations according to their usual, regular and ordinary course in
substantially the same manner as heretofore conducted;
(b) shall use its commercially reasonable best efforts, and shall
cause each of its Subsidiaries to use its commercially reasonable best
efforts, to preserve intact their business organizations and goodwill, keep
available the services of their respective officers and employees and
maintain satisfactory relationships with those persons having business
relationships with them;
(c) shall not amend its certificate of incorporation or bylaws;
(d) shall promptly notify the other of any material change in its
condition (financial or otherwise) or business or any material litigation
or material governmental complaints, investigations or hearings (or
communications in writing indicating that such litigation, complaints,
investigations or hearings may be contemplated), or the breach in any
material respect of any representation or warranty contained herein;
(e) shall promptly deliver to the other true and correct copies of any
report, statement or schedule filed with the SEC subsequent to the date of
this Agreement;
(f) shall not (i) except pursuant to the exercise of options,
warrants, conversion rights and other contractual rights existing on the
date hereof, or referred to in clause (ii) below and disclosed pursuant to
this Agreement or in connection with transactions permitted by Section
7.1(i), issue any shares of its capital stock, effect any stock split or
otherwise change its capitalization as it existed on the date hereof, (ii)
grant, confer or award any option, warrant, conversion right or other right
not existing on the date hereof to acquire any shares of its capital stock
except (x) the automatic awards to non-employee directors pursuant to the
Western Atlas Inc. Director Stock Option Plan or the Baker Hughes
Incorporated Long-Term Incentive Plan, (y) the grant of options to new
employees consistent with past practice or pursuant to contractual
commitments existing on the date of this Agreement, and (z) the grant of
options by the Company or Parent prior to the Effective Time in amounts and
at times consistent with past practice, at exercise prices not less than
the fair market value of the underlying common stock on the date of grant
and, in each case, in an amount not to exceed 1.2 million shares of Company
Common Stock, in the case of the Company, and 120% of the Total Option
Dollars granted by the Parent, in the case of Parent, in the previous
fiscal year (provided that for purposes of the foregoing the term "Total
Option Dollars" shall mean the aggregate number of options granted
multiplied by the exercise price thereof) and notwithstanding the
provisions of Section 7.14 or any other provision of this Agreement to the
contrary, in the event the Company grants options to any of its employees
prior to the Effective Time, such employees will not be entitled to
participate in option grants by Parent subsequent to the Effective Time for
a period at least equal to one year subsequent to the grant of such options
to Company employees (e.g., if the Company follows its past practice of
granting options in July and Parent follows its past practice of granting
options in October, such period would be 15 months); (iii) increase any
compensation or benefits, except in the ordinary course of business
consistent with past practice, or enter into or amend any employment
agreement with any of its present or future officers or directors, except
with new employees consistent with past practice, or (iv) adopt any new
employee benefit plan (including any stock option, stock benefit or stock
purchase plan) or amend (except as required by law)
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any existing employee benefit plan in any material respect, except for
changes which are less favorable to participants in such plans;
(g) shall not (i) declare, set aside or pay any dividend or make any
other distribution or payment with respect to any shares of its capital
stock or (ii) redeem, purchase or otherwise acquire any shares of its
capital stock or capital stock of any of its Subsidiaries, or make any
commitment for any such action, except in the case of Parent for the
declaration and payment of regular, quarterly dividends, consistent with
past practice, not to exceed $0.115 per share of Parent Common Stock per
quarter;
(h) shall not, and shall not permit any of its Subsidiaries to, sell,
lease or otherwise dispose of any of its assets (including capital stock of
Subsidiaries) which are material to the Company or Parent, as the case may
be, individually or in the aggregate, except in the ordinary course of
business;
(i) shall not, and shall not permit any of its Subsidiaries to, except
pursuant to contractual commitments in effect on the date hereof and
disclosed in the Parent Disclosure Letter or the Company Disclosure Letter,
as the case may be, acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial
portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or
division thereof or otherwise acquire or agree to acquire any assets or
securities in each case (i) for an aggregate consideration for all such
acquisitions in excess of $100 million (excluding acquisitions approved in
writing by Parent and the Company) and (ii) where a filing under the HSR
Act is required, except where Parent and the Company have agreed in writing
that such action is not likely to (x) have a material adverse effect on the
ability of the parties to consummate the transactions contemplated by this
Agreement or (y) delay materially the Effective Time;
(j) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(k) shall, and shall cause any of its Subsidiaries to, use reasonable
efforts to maintain with financially responsible insurance companies
insurance in such amounts and against such risks and losses as are
customary for such party;
(l) shall not, and shall not permit any of its Subsidiaries to, (i)
make or rescind any material express or deemed election relating to taxes
unless it is reasonably expected that such action will not materially and
adversely affect it (or Parent), including elections for any and all joint
ventures, partnerships, limited liability companies, working interests or
other investments where it has the capacity to make such binding election,
(ii) settle or compromise any material claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to
taxes, except where such settlement or compromise will not materially and
adversely affect it (or Parent), or (iii) change in any material respect
any of its methods of reporting any item for federal income tax purposes
from those employed in the preparation of its federal income tax return for
the most recent taxable year for which a return has been filed, except as
may be required by applicable law or except for such changes that are
reasonably expected not to materially and adversely affect it (or Parent);
(m) shall not, nor shall it permit any of its Subsidiaries to, (i)
incur any indebtedness for borrowed money (except for (x) general corporate
purposes, (y) refinancings of existing debt and (z) other immaterial
borrowings that, in the case of (x), (y) or (z), permit prepayment of such
debt without penalty (other than LIBOR breakage costs)) or guarantee any
such indebtedness or issue or sell any debt securities or warrants or
rights to acquire any debt securities of such party or any of its
Subsidiaries or guarantee any debt securities of others, (ii) except in the
ordinary course of business, enter into any material lease (whether such
lease is an operating or capital lease) or create any material mortgages,
liens, security interests or other encumbrances on the property of the
Company or any of its Subsidiaries in connection with any indebtedness
thereof, or (iii) make or commit to make aggregate capital expenditures in
excess of $75 million over the fiscal 1998 capital expenditures budget
previously disclosed to the other;
(n) shall not purchase any shares of Parent Common Stock or Company
Common Stock;
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(o) shall not, nor shall it permit any of its Subsidiaries to, agree
in writing or otherwise to take any of the foregoing actions;
(p) subject to Section 7.5, shall not take any action that is likely
to delay materially or adversely affect the ability of any of the parties
hereto to obtain any consent, authorization, order or approval of any
governmental commission, board or other regulatory body or the expiration
of any applicable waiting period required to consummate the Merger; and
(q) during the period from the date of this Agreement through the
Effective Time, shall not terminate, amend, modify or waive any provision
of any confidentiality or standstill agreement to which it or any of its
respective Subsidiaries is a party; and during such period shall enforce,
to the fullest extent permitted under applicable law, the provisions of
such agreement, including by obtaining injunctions to prevent any breaches
of such agreements and to enforce specifically the terms and provisions
thereof in any court of the United States of America or any state having
jurisdiction.
SECTION 7.2 No Solicitation by the Company.
(a) The Company agrees that (i) neither it nor any of its Subsidiaries
shall, and shall not knowingly permit any of its officers, directors, employees,
agents or representatives (including, without limitation, any investment banker,
attorney or accountant retained by it or any of its Subsidiaries) to, solicit,
initiate or knowingly encourage (including by way of furnishing material
non-public information) any inquiry, proposal or offer (including, without
limitation, any proposal or offer to its stockholders) with respect to a tender
offer, merger, consolidation, business combination or similar transaction
involving, or any purchase of 20% or more of the assets on a consolidated basis
or 20% or more of any class of capital stock of, the Company (any such proposal,
offer or transaction being hereinafter referred to as a "Company Acquisition
Proposal") or participate or engage in any discussions or negotiations
concerning a Company Acquisition Proposal; and (ii) it will immediately cease
and cause to be terminated any existing negotiations with any parties conducted
heretofore with respect to any of the foregoing; provided that nothing contained
in this Agreement shall prevent the Company or its Board of Directors from (A)
complying with Rule 14e-2 promulgated under the Exchange Act with regard to a
Company Acquisition Proposal, or (B) prior to the Cutoff Date, providing
information (pursuant to a confidentiality agreement in reasonably customary
form) to or engaging in any negotiations or discussions with any person or
entity who has made an unsolicited bona fide Company Acquisition Proposal with
respect to all the outstanding Company Common Stock or all or substantially all
the assets of the Company that, in the good faith judgment of the Company's
Board of Directors, taking into account the likelihood of consummation, after
consultation with its financial advisors, is superior to the Merger (a "Company
Superior Proposal"), if the Board of Directors of the Company, after
consultation with its outside legal counsel, determines that the failure to do
so would be inconsistent with its fiduciary obligations.
(b) Prior to taking any action referred to in Section 7.2(a), if the
Company intends to participate in any such discussions or negotiations or
provide any such information to any such third party, the Company shall give
prompt prior notice to Parent of each such action. The Company will immediately
notify Parent of any such requests for such information or the receipt of any
Company Acquisition Proposal, including the identity of the person or group
engaging in such discussions or negotiations, requesting such information or
making such Company Acquisition Proposal, and the material terms and conditions
of any Company Acquisition Proposal.
(c) Nothing in this Section 7.2 shall permit the Company to enter into any
agreement with respect to a Company Acquisition Proposal during the term of this
Agreement, it being agreed that during the term of this Agreement, the Company
shall not enter into any agreement with any person that provides for, or in any
way facilitates, a Company Acquisition Proposal, other than a confidentiality
agreement in reasonably customary form.
(d) For purposes hereof, the "Cutoff Date" means the date the conditions
set forth in Section 8.1(a) are satisfied.
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SECTION 7.3 No Solicitation by Parent.
(a) Parent agrees that (i) neither it nor any of its Subsidiaries shall,
and shall not knowingly permit any of its officers, directors, employees, agents
or representatives (including, without limitation, any investment banker,
attorney or accountant retained by it or any of its Subsidiaries) to, solicit,
initiate or knowingly encourage (including by way of furnishing material
non-public information) any inquiry, proposal or offer (including, without
limitation, any proposal or offer to its stockholders) with respect to a tender
offer, merger, consolidation, business combination or similar transaction
involving, or any purchase of 20% or more of the assets on a consolidated basis
or 20% or more of any class of capital stock of, Parent (any such proposal,
offer or transaction being hereinafter referred to as a "Parent Acquisition
Proposal") or participate or engage in any discussions or negotiations
concerning a Parent Acquisition Proposal; and (ii) it will immediately cease and
cause to be terminated any existing negotiations with any parties conducted
heretofore with respect to any of the foregoing; provided that nothing contained
in this Agreement shall prevent Parent or its Board of Directors from (A)
complying with Rule 14e-2 promulgated under the Exchange Act with regard to a
Parent Acquisition Proposal, or (B) prior to the Cutoff Date, providing
information (pursuant to a confidentiality agreement in reasonably customary
form) to or engaging in any negotiations or discussions with any person or
entity who has made an unsolicited bona fide Parent Acquisition Proposal with
respect to all the outstanding Parent Common Stock or all or substantially all
the assets of Parent that, in the good faith judgment of Parent's Board of
Directors, taking into account the likelihood of consummation, after
consultation with its financial advisors, is superior to the Merger (a "Parent
Superior Proposal"), if the Board of Directors of Parent, after consultation
with its outside legal counsel, determines that the failure to do so would be
inconsistent with its fiduciary obligations.
(b) Prior to taking any action referred to in Section 7.3(a), if Parent
intends to participate in any such discussions or negotiations or provide any
such information to any such third party, Parent shall give prompt prior notice
to the Company of each such action. The Parent will immediately notify the
Company of any such requests for such information or the receipt of any Parent
Acquisition Proposal, including the identity of the person or group engaging in
such discussions or negotiations, requesting such information or making such
Parent Acquisition Proposal, and the material terms and conditions of any Parent
Acquisition Proposal.
(c) Nothing in this Section 7.3 shall permit Parent to enter into any
agreement with respect to a Parent Acquisition Proposal during the term of this
Agreement, it being agreed that during the term of this Agreement, Parent shall
not enter into any agreement with any person that provides for, or in any way
facilitates, a Parent Acquisition Proposal, other than a confidentiality
agreement in reasonably customary form.
SECTION 7.4 Meetings of Stockholders.
(a) Each of Parent and the Company will take all action necessary in
accordance with applicable law and its certificate of incorporation and bylaws
to convene a meeting of its stockholders as promptly as practicable to consider
and vote upon (i) in the case of Parent, the approval of the issuance of the
shares of Parent Common Stock pursuant to the Merger contemplated hereby and
(ii) in the case of the Company, the approval of this Agreement and the Merger.
The Company and Parent shall coordinate and cooperate with respect to the timing
of such meetings and shall use their best efforts to hold such meetings on the
same day.
(b) The Company and Parent, through their respective Boards of Directors,
shall recommend approval of such matters subject to the determination by the
Board of Directors of the Company and the Board of Directors of Parent after
consultation with their respective counsel that recommending approval of such
matters would not be inconsistent with its fiduciary obligations. Additionally,
the Board of Directors of the Company or the Board of Directors of Parent may at
any time prior to the Effective Time withdraw, modify, or change any
recommendation and declaration regarding this Agreement or the Merger, or
recommend and declare advisable any other offer or proposal, if in the opinion
of such Board of Directors after consultation with its counsel the failure to so
withdraw, modify, or change its recommendation and declaration would be
inconsistent with its fiduciary obligations.
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SECTION 7.5 Filings; Best Efforts.
(a) Subject to the terms and conditions herein provided, the Company and
Parent shall:
(i) promptly (but in not more than 20 business days from the date
hereof) make their respective filings under the HSR Act with respect to the
Merger and thereafter shall promptly make any other required submissions
under the HSR Act;
(ii) use their reasonable best efforts to cooperate with one another
in (a) determining which filings are required to be made prior to the
Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time from
governmental or regulatory authorities of the United States, the several
states, and foreign jurisdictions in connection with the execution and
delivery of this Agreement and the consummation of the Merger and the
transactions contemplated hereby; and (b) timely making all such filings
and timely seeking all such consents, approvals, permits or authorizations;
(iii) promptly notify each other of any communication concerning this
Agreement or the Merger to that party from any governmental authority and
permit the other party to review in advance any proposed communication
concerning this Agreement or the Merger to any governmental entity;
(iv) not agree to participate in any meeting or discussion with any
governmental authority in respect of any filings, investigation or other
inquiry concerning this Agreement or the Merger unless it consults with the
other party in advance and, to the extent permitted by such governmental
authority, gives the other party the opportunity to attend and participate
thereat;
(v) furnish the other party with copies of all correspondence, filings
and communications (and memoranda setting forth the substance thereof)
between them and their affiliates and their respective representatives on
the one hand, and any government or regulatory authority or members or
their respective staffs on the other hand, with respect to this Agreement
and the Merger; and
(vi) furnish the other party with such necessary information and
reasonable assistance as such other parties and their respective affiliates
may reasonably request in connection with their preparation of necessary
filings, registrations or submissions of information to any governmental or
regulatory authorities, including without limitation, any filings necessary
or appropriate under the provisions of the HSR Act.
(b) Without limiting Section 7.5(a), Parent and the Company shall:
(i) each use its best efforts to avoid the entry of, or to have
vacated or terminated, any decree, order or judgment that would restrain,
prevent or delay the Closing, including without limitation defending
through litigation on the merits any claim asserted in any court by any
party; and
(ii) each take any and all steps necessary to avoid or eliminate each
and every impediment under any antitrust, competition or trade regulation
law that may be asserted by any governmental entity with respect to the
Merger so as to enable the Closing to occur as soon as reasonably possible
(and in any event no later than 60 days following the termination of all
applicable waiting periods under the HSR Act, unless the parties are in
litigation with the government in which case at the conclusion of such
litigation), including without limitation, proposing, negotiating,
committing to and effecting, by consent decree, hold separate order or
otherwise, the sale, divestiture or disposition of such assets or
businesses of Parent or the Company or any of their respective subsidiaries
or otherwise take or commit to take any action that limits its freedom of
action with respect to, or its ability to retain, any of the businesses,
product lines or assets of Parent, the Company or their respective
subsidiaries, as may be required in order to avoid the entry of, or to the
effect the dissolution of, any injunction, temporary restraining order or
other order in any suit or proceeding, which would otherwise have the
effect of preventing or delaying the Closing. At the request of Parent, the
Company shall agree to divest, hold separate or otherwise take or commit to
take any action that limits its freedom of action with respect to, or its
ability to retain, any of the businesses, product lines or assets of the
Company or any of its Subsidiaries, provided that any such
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action may be conditioned upon the consummation of the Merger and the
transactions contemplated hereby. Notwithstanding anything to the contrary
contained in this Agreement, in connection with any filing or submission
required or action to be taken by Parent, the Company or any of their
respective Subsidiaries to consummate the Merger or other transactions
contemplated in this Agreement, the Company shall not, without Parent's
prior written consent, recommend, suggest or commit to any divestiture of
assets or businesses of the Company and its Subsidiaries.
SECTION 7.6 Inspection. From the date hereof to the Effective Time, each of
the Company and Parent shall allow all designated officers, attorneys,
accountants and other representatives of Parent or the Company, as the case may
be, access at all reasonable times upon reasonable notice to the records and
files, correspondence, audits and properties, as well as to all information
relating to commitments, contracts, titles and financial position, or otherwise
pertaining to the business and affairs of Parent and the Company and their
respective Subsidiaries, including inspection of such properties; provided that
no investigation pursuant to this Section 7.6 shall affect any representation or
warranty given by any party hereunder, and provided further that notwithstanding
the provision of information or investigation by any party, no party shall be
deemed to make any representation or warranty except as expressly set forth in
this Agreement. Notwithstanding the foregoing, no party shall be required to
provide any information which it reasonably believes it may not provide to the
other party by reason of applicable law, rules or regulations, which constitutes
information protected by attorney/client privilege, or which it is required to
keep confidential by reason of contract or agreement with third parties. The
parties hereto will make reasonable and appropriate substitute disclosure
arrangements under circumstances in which the restrictions of the preceding
sentence apply. Each of Parent and the Company agrees that it will not, and will
cause its respective representatives not to, use any information obtained
pursuant to this Section 7.6 for any purpose unrelated to the consummation of
the transactions contemplated by this Agreement.
SECTION 7.7 Publicity. The parties will consult with each other and will
mutually agree upon any press releases or public announcements pertaining to
this Agreement or the transactions contemplated hereby and shall not issue any
such press releases or make any such public announcements prior to such
consultation and agreement, except as may be required by applicable law or by
obligations pursuant to any listing agreement with any national securities
exchange, in which case the party proposing to issue such press release or make
such public announcement shall use its best efforts to consult in good faith
with the other party before issuing any such press releases or making any such
public announcements.
SECTION 7.8 Registration Statement.
(a) Each of Parent and the Company shall cooperate and promptly prepare and
Parent shall file with the SEC as soon as practicable a Registration Statement
on Form S-4 (the "Form S-4") under the Securities Act, with respect to the
Parent Common Stock issuable in the Merger, a portion of which Registration
Statement shall also serve as the joint proxy statement with respect to the
meetings of the stockholders of Parent and of the Company in connection with the
Merger (the "Proxy Statement/Prospectus"). The respective parties will cause the
Proxy Statement/Prospectus and the Form S-4 to comply as to form in all material
respects with the applicable provisions of the Securities Act, the Exchange Act
and the rules and regulations thereunder. Parent shall use its best efforts, and
the Company will cooperate with Parent, to have the Form S-4 declared effective
by the SEC as promptly as practicable. Parent shall use its reasonable best
efforts to obtain, prior to the effective date of the Form S-4, all necessary
state securities law or "Blue Sky" permits or approvals required to carry out
the transactions contemplated by this Agreement and will pay all expenses
incident thereto. Parent will advise the Company, promptly after it receives
notice thereof, of the time when the Form S-4 has become effective or any
supplement or amendment has been filed, the issuance of any stop order, the
suspension of the qualification of the Parent Common Stock issuable in
connection with the Merger for offering or sale in any jurisdiction, or any
request by the SEC for amendment of the Proxy Statement/Prospectus or the Form
S-4 or comments thereon and responses thereto or requests by the SEC for
additional information.
(b) Each of Parent and the Company will use its best efforts to cause the
Proxy Statement/Prospectus to be mailed to its stockholders as promptly as
practicable after the date hereof.
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(c) Each of Parent and the Company agrees that the information provided by
it for inclusion in the Proxy Statement/Prospectus and each amendment or
supplement thereto, at the time of mailing thereof and at the time of the
respective meetings of stockholders of Parent and of the Company, or, in the
case of information provided by it for inclusion in the Form S-4 or any
amendment or supplement thereto, at the time it is filed or becomes effective,
(i) will not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (ii) will comply as to form in all material respects with the
provisions of the Exchange Act.
SECTION 7.9 Listing Application. Parent shall promptly prepare and submit
to the NYSE a listing application covering the shares of Parent Common Stock
issuable in the Merger, and shall use its best efforts to obtain, prior to the
Effective Time, approval for the listing of such Parent Common Stock, subject to
official notice of issuance.
SECTION 7.10 Letters of Accountants.
(a) The Company shall use its reasonable best efforts to cause to be
delivered to Parent "comfort" letters of Deloitte & Touche LLP, the Company's
independent public accountants, dated the effective date of the Form S-4 and the
Closing Date, respectively, and addressed to Parent with regard to certain
financial information regarding the Company included in the Form S-4, in form
reasonably satisfactory to Parent and customary in scope and substance for
"comfort" letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4.
(b) Parent shall use its reasonable best efforts to cause to be delivered
to the Company "comfort" letters of Deloitte & Touche LLP, Parent's independent
public accountants, dated the effective date of the Form S-4 and the Closing
Date, respectively, and addressed to the Company, with regard to certain
financial information regarding Parent included in the Form S-4, in form
reasonably satisfactory to the Company and customary in scope and substance for
"comfort" letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4.
SECTION 7.11 Agreements of Rule 145 Affiliates. Prior to the Effective
Time, the Company shall cause to be prepared and delivered to Parent a list
identifying all persons who, at the time of the meeting or the meeting of the
Company's stockholders pursuant to Section 7.4, the Company believes may be
deemed to be "affiliates" of the Company, as that term is used in paragraphs (c)
and (d) of Rule 145 under the Securities Act (the "Rule 145 Affiliates"). Parent
shall be entitled to place restrictive legends on any shares of Parent Common
Stock received by such Rule 145 Affiliates. The Company shall use its best
efforts to cause each person who is identified as a Rule 145 Affiliate in such
list to deliver to Parent, at or prior to the Effective Time, a written
agreement, in the form to be approved by the parties hereto, that such Rule 145
Affiliate will not sell, pledge, transfer or otherwise dispose of any shares of
Parent Common Stock issued to such Rule 145 Affiliate pursuant to the Merger,
except pursuant to an effective registration statement or in compliance with
Rule 145 or an exemption from the registration requirements of the Securities
Act. The Company shall use its best efforts to cause each person who is
identified as a Rule 145 Affiliate in such list, and the Parent shall use its
best efforts to cause each person who is an affiliate of Parent, to sign on or
prior to the thirtieth day prior to the Effective Time a written agreement, in
the form to be approved by the Company and Parent, that such party will not sell
or in any other way reduce such party's risk relative to any shares of Parent
Common Stock received in the Merger (within the meaning of Section 201.01 of the
SEC's Financial Reporting Release No. 1), until such time as financial results
(including combined sales and net income) covering at least 30 days of
post-merger operations have been published, except as permitted by Staff
Accounting Bulletin No. 76 (or any successor thereto) issued by the SEC.
SECTION 7.12 Expenses. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, except
as expressly provided in Section 9.5.
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SECTION 7.13 Indemnification and Insurance.
(a) From and after the Effective Time, Parent and the Surviving Corporation
shall indemnify, defend and hold harmless to the fullest extent permitted under
applicable law each person who is, or has been at any time prior to the
Effective Time, an officer or director of the Company (or any Subsidiary or
division thereof) and each person who served at the request of the Company as a
director, officer, trustee or fiduciary of another corporation, partnership,
joint venture, trust, pension or other employee benefit plan or enterprise
(individually, an "Indemnified Party" and, collectively, the "Indemnified
Parties") against all losses, claims, damages, liabilities, costs or expenses
(including attorneys' fees), judgments, fines, penalties and amounts paid in
settlement in connection with any claim, action, suit, proceeding or
investigation arising out of or pertaining to acts or omissions, or alleged acts
or omissions, by them in their capacities as such, whether commenced, asserted
or claimed before or after the Effective Time. In the event of any such claim,
action, suit, proceeding or investigation (an "Action"), (i) Parent and the
Surviving Corporation shall pay, as incurred, the fees and expenses of counsel
selected by the Indemnified Party, which counsel shall be reasonably acceptable
to the Surviving Corporation, in advance of the final disposition of any such
Action to the fullest extent permitted by applicable law, and, if required, upon
receipt of any undertaking required by applicable law, and (ii) Parent and the
Surviving Corporation will cooperate in the defense of any such matter;
provided, however, the Surviving Corporation shall not be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld or delayed), and provided further, that Parent and the
Surviving Corporation shall not be obligated pursuant to this Section 7.13 to
pay the fees and disbursements of more than one counsel for all Indemnified
Parties in any single Action, unless, in the good faith judgment of any of the
Indemnified Parties, there is or may be a conflict of interests between two or
more of such Indemnified Parties, in which case there may be separate counsel
for each similarly situated group.
(b) The parties agree that the rights to indemnification, including
provisions relating to advances of expenses incurred in defense of any action or
suit, in the certificate of incorporation and bylaws of the Company and its
Subsidiaries with respect to matters occurring through the Effective Time, shall
survive the Merger and shall continue in full force and effect for a period of
six years from the Effective Time; provided, however, that all rights to
indemnification in respect of any Action pending or asserted or claim made
within such period shall continue until the disposition of such Action or
resolution of such claim.
(c) For a period of six years after the Effective Time, Parent and the
Surviving Corporation shall cause to be maintained officers' and directors'
liability insurance covering the Indemnified Parties who are or at any time
prior to the Effective Time covered by the Company's existing officers' and
directors' liability insurance policies on terms substantially no less
advantageous to the Indemnified Parties than such existing insurance; provided,
that after the third year after the Effective Time, the Surviving Corporation
shall not be required to pay annual premiums in excess of 250% of the last
annual premium paid by the Company prior to the date hereof (the amount of which
premium is set forth in the Company Disclosure Letter), but in such case shall
purchase as much coverage as reasonably practicable for such amount.
(d) The rights of each Indemnified Party hereunder shall be in addition to
any other rights such Indemnified Party may have under the certificate of
incorporation or bylaws of the Company or any of its Subsidiaries, under the
DGCL or otherwise. The provisions of this Section 7.13 shall survive the
consummation of the Merger and expressly are intended to benefit each of the
Indemnified Parties.
(e) In the event Parent, the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any other
person and shall not be the continuing or surviving corporation or entity in
such consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then and in either such case, proper
provision shall be made so that the successors and assigns of Parent or the
Surviving Corporation, as the case may be, shall assume the obligations set
forth in this Section 7.13.
SECTION 7.14 Certain Benefits.
(a) From and after the Effective Time, Parent and its Subsidiaries
(including the Surviving Corporation) will honor in accordance with their terms
the executive, employment and other agreements and arrangements
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set forth in Schedule 7.14(a)(i) of the Company Disclosure Letter or permitted
by Section 7.1(f) between the Company or its Subsidiaries and certain employees
and former employees thereof (the "Employment Agreements") and certain
executives and former executives thereof ("Executive Agreements") and all of the
Company Benefit Plans and the agreements described in Section 7.14(e); provided,
however, that nothing herein shall preclude any change in any Company Benefit
Plan effected on a prospective basis that is permitted pursuant to this Section
7.14 and the terms of the applicable Benefit Plan; provided, further, that the
WAII Retirement/Profit Sharing Plan and the WAII Benefits Restoration Plan (and
the related cash contribution bonus feature) described in Schedule 7.14(a)(ii)
of the Company Disclosure Letter (the "Profit Sharing Plans") shall be continued
at least through December 31, 1998 for Company Employees (as defined in Section
7.14(d)) without any adverse amendment or modification, the Company's
Supplemental Retirement Plan and the WAII Executive Retirement Plan described in
Schedule 7.14(a)(iii) of the Company Disclosure Letter (the "Retirement Plans")
shall be continued through at least December 31, 1998 without any adverse
amendment or modification, the Profit Sharing Plans shall be continued without
adverse amendment or modification for the Western Geophysical division of the
Company at least through the end of Parent's fiscal year ending in 2001 (and
shall be equitably adjusted by Parent to appropriately reflect the stand-alone
basis of Western Geophysical), and the "change of control" provisions in the
Profit Sharing Plans and the Retirement Plans shall in no event be adversely
amended or modified. Company performance in respect of calculations made under
the Profit Sharing Plans for 1998 shall be calculated without taking into
account any expenses or costs associated with or arising as a result of
transactions contemplated by this Agreement or any non-recurring charges that
would not reasonably be expected to have been incurred had the transactions
contemplated by this Agreement not occurred. Parent hereby acknowledges that the
consummation of the Merger or stockholder approval of the Merger, as applicable,
will result in a "change of control" under the Executive Agreements and the
Employment Agreements, the WAII Supplemental Retirement Plan, the WAII Executive
Retirement Plan and the other Company Benefit Plans set forth in Schedule
7.14(a)(i) of the Company Disclosure Letter. Parent shall cause the Surviving
Corporation (i) to assume the obligations of the Company under the Company
Benefit Plans as in effect immediately prior to the Effective Time, and to
continue to cover under such Company Benefit Plans all Company Employees and
former Company Employees who are participants therein immediately prior to the
Effective Time and who remain eligible to participate in such Company Benefit
Plans pursuant to the terms thereof and will provide aggregate employee benefits
to such Company Employees that are no less favorable than the aggregate employee
benefits provided them immediately prior to the Effective Time; provided, that
the Surviving Corporation at its sole option may, except as provided herein or
by the terms of such plans, amend such plans at any time following the Effective
Time to provide employee benefits to Company Employees which in the aggregate
are no less favorable than those applicable to similarly situated employees of
Parent or, (ii) in lieu thereof, except as provided herein or by the terms of
the Company Benefit Plans, to provide employee benefits to such Company
Employees under Parent Benefit Plans so that the aggregate employee benefits
provided to such Company Employees are no less favorable than those that are
applicable to similarly situated employees of Parent. After the Effective Time,
any Company Employee who is or becomes entitled to continued medical, dental,
hospitalization, long-term disability and life insurance coverage pursuant to an
agreement with the Company set forth in Schedule 7.14(a)(i) of the Company
Disclosure Letter will be entitled to participate under any medical, dental,
hospitalization, long-term disability and life insurance plan sponsored by
Parent or the Surviving Corporation which covers Company Employees under the
same terms and for payment of the same level of premiums as specified in his or
her agreement. The Surviving Corporation and Parent shall not be obligated
hereunder to cover any employee who is not a Company Employee or former Company
Employee or is not hired or offered employment prior to the Effective Time under
any employee benefit plan, program or arrangement. With respect to the Parent
Benefit Plans and any plans established by the Surviving Corporation, Parent and
the Surviving Corporation shall grant to all Company Employees, from and after
the Effective Time, credit for all service with the Company and its affiliates
and predecessors (and any other service credited by the Company under the
Company Benefit Plans) prior to the Effective Time for seniority, eligibility to
participate, eligibility for benefits, benefit accrual and vesting purposes. To
the extent Parent Benefit Plans provide medical or dental welfare benefits, such
plans shall waive any pre-existing conditions and actively-at-work exclusions
with respect to Company Employees (but only to the extent such Company Employees
were provided coverage under the Company Benefit Plans) and shall provide that
any expenses
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incurred on or before the Effective Time by or on behalf of any Company
Employees shall be taken into account under the Parent Benefit Plans for
purposes of satisfying applicable deductible, coinsurance and maximum
out-of-pocket provisions.
(b) The Company acknowledges that the consummation of the Merger will
generally result in a "change of control" under the executive agreements,
employment agreements, stock option plan and other employee benefit and welfare
plans of the Parent and its Subsidiaries containing change of control
provisions.
(c) Parent agrees to maintain the Company's severance or termination plans
and practices and the Company's Corporate Office Severance Plan (the "Company
Severance Plans") as in effect on the date hereof for a period of one year from
the Effective Time, and to maintain the Company's Executive Severance Plan
without amendment except pursuant to its terms, for the benefit of Company
Employees; provided, however, that any employees covered by such plans shall not
be covered by the Parent's Severance Plan or Executive Severance Plan during
such period that such Company's Employees are covered under the Company
Severance Plans or Executive Severance Plan, as applicable.
(d) For purposes of this Section 7.14, the term "Company Employees" shall
mean all individuals employed by the Company and its Subsidiaries (including
those on lay-off, disability or leave of absence, paid or unpaid) immediately
prior to the Effective Time.
(e) Parent shall enter into definitive employment agreements prior to the
Effective Time with the Company Employees set forth on Schedule 7.14(e) of the
Company Disclosure Letter pursuant to the terms set forth on Schedule 7.14(e) of
the Company Disclosure Letter. In the event such employment agreements are not
entered into, the terms set forth on Schedule 7.14(e) of the Company Disclosure
Letter shall govern the employment of such Company Employees.
(f) With respect to the Company's 1995 Incentive Compensation Plan and the
Company's Individual Performance Award Plan (collectively, the "Incentive
Plans"), within 30 days following the Effective Time Company Employees who
remain employed by the Company or its affiliates as of the Effective Time shall
be paid (to the extent a pro rata bonus is not paid under an employment
agreement) an amount equal to their maximum potential bonus awards under the
Incentive Plans, multiplied by a fraction equal to the number of days in 1998
through the Effective Time, divided by 365. The remainder of the 1998 maximum
potential bonus awards for Company Employees shall be paid in the first payroll
check in 1999, to those Company Employees who are employed with the Parent or
any of its affiliates on December 31, 1998 or have been terminated prior to such
date by the Company without cause, or terminated due to death or disability.
After the Effective Time, any bonuses for periods commencing on or after January
1, 1999 will be paid under Parent's plans and practices. "Cause" shall mean acts
of theft, unethical conduct or dishonesty affecting the assets, properties or
business of the Surviving Corporation or Parent, willful misconduct or continued
material dereliction of duty after notice has been provided.
(g) Parent shall not terminate, or permit the Surviving Corporation to
terminate, other than for Cause, the employment of the individuals set forth on
Schedule 7.14(g) of the Company Disclosure Letter prior to January 1, 1999.
SECTION 7.15 Reorganization; Pooling.
(a) From and after the date hereof and until the Effective Time, none of
Parent, the Company, or any of their respective Subsidiaries shall knowingly (i)
take any action, or fail to take any reasonable action, as a result of which the
Merger would fail to qualify as a reorganization within the meaning of section
368(a) of the Code or (ii) enter into any contract, agreement, commitment or
arrangement to take or fail to take any such action. Each of the parties shall
use its reasonable best efforts to obtain the opinions of counsel referred to in
Sections 8.2(b) and 8.3(b).
(b) From and after the date hereof and until the Effective Time, none of
the Company, Parent or any of their respective Subsidiaries shall knowingly (i)
take any action, or fail to take any reasonable action, that would prevent the
treatment of the Merger as a "pooling of interests" for financial accounting
purposes or (ii) enter into any contract, agreement, commitment or arrangement
to take or fail to take any such action.
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(c) Following the Effective Time, neither Parent nor any of its
Subsidiaries shall knowingly take any action or knowingly cause any action to be
taken which would cause the Merger to fail to qualify as a reorganization within
the meaning of section 368(a) of the Code (and any comparable provisions of
applicable state or local law).
SECTION 7.16 Rights Agreement. Prior to the Effective Time, the Board of
Directors of the Company shall take any action (including, if necessary,
amending or terminating (but with respect to termination, only as of immediately
prior to the Effective Time) the Rights Agreement) necessary so that none of the
execution and delivery of this Agreement, the Stock Option Agreements, the
conversion of shares of Company Common Stock into the right to receive Parent
Common Stock in accordance with Article 4 of this Agreement, the issuance of
Company Common Stock upon exercise of the option granted to Parent pursuant to
the applicable Stock Option Agreement, the consummation of the Merger, or any
other transaction contemplated hereby or by the Stock Option Agreements will
cause (i) the Company Rights to become exercisable under the Company Rights
Agreement, (ii) Parent or any of its Subsidiaries to be deemed an "Acquiring
Person" (as defined in the Company Rights Agreement), (iii) any such event to be
an event described in Section 11(a)(ii) or 13 of the Company Rights Agreement or
(iv) the "Shares Acquisition Date" or the "Distribution Date" (each as defined
in the Company Rights Agreement) to occur upon any such event, and so that the
Company Rights will expire immediately prior to the Effective Time. Neither the
Board of Directors of the Company nor the Company shall take any other action to
terminate the Company Rights Agreement, redeem the Company Rights, cause any
person not to be or become an "Acquiring Person" or otherwise amend the Company
Rights Agreement in a manner adverse to Parent.
ARTICLE 8
CONDITIONS
SECTION 8.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) (i) This Agreement and the Merger shall have been adopted and
approved by the affirmative vote of holders of a majority of the issued and
outstanding shares of Company Common Stock entitled to vote thereon; and
(ii) The issuance of the shares of Parent Common Stock pursuant to the
Merger shall have been approved by the holders of issued and outstanding
shares of Parent Common Stock as and to the extent required by the rules of
the NYSE.
(b) The waiting period applicable to the consummation of the Merger
shall have expired or been terminated under (i) the HSR Act and (ii) any
mandatory waiting period under any applicable foreign competition or
antitrust law or regulation where the failure to observe such waiting
period referred to in this clause (ii) would have a Parent Material Adverse
Effect or a Company Material Adverse Effect.
(c) None of the parties hereto shall be subject to any decree, order
or injunction of a court of competent jurisdiction, U.S. or foreign, which
prohibits the consummation of the Merger; provided, however, that prior to
invoking this condition each party agrees to comply with Section 7.5, and
with respect to other matters not covered by Section 7.5, to use its
commercially reasonable best efforts to have any such decree, order or
injunction lifted or vacated; and no statute, rule or regulation shall have
been enacted by any governmental authority which prohibits or makes
unlawful the consummation of the Merger.
(d) The Form S-4 shall have become effective and no stop order with
respect thereto shall be in effect.
(e) The shares of Parent Common Stock to be issued pursuant to the
Merger shall have been authorized for listing on the NYSE, subject to
official notice of issuance.
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(f) Parent and the Company shall have received from Deloitte & Touche
LLP letters that the Merger will be treated as a "pooling of interests" for
financial accounting purposes.
(g) The Company shall have received the written consent of the United
States Nuclear Regulatory Commission ("NRC") to the transfer of control of
all NRC licenses of the Company and its Subsidiaries pursuant to 10 CFR
30.34(b).
SECTION 8.2 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions:
(a) Parent shall have performed in all material respects its covenants
and agreements contained in this Agreement required to be performed on or
prior to the Closing Date and the representations and warranties of Parent
and Merger Sub contained in this Agreement and in any document delivered in
connection herewith shall be true and correct in all material respects as
of the date of this Agreement and as of the Closing Date (except for
representations and warranties made as of a specified date, which need be
true and correct in all material respects only as of the specified date),
and the Company shall have received a certificate of the Parent, executed
on its behalf by its President or a Vice President of Parent, dated the
Closing Date, certifying to such effect.
(b) The Company shall have received the opinion of Wachtell, Lipton,
Rosen & Katz, counsel to the Company, in form and substance reasonably
satisfactory to the Company, dated the Closing Date, a copy of which shall
be furnished to Parent, to the effect that (i) the Merger will be treated
for federal income tax purposes as a reorganization within the meaning of
section 368(a) of the Code and (ii) no gain or loss will be recognized by
the stockholders of the Company who exchange all of their Company Common
Stock solely for Parent Common Stock pursuant to the Merger (except with
respect to cash received in lieu of a fractional share interest in Parent
Common Stock). In rendering such opinion, such counsel shall be entitled to
receive and rely upon representations of officers of the Company and Parent
as to such matters as such counsel may reasonably request.
(c) At any time after the date of this Agreement, there shall not have
been any event or occurrence that has had or is likely to have a Parent
Material Adverse Effect.
SECTION 8.3 Conditions to Obligation of Parent and Merger Sub to Effect the
Merger. The obligations of Parent and Merger Sub to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) The Company shall have performed in all material respects its
covenants and agreements contained in this Agreement required to be
performed on or prior to the Closing Date and the representations and
warranties of the Company contained in this Agreement and in any document
delivered in connection herewith shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date
(except for representations and warranties made as of a specified date,
which need be true and correct in all material respects only as of the
specified date), and Parent shall have received a certificate of the
Company, executed on its behalf by its President or a Vice President of the
Company, dated the Closing Date, certifying to such effect.
(b) Parent shall have received the opinion of Baker & Botts, L.L.P.,
counsel to Parent, in form and substance reasonably satisfactory to Parent,
dated the Closing Date, a copy of which will be furnished to the Company,
to the effect that the (i) Merger will be treated for federal income tax
purposes as a reorganization within the meaning of section 368(a) of the
Code and (ii) no gain or loss will be recognized by the stockholders of the
Company who exchange all of their Company Common Stock solely for Parent
Common Stock pursuant to the Merger (except with respect to cash received
in lieu of a fractional share interest in Parent Common Stock). In
rendering such opinion, such counsel shall be entitled to receive and rely
upon representations of officers of the Company and Parent as to such
matters as such counsel may reasonably request.
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(c) At any time after the date of this Agreement, there shall not have
been any event or occurrence that has had or is likely to have a Company
Material Adverse Effect.
ARTICLE 9
TERMINATION
SECTION 9.1 Termination by Mutual Consent. This Agreement may be terminated
at any time prior to the Effective Time by the mutual written consent of the
Company and Parent.
SECTION 9.2 Termination by Parent or the Company. This Agreement may be
terminated by action of the Board of Directors of Parent or of the Company if:
(a) the Merger shall not have been consummated by October 31, 1998;
provided, however, that in the event Section 8.1(b)(i) or 8.1(c) or both
are the only conditions that are not satisfied or capable of being
immediately satisfied as a result of governmental litigation engaged in by
the parties pursuant to Section 7.5 under any antitrust, competition or
trade regulation law, such October 31, 1998 date shall be extended for a
period not to exceed the lesser of 90 days or the fifth business day after
the entrance by the court in which such litigation is pending of its
decision (whether or not subject to appeal or rehearing) in such
litigation; and provided, further, that the right to terminate this
Agreement pursuant to this clause (a) shall not be available to any party
whose failure to perform or observe in any material respect any of its
obligations under this Agreement in any manner shall have been the cause
of, or resulted in, the failure of the Merger to occur on or before such
date;
(b) a meeting (including adjournments and postponements) of the
Company's stockholders for the purpose of obtaining the approval required
by Section 8.1(a)(i) shall have been held and such stockholder approval
shall not have been obtained; or
(c) a meeting (including adjournments and postponements) of the
Parent's stockholders for the purpose of obtaining the approval required by
Section 8.1(a)(ii) shall have been held and such stockholder approval shall
not have been obtained; or
(d) a United States federal or state court of competent jurisdiction
or United States federal or state governmental, regulatory or
administrative agency or commission shall have issued an order, decree or
ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other
action shall have become final and non-appealable; provided, however, that
the party seeking to terminate this Agreement pursuant to this clause (d)
shall have complied with Section 7.5 and with respect to other matters not
covered by Section 7.5 shall have used its commercially reasonable best
efforts to remove such injunction, order or decree.
SECTION 9.3 Termination by the Company. This Agreement may be terminated
prior to the Effective Time, by action of the Board of Directors of the Company
after consultation with its legal advisors, if
(a) the Board of Directors of the Company determines that proceeding
with the Merger would be inconsistent with its fiduciary obligations by
reason of a Company Superior Proposal and elects to terminate this
Agreement effective prior to the Cutoff Date; provided that the Company may
not effect such termination pursuant to this Section 9.3(a) unless and
until (i) Parent receives at least one week's prior written notice from the
Company of its intention to effect such termination pursuant to this
Section 9.3(a); (ii) during such week, the Company shall, and shall cause
its respective financial and legal advisors to, consider any adjustment in
the terms and conditions of this Agreement that Parent may propose; and
provided, further, that any termination of this Agreement pursuant to this
Section 9.3(a) shall not be effective until the Company has made the $50
million payment required by Section 9.5(a)(i); or
(b) (i) there has been a breach by Parent or Merger Sub of any
representation, warranty, covenant or agreement set forth in this Agreement
or if any representation or warranty of Parent or Merger Sub shall have
become untrue, in either case such that the conditions set forth in Section
8.2(a) would not be
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satisfied and (ii) such breach is not curable, or, if curable, is not cured
within 30 days after written notice of such breach is given to Parent by
the Company; provided, however, that the right to terminate this Agreement
pursuant to Section 9.3(b) shall not be available to the Company if it, at
such time, is in material breach of any representation, warranty, covenant
or agreement set forth in this Agreement such that the condition set forth
in Section 8.3(a) shall not be satisfied; or
(c) the Board of Directors of Parent shall have withdrawn or
materially modified, in a manner adverse to the Company, its approval or
recommendation of the Merger or recommended a Parent Acquisition Proposal,
or resolved to do so; or
(d) on the date on which the Closing would otherwise occur, the Parent
Share Price shall be less than $35.00; provided that (i) Parent shall
receive at least three business days' prior written notice of its intent to
effect such termination pursuant to this Section 9.3(d) and (ii) during
such three business day period, Parent shall not have elected to increase
the Exchange Ratio by agreeing that the proviso in Section 4.1(c)(iv) shall
not be given effect.
SECTION 9.4 Termination by Parent. This Agreement may be terminated at any
time prior to the Effective Time, by action of the Board of Directors of Parent
after consultation with its legal advisors, if:
(a) the Board of Directors of Parent determines that proceeding with
the Merger would be inconsistent with its fiduciary obligations by reason
of a Parent Superior Proposal and elects to terminate this Agreement
effective prior to the Cutoff Date; provided that Parent may not effect
such termination pursuant to this Section 9.4(a) unless and until (i) the
Company receives at least one week's prior written notice from Parent of
its intention to effect such termination pursuant to this Section 9.4(a);
(ii) during such week, Parent shall, and shall cause its respective
financial and legal advisors to, consider any adjustment in the terms and
conditions of this Agreement that the Company may propose; and provided,
further, that any termination of this Agreement pursuant to this Section
9.4(a) shall not be effective until Parent has made the $50 million payment
required by Section 9.5(b)(i); or
(b) (i) there has been a breach by the Company of any representation,
warranty covenant or agreement set forth in this Agreement or if any
representation or warranty of the Company shall have become untrue, in
either case such that the conditions set forth in Section 8.3(a) would not
be satisfied and (ii) such breach is not curable, or, if curable, is not
cured within 30 days after written notice of such breach is given by Parent
to the Company; provided, however, that the right to terminate this
Agreement pursuant to Section 9.4(b) shall not be available to Parent if
it, at such time, is in material breach of any representation, warranty,
covenant or agreement set forth in this Agreement such that the conditions
set forth in Section 8.2(a) shall not be satisfied; or
(c) the Board of Directors of the Company shall have withdrawn or
materially modified, in a manner adverse to Parent, its approval or
recommendation of the Merger or recommended a Company Acquisition Proposal,
or resolved to do so.
SECTION 9.5 Effect of Termination.
(a) If this Agreement is terminated
(i) by the Company pursuant to Section 9.3(a) [fiduciary out]; or
(ii) after the public announcement of a Company Acquisition
Proposal, by the Company or Parent pursuant to Section 9.2(b) [failure
to obtain Company stockholder approval]; or
(iii) after the public announcement or receipt by the Company's
Board of Directors of a Company Acquisition Proposal, by Parent pursuant
to Section 9.4(c) [withdrawal of Company recommendation to
stockholders];
then the Company shall pay Parent a fee of $50 million (subject to reduction
pursuant to Section 9 of the applicable Stock Option Agreement) at the time of
such termination in cash by wire transfer to an account designated by Parent. In
addition, if within one year after such termination, the Company enters into a
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definitive agreement with respect to a Company Acquisition or a Company
Acquisition is consummated, in either case with the person making the Company
Acquisition Proposal related to the termination or any affiliate thereof, then
upon the consummation of such Company Acquisition, the Company shall pay Parent
an additional fee of $150 million (subject to reduction pursuant to Section 9 of
the applicable Stock Option Agreement) at the time of such consummation in cash
by wire transfer to an account designated by Parent. For purposes here, "Company
Acquisition" means (i) a consolidation, exchange of shares or merger of the
Company with any person, other than Parent or one of its Subsidiaries, and, in
the case of a merger, in which the Company shall not be the continuing or
surviving corporation, (ii) a merger of the Company with a person, other than
Parent or one of its Subsidiaries, in which the Company shall be the continuing
or surviving corporation but the then outstanding shares of Company Common Stock
shall be changed into or exchanged for stock or other securities of the Company
or any other person or cash or any other property or the shares of Company
Common Stock outstanding immediately before such merger shall after such merger
represent less than 50% of the voting stock of the Company outstanding
immediately after the merger, (iii) the acquisition of beneficial ownership of
50% or more of the voting stock of the Company by any person (as such term is
used under Section 13(d) of the Exchange Act), or (iv) a sale, lease or other
transfer of 50% or more of the assets of the Company to any person, other than
Parent or one of its Subsidiaries.
(b) If this Agreement is terminated
(i) by Parent pursuant to Section 9.4(a) [fiduciary out]; or
(ii) after the public announcement of a Parent Acquisition Proposal,
by the Company or Parent pursuant to Section 9.2(c) [failure to obtain
Parent stockholder approval]; or
(iii) after the public announcement or receipt by Parent's Board of
Directors of a Parent Acquisition Proposal, by the Company pursuant to
Section 9.3(c) [withdrawal of Parent recommendation to stockholders];
then Parent shall pay the Company a fee of $50 million (subject to reduction
pursuant to Section 9 of the applicable Stock Option Agreement) at the time of
such termination in cash by wire transfer to an account designated by the
Company. In addition, if within one year after such termination, Parent enters
into a definitive agreement with respect to a Parent Acquisition or a Parent
Acquisition is consummated, in either case with the person making the Parent
Acquisition Proposal related to the termination or any affiliate thereof, then
upon the consummation of such Parent Acquisition, Parent shall pay the Company
an additional fee of $150 million (subject to reduction pursuant to Section 9 of
the applicable Stock Option Agreement) at the time of such consummation in cash
by wire transfer to an account designated by the Company. For purposes here,
"Parent Acquisition" means (i) a consolidation, exchange of shares or merger of
Parent with any person, other than the Company or one of its Subsidiaries, and,
in the case of a merger, in which Parent shall not be the continuing or
surviving corporation, (ii) a merger of Parent with a person, other than the
Company or one of its Subsidiaries, in which Parent shall be the continuing or
surviving corporation but the then outstanding shares of Parent Common Stock
shall be changed into or exchanged for stock or other securities of Parent or
any other person or cash or any other property or the shares of Parent Common
Stock outstanding immediately before such merger shall after such merger
represent less than 50% of the voting stock of Parent outstanding immediately
after the merger, (iii) the acquisition of beneficial ownership of 50% or more
of the voting stock of Parent by any person (as such term is used under Section
13(d) of the Exchange Act), or (iv) a sale, lease or other transfer of 50% or
more of the assets of Parent to any person, other than the Company or one of its
Subsidiaries.
(c) In the event of termination of this Agreement and the abandonment of
the Merger pursuant to this Article 9, all obligations of the parties hereto
shall terminate, except the obligations of the parties pursuant to this Section
9.5 and Section 7.12 and except for the provisions of Sections 10.3, 10.4, 10.6,
10.8, 10.9, 10.12, 10.13 and 10.14, provided that nothing herein shall relieve
any party from any liability for any willful and material breach by such party
of any of its covenants or agreements set forth in this Agreement and all rights
and remedies of such nonbreaching party under this Agreement in the case of such
a willful and material breach, at law or in equity, shall be preserved.
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SECTION 9.6 Extension; Waiver. At any time prior to the Effective Time,
each party may by action taken by its Board of Directors, to the extent legally
allowed, (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE 10
GENERAL PROVISIONS
SECTION 10.1 Nonsurvival of Representations, Warranties and Agreements. All
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall not survive the Merger;
provided, however, that the agreements contained in Article 4 and in Sections
7.11, 7.12, 7.13, 7.14, 7.15 and this Article 10 and the agreements delivered
pursuant to this Agreement shall survive the Merger.
SECTION 10.2 Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission or by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:
(a) if to Parent or Merger Sub:
Baker Hughes Incorporated
3900 Essex Lane
Houston, Texas 77027
Attention: Lawrence O'Donnell, III
Facsimile: (713) 439-8472
with a copy to:
J. David Kirkland, Jr., Esq.
Baker & Botts, L.L.P.
One Shell Plaza
910 Louisiana
Houston, Texas 77002-4995
Facsimile: (713) 229-1522
(b) if to the Company:
Western Atlas Inc.
10205 Westheimer Road
Houston, Texas 77042
Attention: James E. Brasher
Facsimile: (713) 266-1717
with a copy to:
Daniel A. Neff, Esq.
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Facsimile: (212) 403-2000
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
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SECTION 10.3 Assignment; Binding Effect; Benefit. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, except for the provisions
of Section 3.3, Article 4 and Sections 7.13 and 7.14 (other than the provisions
regarding equitable adjustment of the Profit Sharing Plans) and except as
provided in any agreements delivered pursuant hereto (collectively, the "Third
Party Provisions"), nothing in this Agreement, expressed or implied, is intended
to confer on any person other than the parties hereto or their respective heirs,
successors, executors, administrators and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement. The Third Party
Provisions may be enforced by the beneficiaries thereof.
SECTION 10.4 Entire Agreement. This Agreement, the exhibits to this
Agreement, the Company Disclosure Letter, the Parent Disclosure Letter and any
documents delivered by the parties in connection herewith constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings among the parties with respect
thereto. No addition to or modification of any provision of this Agreement shall
be binding upon any party hereto unless made in writing and signed by all
parties hereto.
SECTION 10.5 Amendments. This Agreement may be amended by the parties
hereto, by action taken or authorized by their Boards of Directors, at any time
before or after approval of matters presented in connection with the Merger by
the stockholders of the Company or Parent, but after any such stockholder
approval, no amendment shall be made which by law requires the further approval
of stockholders without obtaining such further approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
SECTION 10.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
its rules of conflict of laws. Each of the Company and Parent hereby irrevocably
and unconditionally consents to submit to the exclusive jurisdiction of the
courts of the State of Delaware and of the United States of America located in
the State of Delaware (the "Delaware Courts") for any litigation arising out of
or relating to this Agreement and the transactions contemplated hereby (and
agrees not to commence any litigation relating thereto except in such courts),
waives any objection to the laying of venue of any such litigation in the
Delaware Courts and agrees not to plead or claim in any Delaware Court that such
litigation brought therein has been brought in an inconvenient forum.
SECTION 10.7 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
SECTION 10.8 Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretative effect whatsoever.
SECTION 10.9 Interpretation. In this Agreement:
(a) Unless the context otherwise requires, words describing the
singular number shall include the plural and vice versa, and words denoting
any gender shall include all genders and words denoting natural persons
shall include corporations and partnerships and vice versa.
(b) The phrase "to the knowledge of" and similar phrases relating to
knowledge of the Company or Parent, as the case may be, shall mean the
actual knowledge of its executive officers.
(c) "Material Adverse Effect" with respect to the Company or Parent
shall mean a material adverse effect or change on (a) the business or
financial condition of a party and its Subsidiaries on a consolidated
basis, except for such changes or effects in general economic, capital
market, regulatory or political conditions or changes that affect generally
the energy services industry or (b) the ability of the party to consummate
the transactions contemplated by this Agreement or fulfill the conditions
to closing.
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"Company Material Adverse Effect" and "Parent Material Adverse Effect" mean
a Material Adverse Effect with respect to the Company and Parent,
respectively.
SECTION 10.10 Waivers. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
SECTION 10.11 Incorporation of Exhibits. The Company Disclosure Letter, the
Parent Disclosure Letter and all exhibits attached hereto and referred to herein
are hereby incorporated herein and made a part hereof for all purposes as if
fully set forth herein.
SECTION 10.12 Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broadly as is enforceable.
SECTION 10.13 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any Delaware Court, this
being in addition to any other remedy to which they are entitled at law or in
equity.
SECTION 10.14 Obligation of Parent. Whenever this Agreement requires Merger
Sub (or its successors) to take any action, such requirement shall be deemed to
include an undertaking on the part of Parent to cause Merger Sub to take such
action and a guarantee of the performance thereof.
SECTION 10.15 Subsidiaries. As used in this Agreement, the word
"Subsidiary" when used with respect to any party means any corporation or other
organization, whether incorporated or unincorporated, of which such party
directly or indirectly owns or controls at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the board of directors or others performing similar functions with respect to
such corporation or other organization, or any organization of which such party
is a general partner.
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IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
BAKER HUGHES INCORPORATED
By: /s/ MAX L. LUKENS
----------------------------------
Name: Max L. Lukens
Title: Chairman of the Board,
President & CEO
BAKER HUGHES DELAWARE I, INC.
By: /s/ LAWRENCE O'DONNELL, III
----------------------------------
Name: Lawrence O'Donnell, III
Title: Vice President
WESTERN ATLAS INC.
By: /s/ ALTON J. BRANN
----------------------------------
Name: Alton J. Brann
Title: Chairman of the Board
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<PAGE> 114
APPENDIX B
[LETTERHEAD OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED]
May 10, 1998
Board of Directors
Baker Hughes Incorporated
3900 Essex Lane, Suite 1200
Houston, Texas 77027
Members of the Board of Directors:
Western Atlas Inc. (the "Company"), Baker Hughes Incorporated ("Baker
Hughes") and a newly formed, wholly-owned subsidiary of Baker Hughes (the
"Acquisition Sub"), propose to enter into an Agreement and Plan of Merger (the
"Agreement") pursuant to which the Company will be merged with the Acquisition
Sub in a transaction (the "Merger") in which each outstanding share of the
Company's common stock, par value $1.00 per share (the "Company Shares"), will
be converted into the right to receive 2.400 shares, subject to adjustment as
described below (as adjusted, the "Exchange Ratio"), of the common stock of
Baker Hughes, par value $1.00 per share (the "Baker Hughes Shares"), if the
average closing price for Baker Hughes Shares for the twenty trading days ending
five days before closing (the "Value of Baker Hughes Shares") is between $38.25
and $42.75. The Exchange Ratio is subject to adjustment as follows: (i) if the
Value of Baker Hughes Shares is below $35.00, either (a) Baker Hughes may adjust
the Exchange Ratio to provide that each Company Share will be converted into the
right to receive a number of Baker Hughes Shares having a value equal to $91.80,
based on the Value of Baker Hughes Shares or (b) if Baker Hughes does not adjust
the Exchange Ratio as described in (a), the Company may terminate the Agreement;
(ii) if the Value of Baker Hughes Shares is between $35.00 and $38.25, the
Exchange Ratio will be adjusted to provide that each Company Share will be
converted into the right to receive a number of Baker Hughes Shares having a
value equal to $91.80, based on the Value of Baker Hughes Shares; (iii) if the
Value of Baker Hughes Shares is between $42.75 and $44.75, the Exchange Ratio
will be adjusted to provide that each Company Share will be converted into the
right to receive a number of Baker Hughes Shares having a value equal to
$102.60, based on the Value of Baker Hughes Shares; and (iv) if the Value of
Baker Hughes Shares is above $44.75, the Exchange Ratio will be 2.293.
You have asked us whether, in our opinion, the Exchange Ratio is fair from
a financial point of view to Baker Hughes.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial
information relating to the Company and Baker Hughes that we deemed to be
relevant;
(2) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities and
prospects of the Company and Baker Hughes, as well as the amount and timing
of the cost savings and related expenses and synergies expected to result
from the Merger (the "Expected Synergies") furnished to us by Baker Hughes.
(3) Conducted discussions with members of senior management and
representatives of the Company and Baker Hughes concerning the matters
described in clauses 1 and 2 above, as well as their respective businesses
and prospects before and after giving effect to the Merger and the Expected
Synergies;
(4) Reviewed the market prices and valuation multiples for the Company
Shares and Baker Hughes Shares and compared them with those of certain
publicly traded companies that we deemed to be relevant;
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(5) Reviewed the results of operations of the Company and Baker Hughes
and compared them with those of certain publicly traded companies that we
deemed to be relevant;
(6) Compared the proposed financial terms of the Merger with the
financial terms of certain other transactions that we deemed to be
relevant;
(7) Participated in certain discussions and negotiations among
representatives of the Company and Baker Hughes and their respective
financial and legal advisors;
(8) Reviewed the potential pro forma impacts of the Merger on Baker
Hughes;
(9) Reviewed a draft of the Agreement; and
(10) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our assessment
of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities, whether contingent or otherwise, of the Company or Baker Hughes or
been furnished with any such evaluation or appraisal. In addition, we have not
assumed any obligation to conduct, nor have we conducted, any physical
inspection of the properties or facilities of the Company or Baker Hughes. With
respect to the financial forecast information and the Expected Synergies, we
have assumed that they have been reasonably prepared and reflect the best
currently available estimates and judgments of the Company's or Baker Hughes'
management as to the expected future financial performance of the Company or
Baker Hughes, as the case may be, and the Expected Synergies (including the
estimates of timing and expense associated therewith), and we have relied upon
the foregoing in preparing our opinion. We have further assumed that the Merger
will be accounted for as a pooling of interests under generally accepted
accounting principles and that it will qualify as a tax-free reorganization for
U.S. federal income tax purposes. In addition, we have assumed that the Exchange
Ratio will not exceed 2.623 Baker Hughes Shares. We have also assumed that the
final form of the Agreement will be substantially similar to the last draft
reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Merger, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a material adverse
effect on the contemplated benefits of the Merger.
We are acting as financial advisor to Baker Hughes in connection with the
Merger and will receive a fee from Baker Hughes for our services, the payment of
which is contingent upon the consummation of the Merger. In addition, Baker
Hughes has agreed to indemnify us for certain liabilities arising out of our
engagement. We have, in the past, provided financial advisory and financing
services to Baker Hughes and/or its affiliates and may continue to do so and
have received, and may receive, fees for rendering such services. In addition,
in the ordinary course of our business, we may actively trade the Company
Shares, Baker Hughes shares and other securities of Baker Hughes, for our own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of Baker
Hughes. Our opinion does not address the merits of the underlying decision by
Baker Hughes to engage in the Merger and does not constitute a recommendation to
any stockholder of the Company or Baker Hughes as to how such stockholder should
vote on the proposed Merger.
We are not expressing any opinion herein as to the prices at which Baker
Hughes Shares will trade following the announcement of consummation of the
Merger.
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On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Exchange Ratio is fair from a financial point of view
to Baker Hughes.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
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<PAGE> 117
APPENDIX C
[LETTERHEAD OF CREDIT SUISSE FIRST BOSTON CORPORATION]
May 10, 1998
Board of Directors
Western Atlas Inc.
10205 Westheimer Road
Houston, Texas 77042
Members of the Board:
You have asked us to advise you with respect to the fairness to the holders of
the common stock of Western Atlas Inc. ("Western Atlas") from a financial point
of view of the consideration to be received by such holders pursuant to the
terms of the Agreement and Plan of Merger, dated as of May 10, 1998 (the "Merger
Agreement"), by and among Baker Hughes Incorporated ("Baker Hughes"), Baker
Hughes Delaware I, Inc., a wholly owned subsidiary of Baker Hughes ("Merger
Sub"), and Western Atlas. The Merger Agreement provides for, among other things,
the merger of Merger Sub with and into Western Atlas (the "Merger") pursuant to
which each outstanding share of the common stock, par value $1.00 per share, of
Western Atlas (the "Western Atlas Common Stock") will be converted into the
right to receive (i) 2.40 shares of the common stock, par value $1.00 per share,
of Baker Hughes (the "Baker Hughes Common Stock"), if the average of the per
share closing prices of Baker Hughes Common Stock for the 20 consecutive trading
days ending on the fifth trading day prior to the closing date for the Merger
(the "Baker Hughes Share Price") is greater than or equal to $38.25 but less
than or equal to $42.75, (ii) that number of shares of Baker Hughes Common Stock
equal to the quotient obtained by dividing $102.60 by the Baker Hughes Share
Price, if the Baker Hughes Share Price is greater than $42.75 but less than or
equal to $44.75, (iii) 2.293 shares of Baker Hughes Common Stock, if the Baker
Hughes Share Price is greater than $44.75 and (iv) that number of shares of
Baker Hughes Common Stock equal to the quotient obtained by dividing $91.80 by
the Baker Hughes Share Price, if the Baker Hughes Share Price is less than
$38.25; provided that, except as otherwise provided in the Merger Agreement, in
no event will the number of shares of Baker Hughes Common Stock issuable in the
Merger exceed 2.623 notwithstanding that the Baker Hughes Share Price is less
than $35.00 (the number of shares of Baker Hughes Common Stock into which shares
of Western Atlas Common Stock will be so exchanged in the Merger, the "Exchange
Ratio").
In arriving at our opinion, we have reviewed the Merger Agreement and certain
publicly available business and financial information relating to Western Atlas
and Baker Hughes. We have also reviewed certain other information relating to
Western Atlas and Baker Hughes, including financial forecasts, provided to us by
Western Atlas and Baker Hughes, and have met with the managements of Western
Atlas and Baker Hughes to discuss the businesses and prospects of Western Atlas
and Baker Hughes.
We have also considered certain financial and stock market data of Western Atlas
and Baker Hughes, and we have compared those data with similar data for other
publicly held companies in businesses similar to Western Atlas and Baker Hughes,
and we have considered, to the extent publicly available, the financial terms of
certain other business combinations and other transactions which have recently
been effected. We also considered such other information, financial studies,
analyses and investigations and financial, economic and market criteria which we
deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that such forecasts have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the managements of Western Atlas and Baker Hughes as to the future
financial performance of Western Atlas and Baker Hughes and the potential
synergies and strategic benefits (including the amount, timing and achievability
thereof) anticipated to result
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Board of Directors
Western Atlas Inc.
May 10, 1998
Page 2
from the Merger. We also have assumed, with your consent, that the Merger will
be treated as a pooling of interests in accordance with generally accepted
accounting principles and as a tax-free reorganization for federal income tax
purposes. In addition, we have not been requested to make, and have not made, an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of Western Atlas and Baker Hughes, nor have we been furnished with
any such evaluations or appraisals. Our opinion is necessarily based upon
information available to us, and financial, economic, market and other
conditions as they exist and can be evaluated, on the date hereof. We are not
expressing any opinion as to the actual value of the Baker Hughes Common Stock
when issued pursuant to the Merger or the prices at which the Baker Hughes
Common Stock will trade subsequent to the Merger. In connection with our
engagement, we were not requested to, and we did not, solicit third party
indications of interest in acquiring all or any part of Western Atlas.
We have acted as financial advisor to Western Atlas in connection with the
Merger and will receive a fee for such services, a significant portion of which
is contingent upon the consummation of the Merger. We also will receive a fee
upon the delivery of this opinion. We have in the past provided financial
services to Western Atlas and Baker Hughes and are currently providing financial
services to Western Atlas unrelated to the proposed Merger, for which services
we have received and will receive compensation. In the ordinary course of its
business, Credit Suisse First Boston and its affiliates may actively trade the
debt and equity securities of both Western Atlas and Baker Hughes for their own
accounts and for the accounts of customers and, accordingly, may at any time
hold long or short positions in such securities.
It is understood that this letter is for the information of the Board of
Directors of Western Atlas in connection with its evaluation of the Merger, does
not constitute a recommendation to any stockholder as to how such stockholder
should vote with respect to the Merger, and is not to be quoted or referred to,
in whole or in part, in any registration statement, prospectus or proxy
statement, or in any other document used in connection with the offering or sale
of securities, nor shall this letter be used for any other purposes, without our
prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Exchange Ratio is fair to the holders of Western Atlas Common Stock
from a financial point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Baker Hughes' Restated Certificate of Incorporation contains a provision
that eliminates the personal liability of a director to Baker Hughes and its
stockholders for monetary damages for breach of his fiduciary duty as a director
to the extent currently allowed under the Delaware General Corporation Law. If a
director were to breach such duty in performing his duties as a director,
neither Baker Hughes nor its stockholders could recover monetary damages from
the director, and the only course of action available to Baker Hughes'
stockholders would be equitable remedies, such as an action to enjoin or rescind
a transaction involving a breach of fiduciary duty. To the extent certain claims
against directors are limited to equitable remedies, the provision in Baker
Hughes' Restated Certificate of Incorporation may reduce the likelihood of
derivative litigation and may discourage stockholders or management from
initiating litigation against directors for breach of their fiduciary duty.
Additionally, equitable remedies may not be effective in many situations. If a
stockholder's only remedy is to enjoin the completion of the Board of Directors'
action, this remedy would be ineffective if the stockholder does not become
aware of a transaction or event until after it has been completed. In such a
situation, it is possible that the stockholders and Baker Hughes would have no
effective remedy against the directors. Under Baker Hughes' Restated Certificate
of Incorporation, liability for monetary damages remains for (i) any breach of
the duty of loyalty to Baker Hughes or its stockholders, (ii) acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) payment of an improper dividend or improper repurchase of Baker
Hughes' stock under Section 174 of the Delaware General Corporation Law, or (iv)
any transaction from which the director derived an improper personal benefit.
Baker Hughes' Restated Certificate of Incorporation further provides that in the
event the Delaware General Corporation Law is amended to allow the further
elimination or limitation of the liability of directors, then the liability of
Baker Hughes' directors shall be limited or eliminated to the fullest extent
permitted by the amended Delaware General Corporation Law.
Under Article III of Baker Hughes' By-laws as currently in effect and an
indemnification agreement with Baker Hughes' officers and directors (the
"Indemnification Agreement"), each person who is or was a director or officer of
Baker Hughes or a subsidiary of Baker Hughes, or who serves or served any other
enterprise or organization at the request of Baker Hughes or a subsidiary of
Baker Hughes, shall be indemnified by Baker Hughes to the full extent permitted
by the Delaware General Corporation Law.
Under such law, to the extent that such person is successful on the merits
in defense of a suit or proceeding brought against him by reason of the fact
that he is or was a director or officer of Baker Hughes, or serves or served any
other enterprise or organization at the request of Baker Hughes, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred in connection with such action.
Under such law, if unsuccessful in defense of a third-party civil suit or a
criminal suit, or if such suit is settled, such a person shall be indemnified
against both (i) expenses, including attorneys' fees, and (ii) judgments, fines
and amounts paid in settlement if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of Baker
Hughes, and, with respect to any criminal action, had no reasonable cause to
believe his conduct was unlawful.
If unsuccessful in defense of a suit brought by or in the right of Baker
Hughes, or if such a suit is settled, such a person shall be indemnified under
such law only against expenses (including attorneys' fees) actually and
reasonably incurred in the defense or settlement of such suit if he acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of Baker Hughes, except that if such person is adjudged to be
liable in such a suit for negligence or misconduct in the performance of his
duty to Baker Hughes, he cannot be made whole for expenses unless the court
determines that he is fairly and reasonably entitled to indemnity for such
expenses.
The Indemnification Agreement provides directors and officers with specific
contractual assurance that indemnification and advancement of expenses will be
available to them regardless of any amendments to or
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revocation of the indemnification provisions of Baker Hughes' By-laws. The
Indemnification Agreement provides for indemnification of directors and officers
against both stockholder derivative claims and third-party claims. Sections
145(a) and 145(b) of the Delaware General Corporation Law, which grant
corporations the power to indemnify directors and officers, specifically
authorize lesser indemnification in connection with derivative claims than in
connection with third-party claims. The distinction is that Section 145(a),
concerning third-party claims, authorizes expenses and judgments and amounts
paid in settlement (as is provided in the Indemnification Agreement), but
Section 145(b), concerning derivative suits, generally authorizes only
indemnification of expenses. However, Section 145(f) expressly provides that the
indemnification and advancement of expenses provided by or granted pursuant to
the subsections of Section 145 shall not be exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any agreement. No Delaware case directly answers the question whether
Delaware's public policy would support this aspect of the Indemnification
Agreement under the authority of Section 145(f), or would cause its invalidation
because it does not conform to the distinctions contained in Sections 145(a) and
145(b).
Pursuant to the Indemnification Agreement, Baker Hughes has agreed to
provide, at all times during the two-year period following a "change in control"
(as defined in the Indemnification Agreement) of Baker Hughes, irrevocable
letters of credit in an aggregate amount not less than $25,000,000 for the
benefit of the officers and directors of Baker Hughes to secure its obligations
under the Indemnification Agreement.
Delaware corporations also are authorized to obtain insurance to protect
officers and directors from certain liabilities, including liabilities against
which the corporation cannot indemnify its directors and officers. Baker Hughes
currently has in effect a directors' and officers' liability insurance policy.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
2.1 -- Agreement and Plan of Merger among Baker Hughes
Incorporated, Baker Hughes Delaware I, Inc. and Western
Atlas Inc., dated as of May 10, 1998 (included as
Appendix A to the Joint Proxy Statement/Prospectus that
constitutes a part of this Registration Statement).
4.1 -- Rights of Holders of Baker Hughes' Long-Term Debt. Baker
Hughes Incorporated has no long-term debt instrument with
regard to which the securities authorized thereunder
equal or exceed 10% of the total assets of Baker Hughes
and its subsidiaries on a consolidated basis. Baker
Hughes agrees to furnish a copy of its long-term debt
instruments to the SEC upon request.
4.2 -- Restated Certificate of Incorporation (filed as Exhibit
3.1 to Annual Report of Baker Hughes Incorporated on Form
10-K for the year ended September 30, 1993 and
incorporated herein by reference).
4.3 -- By-Laws (filed as Exhibit 3.2 to Annual Report of Baker
Hughes Incorporated on Form 10-K for the year ended
September 30, 1997 and incorporated herein by reference).
4.4 -- Certificate of Designation of Series L Preferred Stock of
Baker Hughes Incorporated (filed as Exhibit 4.4 to Annual
Report of Baker Hughes Incorporated on Form 10-K for the
year ended September 30, 1996 and incorporated herein by
reference).
5.1 -- Opinion of Baker & Botts, L.L.P. with respect to legality
of securities.
8.1 -- Opinion of Wachtell, Lipton, Rosen & Katz with respect to
certain tax matters.
10.1 -- Stock Option Agreement, dated as of May 10, 1998, between
Baker Hughes Incorporated, as issuer, and Western Atlas
Inc., as grantee (filed as Exhibit 2.2 to the Current
Report of Baker Hughes Incorporated on Form 8-K dated May
20, 1998 and incorporated herein by reference).
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
10.2 -- Stock Option Agreement, dated as of May 10, 1998, between
Western Atlas Inc., as issuer, and Baker Hughes
Incorporated, as grantee (filed as Exhibit 2.3 to the
Current Report of Baker Hughes Incorporated on Form 8-K
dated May 20, 1998 and incorporated herein by reference).
23.1 -- Consent of Deloitte & Touche LLP with respect to Baker
Hughes Incorporated.
23.2 -- Consent of Deloitte & Touche LLP with respect to Western
Atlas Inc.
23.3 -- Consent of Baker & Botts, L.L.P. (contained in Exhibit
5.1).
23.4 -- Consent of Wachtell, Lipton, Rosen & Katz (contained in
Exhibit 8.1).
24.1 -- Powers of Attorney (See page II-5).
99.1 -- Form of Proxy Card of Baker Hughes Incorporated.
99.2 -- Form of Proxy Card of Western Atlas Inc.
99.3 -- Chairman's Letter and Notice for the Special Meeting of
Stockholders of Baker Hughes Incorporated to be held on
August 10, 1998.
99.4 -- Letter of Chairman and President and Notice for the
Special Meeting of Stockholders of Western Atlas Inc. to
be held on August 10, 1998.
99.5 -- Consent of Merrill Lynch & Co.
99.6 -- Consent of Credit Suisse First Boston Corporation.
99.7 -- Consents of Alton J. Brann, John R. Russell, Joseph T.
Casey and Claire W. Gargalli as persons to become
directors.
</TABLE>
(b) Financial Statement Schedules.
Not applicable.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(c) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (b) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 122
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant for the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE> 123
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Max L. Lukens, Eric L. Mattson and Lawrence
O'Donnell, III and each of them, each of whom may act without joinder of the
other, his or her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any or all pre- and post-effective
amendments to this Registration Statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully as to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, and each of them, or the substitute or substitutes of any or all of
them, may lawfully do or cause to be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Houston, State of Texas,
on June 30, 1998.
BAKER HUGHES INCORPORATED
By: /s/ LAWRENCE O'DONNELL, III
----------------------------------
Lawrence O'Donnell, III
Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MAX L. LUKENS President, Chief Executive Officer June 30, 1998
- ----------------------------------------------------- and Chairman of the Board
Max L. Lukens (principal executive officer)
/s/ ERIC L. MATTSON Senior Vice President and Chief June 30, 1998
- ----------------------------------------------------- Financial Officer (principal
Eric L. Mattson financial officer)
/s/ JAMES E. BRAUN Vice President and Controller June 30, 1998
- ----------------------------------------------------- (principal accounting officer)
James E. Braun
/s/ LESTER M. ALBERTHAL, JR. Director June 30, 1998
- -----------------------------------------------------
Lester M. Alberthal, Jr.
/s/ PAUL M. ANDERSON Director June 30, 1998
- -----------------------------------------------------
Paul M. Anderson
/s/ VICTOR G. BEGHINI Director June 30, 1998
- -----------------------------------------------------
Victor G. Beghini
Director
- -----------------------------------------------------
Eunice M. Filter
</TABLE>
II-5
<PAGE> 124
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JOE B. FOSTER Director June 30, 1998
- -----------------------------------------------------
Joe B. Foster
/s/ RICHARD D. KINDER Director June 30, 1998
- -----------------------------------------------------
Richard D. Kinder
/s/ JOHN F. MAHER Director June 30, 1998
- -----------------------------------------------------
John F. Maher
/s/ JAMES F. MCCALL Director June 30, 1998
- -----------------------------------------------------
James F. McCall
/s/ H. JOHN RILEY, JR. Director June 30, 1998
- -----------------------------------------------------
H. John Riley, Jr.
/s/ CHARLES L. WATSON Director June 30, 1998
- -----------------------------------------------------
Charles L. Watson
/s/ MAX P. WATSON, JR. Director June 30, 1998
- -----------------------------------------------------
Max P. Watson, Jr.
</TABLE>
II-6
<PAGE> 125
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
2.1 -- Agreement and Plan of Merger among Baker Hughes
Incorporated, Baker Hughes Delaware I, Inc. and Western
Atlas Inc., dated as of May 10, 1998 (included as
Appendix A to the Joint Proxy Statement/Prospectus that
constitutes a part of this Registration Statement).
4.1 -- Rights of Holders of Baker Hughes' Long-Term Debt. Baker
Hughes Incorporated has no long-term debt instrument with
regard to which the securities authorized thereunder
equal or exceed 10% of the total assets of Baker Hughes
and its subsidiaries on a consolidated basis. Baker
Hughes agrees to furnish a copy of its long-term debt
instruments to the SEC upon request.
4.2 -- Restated Certificate of Incorporation (filed as Exhibit
3.1 to Annual Report of Baker Hughes Incorporated on Form
10-K for the year ended September 30, 1993 and
incorporated herein by reference).
4.3 -- By-Laws (filed as Exhibit 3.2 to Annual Report of Baker
Hughes Incorporated on Form 10-K for the year ended
September 30, 1997 and incorporated herein by reference).
4.4 -- Certificate of Designation of Series L Preferred Stock of
Baker Hughes Incorporated (filed as Exhibit 4.4 to Annual
Report of Baker Hughes Incorporated on Form 10-K for the
year ended September 30, 1996 and incorporated herein by
reference).
5.1 -- Opinion of Baker & Botts, L.L.P. with respect to legality
of securities.
8.1 -- Opinion of Wachtell, Lipton, Rosen & Katz with respect to
certain tax matters.
10.1 -- Stock Option Agreement, dated as of May 10, 1998, between
Baker Hughes Incorporated, as issuer, and Western Atlas
Inc., as grantee (filed as Exhibit 2.2 to the Current
Report of Baker Hughes Incorporated on Form 8-K dated May
20, 1998 and incorporated herein by reference).
10.2 -- Stock Option Agreement, dated as of May 10, 1998, between
Western Atlas Inc., as issuer, and Baker Hughes
Incorporated, as grantee (filed as Exhibit 2.3 to the
Current Report of Baker Hughes Incorporated on Form 8-K
dated May 20, 1998 and incorporated herein by reference).
23.1 -- Consent of Deloitte & Touche LLP with respect to Baker
Hughes Incorporated.
23.2 -- Consent of Deloitte & Touche LLP with respect to Western
Atlas Inc.
23.3 -- Consent of Baker & Botts, L.L.P. (contained in Exhibit
5.1).
23.4 -- Consent of Wachtell, Lipton, Rosen & Katz (contained in
Exhibit 8.1).
24.1 -- Powers of Attorney (See page II-5).
99.1 -- Form of Proxy Card of Baker Hughes Incorporated.
99.2 -- Form of Proxy Card of Western Atlas Inc.
99.3 -- Chairman's Letter and Notice for the Special Meeting of
Stockholders of Baker Hughes Incorporated to be held on
August 10, 1998.
99.4 -- Letter of Chairman and President and Notice for the
Special Meeting of Stockholders of Western Atlas Inc. to
be held on August 10, 1998.
99.5 -- Consent of Merrill Lynch & Co.
99.6 -- Consent of Credit Suisse First Boston Corporation.
99.7 -- Consents of Alton J. Brann, John R. Russell, Joseph T.
Casey and Claire W. Gargalli as persons to become
directors.
</TABLE>
<PAGE> 1
EXHIBIT 5.1
[BAKER & BOTTS, L.L.P. LETTERHEAD]
014377.0132 June 30, 1998
Baker Hughes Incorporated
3900 Essex Lane
Houston, Texas 77027
Gentlemen:
As set forth in the Registration Statement on Form S-4 (the
"Registration Statement") to be filed by Baker Hughes Incorporated, a Delaware
corporation (the "Company"), with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"), relating
to the proposed issuance of up to 156,000,000 shares (the "Shares") of the
Company's common stock, par value $1.00 per share ("Common Stock"), we are
passing upon certain legal matters in connection with the Common Stock for the
Company. The Shares are to be issued pursuant to the terms and provisions of the
Agreement and Plan of Merger, dated as of May 10, 1998 (the "Merger Agreement"),
among the Company, Baker Hughes Delaware I, Inc. and Western Atlas Inc. At your
request, we are furnishing this opinion to you for filing as Exhibit 5.1 to the
Registration Statement.
In our capacity as your counsel in the connection referred to above,
we have examined the Restated Certificate of Incorporation and Bylaws of the
Company and the originals, or copies certified or otherwise identified, of
corporate records of the Company, including minute books of the Company as
furnished to us by the Company, certificates of public officials and of
representatives of the Company, statutes and other instruments and documents as
a basis for the opinions hereinafter expressed. In giving such opinions, we have
relied upon certificates of officers of the Company and of public officials with
respect to the accuracy of the material factual matters contained in such
certificates.
Based on our examination as aforesaid, we are of the opinion that:
1. The Company is a corporation duly incorporated and validly
existing in good standing under the laws of the State of Delaware.
2. When the required approval of the stockholders of the Company has
been obtained as set forth in the Merger Agreement, upon the issuance by
the Company of the Shares upon consummation of the Merger (as defined in
the Merger Agreement) pursuant to the Merger Agreement, such Shares will be
duly authorized, validly issued, fully paid and nonassessable.
<PAGE> 2
Baker Hughes Incorporated - 2 - June 30, 1998
This opinion is limited in all respects to the General Corporation Law
of the State of Delaware.
We hereby consent to the reference to our Firm under the caption
"Legal Matters" in the Joint Proxy Statement/Prospectus included in the
Registration Statement and to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. In giving such consent, we do not
admit that we are within the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the Commission thereunder.
Very truly yours,
BAKER & BOTTS, L.L.P.
<PAGE> 1
EXHIBIT 8.1
[Letterhead of Wachtell, Lipton, Rosen & Katz]
July 1, 1998
Western Atlas Inc.
10205 Westheimer Road
Houston, TX 77042-3115
Ladies/Gentlemen:
We have acted as special counsel to Western Atlas, Inc., a Delaware
corporation ("Western Atlas"), in connection with the proposed merger (the
"Merger") of Baker Hughes Delaware I, Inc., a Delaware corporation
("Merger Sub") and wholly-owned subsidiary of Baker Hughes Incorporated, a
Delaware corporation ("Baker Hughes"), with and into Western Atlas, pursuant to
the Agreement and Plan of Merger (the "Agreement") dated as of May 10, 1998,
by and among Baker Hughes, Western Atlas, and Merger Sub. At your request, and
in connection with the filing of the Registration Statement of Baker Hughes on
Form S-4 (the "Registration Statement") filed with the Securities and Exchange
Commission in connection with the Merger, we are rendering our opinion
concerning certain federal income tax consequences of the Merger.
For purposes of the opinion set forth below, we have relied, with the
consent of Western Atlas and the consent of Baker Hughes, upon the accuracy and
completeness of the statements and representations (which statements and
representations we have neither investigated nor verified) contained,
respectively, in the certificates of the officers of Western Atlas and Baker
Hughes dated the date hereof, and have assumed that such statements and
representations will be complete and accurate as of the Effective Time and that
all representations made to the knowledge of any person or entity or with
similar qualification are and will be true and correct as if made without such
qualification. We have also relied upon the accuracy of the Registration
Statement and the joint proxy statement/prospectus of Western Atlas and Baker
<PAGE> 2
Hughes (the "Joint Proxy Statement/Prospectus") filed with the Securities and
Exchange Commission in connection with the Merger. Any capitalized term used
and not defined herein has the meaning given to it in the Joint Proxy
Statement/Prospectus or the appendices thereto (including the Agreement).
We have also assumed that: (i) the transactions contemplated by the
Agreement will be consummated in accordance therewith and as described in the
Joint Proxy Statement/Prospectus (and no transaction or condition stated
therein and material to this opinion will be waived by any party); (ii) Merger
Sub is a transitory corporation formed solely for the purpose of effecting the
Merger; and (iii) the Merger will qualify as a statutory merger under the
applicable laws of the State of Delaware.
Based upon and subject to the foregoing, it is our opinion, under
currently applicable United States federal income tax law, that: (i) the Merger
will be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, and
(ii) no gain or loss will be recognized by Western Atlas stockholders who
exchange all of their Western Atlas Common Stock solely for Baker Hughes Common
Stock pursuant to the Merger (except with respect to cash received in lieu of a
fractional share interest in Baker Hughes Common Stock).
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement, and to the
references to us under the captions "SUMMARY -- Certain Federal Income Tax
Consequences" and "THE MERGER -- Certain Federal Income Tax Consequences." In
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of
1933, as amended.
This opinion relates solely to certain federal income tax consequences of
the Merger and no opinion is expressed as to the tax consequences under any
foreign, state or local tax law or under any federal tax law other than those
pertaining to the income tax.
We are furnishing this opinion to you solely in connection with the
Merger and this opinion is not to be relied upon, circulated, quoted or
otherwise referred to by other persons for any purpose.
Very truly yours,
/s/ WACHTELL, LIPTON, ROSEN & KATZ
-2-
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Baker Hughes Incorporated on Form S-4 of our report dated November 12, 1997
(which expresses an unqualified opinion and includes an explanatory paragraph
relating to the change in the method of accounting for postemployment benefits
and for impairment of long-lived assets to be disposed of to conform with
Statements of Financial Accounting Standards Nos. 112 and 121, respectively, as
discussed in Note 1), incorporated by reference in the Annual Report on Form
10-K of Baker Hughes Incorporated for the year ended September 30, 1997, and to
the reference to us under the heading "Experts" in the Joint Proxy
Statement/Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Houston, Texas
June 29, 1998
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Baker Hughes Incorporated on Form S-4 of our report dated February 18, 1998
(March 9, 1998 with respect to Note N) appearing in the Annual Report on Form
10-K of Western Atlas Inc. for the year ended December 31, 1997, as amended, and
to the reference to us under the heading "Experts" in the Joint Proxy
Statement/Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Houston, Texas
June 29, 1998
<PAGE> 1
PROXY
BAKER HUGHES INCORPORATED
Proxy Solicited by the Board of Directors for Special Meeting
August 10, 1998 9:00 a.m., Houston Time
The undersigned hereby constitutes and appoints Max L. Lukens, Eric L. Mattson
and Lawrence O'Donnell, III, and each of them, attorneys with full power of
substitution, with the powers the undersigned would possess if personally
present, to vote all shares of Common Stock of the undersigned in BAKER HUGHES
INCORPORATED at the Special Meeting of Stockholders to be held August 10, 1998,
and at any reconvened meeting after any adjournment or postponement thereof and
all matters properly coming before the meeting.
IMPORTANT -- THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.
- --------------------------------------------------------------------------------
o FOLD AND DETACH HERE o
<PAGE> 2
Please mark
your votes as
indicated in
this example [X]
This proxy will be voted as directed below or, if no direction is indicated,
will be voted FOR Item 1, which vote is recommend by the Board of Directors.
1. APPROVAL OF THE ISSUANCE OF SHARES OF BAKER HUGHES COMMON STOCK PURSUANT TO
THE MERGER AGREEMENT
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
- --------------------------------------------------------------------------------
*** IF YOU WISH TO VOTE BY TELEPHONE, PLEASE READ THE INSTRUCTIONS BELOW ***
- --------------------------------------------------------------------------------
Dated _______________________, 1998
___________________________________
___________________________________
(This proxy must be signed exactly
as the stockholder's name appears
hereon. If acting as attorney,
executor, or trustee, or in a
corporate or representative
capacity, please sign name and
title.)
- --------------------------------------------------------------------------------
o FOLD AND DETACH HERE o
-- VOTE BY TELEPHONE --
QUICK *** EASY *** IMMEDIATE
YOUR VOTE IS IMPORTANT
You can vote in one of two ways:
1. Mark, sign and date your proxy card, and return it promptly in the enclosed
envelope.
or
Call toll free 1-800-840-1208 on a touch tone telephone, and follow the
instructions below. There is NO CHARGE to you for this call.
PLEASE VOTE
Your telephone vote authorizes the named proxies to vote your shares in the
same manner as if you marked, signed and returned your proxy card.
CALL TOLL FREE ON A TOUCH-TONE TELEPHONE 1-800-840-1208 ANY-TIME, 24 HOURS A
DAY. THERE IS NO CHARGE FOR THIS CALL.
You will be asked to enter the 11-digit Control Number located in the box in
the lower right hand corner of this Form.
ITEM 1: To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
When asked, you must confirm your vote by pressing 1.
Thank you for voting.
PLEASE DO NOT RETURN THE ABOVE PROXY CARD IF VOTED BY PHONE.
<PAGE> 1
WESTERN ATLAS INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD AUGUST 10, 1998
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The signatory of this Proxy, by executing on the reverse side of this Proxy,
hereby appoints and constitutes William H. Flores, James E. Brasher and Lourdes
T. Hernandez, and each of them, with full power of substitution, with the powers
the signatory of this Proxy would possess if personally present, to vote all
shares of Western Atlas Inc. Common Stock entitled to be voted by the signatory
at the Special Meeting of Stockholders to be held at 9:00 a.m., Houston time, on
August 10, 1998, or at any reconvened meeting after any adjournment or
postponement thereof, on the matter set forth on the reverse side in accordance
with any directions given by the signatory and, in their discretion, on all
other matters that may properly come before the Special Meeting or any
reconvened meeting after any adjournment or postponement thereof.
IMPORTANT -- PLEASE SIGN AND DATE ON THE REVERSE SIDE AND RETURN PROMPTLY.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED ON THE
REVERSE SIDE. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR ITEM 1.
-------------------------------------------------------------------------------
O FOLD AND DETACH PROXY CARD HERE O
YOUR VOTE IS IMPORTANT.
YOU CAN VOTE IN THE FOLLOWING WAYS:
(1) BY PROXY. PLEASE TEAR OFF THE TOP PORTION OF THIS SHEET AND
MARK, SIGN AND DATE YOUR PROXY CARD AND PROMPTLY RETURN IT IN
THE ENCLOSED ENVELOPE.
(2) VIA TELEPHONE. CALL TOLL FREE 1-800-840-1208 ON A TOUCH TONE
TELEPHONE, AND FOLLOW THE INSTRUCTIONS ON THE REVERSE SIDE.
THERE IS NO CHARGE TO YOU FOR THIS CALL.
(3) IN PERSON. YOU MAY ATTEND THE SPECIAL MEETING AND VOTE IN
PERSON.
PLEASE
VOTE
<PAGE> 2
<TABLE>
<S> <C> <C>
WESTERN ATLAS INC. Please mark [X]
SPECIAL MEETING OF STOCKHOLDERS your vote
like this
</TABLE>
THIS PROXY WILL BE VOTED AS DIRECTED BELOW, OR IF NO DIRECTION IS INDICATED,
WILL BE VOTED "FOR" ITEM 1. THE BOARD OF DIRECTORS RECOMMENDS A
VOTE "FOR" ITEM 1.
1. Approval and adoption of the Merger Agreement and the Merger as described in
the accompanying Joint Proxy Statement/Prospectus.
[ ] For [ ] Against [ ] Abstain
*** IF YOU WISH TO VOTE BY TELEPHONE, PLEASE READ THE INSTRUCTIONS BELOW ***
<TABLE>
<S> <C>
[ ] I (WE) PLAN TO ATTEND THE
SPECIAL MEETING OF
STOCKHOLDERS ON MONDAY,
AUGUST 10, 1998.
</TABLE>
Please sign your name as it
appears hereon. Executors,
administrators, guardians, and
others signing in a fiduciary
capacity should indicate such
capacity when signing. If
shares are held jointly, each
holder should sign.
Date
-------------------------
Signature(s)
-----------------
------------------------------
-------------------------------------------------------------------------------
O FOLD AND DETACH PROXY CARD HERE O
VOTE BY TELEPHONE ** QUICK ** EASY ** IMMEDIATE
To: Western Atlas Inc. Stockholders
You may vote your shares as indicated above and on the reverse side. If you wish
to vote by telephone, the telephone vote authorizes the named proxies to vote
your shares in the same manner as if you had marked, signed and returned your
proxy card. To vote by telephone, CALL TOLL FREE ON A TOUCH-TONE TELEPHONE
1-800-840-1208 ANYTIME, 24 HOURS A DAY UNTIL 7:00 P.M. ON SUNDAY, AUGUST 9,
1998. THERE IS NO CHARGE FOR THIS CALL. You will be asked to enter the 11-digit
Control Number located in the box in the lower right hand corner of the above
proxy card. ITEM 1: to vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
When asked, you must confirm your vote by pressing 1.
If you plan to attend the Special Meeting of Stockholders to be held on Monday,
August 10, 1998, please check the appropriate box on the proxy card.
Please vote by telephone or vote by signing the proxy card and returning it
promptly to ensure your representation at the Special Meeting.
YOUR VOTE IS IMPORTANT.
Thank you.
WESTERN ATLAS INC.
<PAGE> 1
[Baker Hughes Letterhead]
July , 1998
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders of
Baker Hughes Incorporated to be held on Monday, August 10, 1998, at 9:00 a.m.,
Houston time, at the offices of Baker Hughes, 3900 Essex Lane, Suite 210,
Houston, Texas.
At the meeting, you will be asked to consider and vote upon a proposal to
issue shares of Baker Hughes common stock in connection with the Merger
Agreement between Baker Hughes and Western Atlas Inc. Under the Merger
Agreement, a subsidiary of Baker Hughes will be merged with Western Atlas, with
Western Atlas surviving as a subsidiary of Baker Hughes. As a result of the
merger, each outstanding share of Western Atlas common stock will be converted
into shares of Baker Hughes common stock as described in the accompanying Joint
Proxy Statement/Prospectus based on the average closing price of Baker Hughes
common stock during a specified period prior to the closing date of the merger.
If the merger had occurred on July 1, 1998, each share of Western Atlas common
stock would have been converted into 2.5816 shares of Baker Hughes common stock.
Based on this exchange ratio, former stockholders of Western Atlas would own
approximately 45% of the outstanding shares of Baker Hughes common stock after
the closing of the merger.
In connection with the merger, Alton J. Brann, John R. Russell, Joseph T.
Casey and Claire W. Gargalli, who are currently directors of Western Atlas, will
become directors of Baker Hughes as of the effective date of the merger.
The Board of Directors of Baker Hughes has carefully reviewed and
considered the terms and conditions of the proposed merger. The Board of
Directors has received a written opinion from Merrill Lynch & Co. as to the
fairness to Baker Hughes, from a financial point of view, of the exchange ratio
for the merger. A copy of this opinion is attached as Appendix B to the
accompanying Joint Proxy Statement/Prospectus and should be read carefully in
its entirety.
Assuming a quorum is present at the meeting, the affirmative vote of the
holders of a majority of the shares of Baker Hughes common stock present in
person or represented by proxy and entitled to vote on the matter is required
for approval of the issuance of the shares of Baker Hughes common stock pursuant
to the Merger Agreement.
FOR THE REASONS DETAILED IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS, THE BOARD OF DIRECTORS OF BAKER HUGHES HAS UNANIMOUSLY
DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF BAKER HUGHES AND ITS
STOCKHOLDERS. ACCORDINGLY, THE BOARD HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MERGER AND UNANIMOUSLY RECOMMENDS THAT ALL STOCKHOLDERS VOTE
FOR APPROVAL OF THE ISSUANCE OF SHARES OF BAKER HUGHES COMMON STOCK PURSUANT TO
THE MERGER AGREEMENT.
I urge you to review and consider the accompanying Joint Proxy
Statement/Prospectus carefully, which contains a detailed description of the
Merger Agreement, the merger and related matters.
Whether or not you plan to attend the meeting personally, please complete,
sign and date the enclosed proxy, and return it as soon as possible in the
enclosed postage prepaid envelope. You may revoke your proxy any time prior to
its exercise, and you may attend the meeting and vote in person, even if you
have previously returned your proxy.
Sincerely,
MAX L. LUKENS
Chairman, President and Chief
Executive Officer
<PAGE> 2
BAKER HUGHES INCORPORATED
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 10, 1998
To the Stockholders of Baker Hughes Incorporated:
A Special Meeting of the Stockholders of Baker Hughes Incorporated ("Baker
Hughes") will be held on August 10, 1998, at 9:00 a.m., Houston time, at the
offices of Baker Hughes, 3900 Essex Lane, Suite 210, Houston, Texas, to act upon
a proposal to approve the issuance of shares of common stock, par value $1.00
per share, of Baker Hughes ("Baker Hughes Common Stock") in connection with the
Agreement and Plan of Merger dated as of May 10, 1998, among Baker Hughes, Baker
Hughes Delaware I, Inc., a wholly owned subsidiary of Baker Hughes ("Merger
Sub"), and Western Atlas Inc. ("Western Atlas"), pursuant to which Merger Sub
will be merged with and into Western Atlas, with Western Atlas surviving as a
direct, wholly owned subsidiary of Baker Hughes (the "Merger"), as more fully
described in the accompanying Joint Proxy Statement/Prospectus.
As a result of the Merger, each share of common stock, par value $1.00 per
share, of Western Atlas ("Western Atlas Common Stock") issued and outstanding
immediately prior to the effective time of the Merger will be converted into the
right to receive shares of Baker Hughes Common Stock based on the average of the
per share closing prices of Baker Hughes Common Stock as reported on the New
York Stock Exchange, Inc. for the 20 consecutive trading days ending on the
fifth trading day prior to the closing date of the Merger, as more fully
described in the accompanying Joint Proxy Statement/Prospectus. If the Merger
had occurred on July 1, 1998, each share of Western Atlas Common Stock would
have been converted into the right to receive 2.5816 shares of Baker Hughes
Common Stock.
In connection with the Merger, Alton J. Brann, John R. Russell, Joseph T.
Casey and Claire W. Gargalli, who are currently directors of Western Atlas, will
become directors of Baker Hughes as of the effective date of the Merger.
Only stockholders of record at the close of business on June 17, 1998 are
entitled to notice of, and to vote at, the meeting or any reconvened meeting
after any adjournment or postponement thereof. A list of those stockholders will
be available for examination for proper purposes during ordinary business hours
at the offices of Baker Hughes at 3900 Essex Lane, Suite 1200, Houston, Texas
77027, for a period of at least ten days prior to the meeting.
A Joint Proxy Statement/Prospectus containing a detailed description of the
matters to be considered at the meeting accompanies this notice.
You are invited to attend the meeting in person. Whether or not you plan to
attend the meeting personally, please complete, sign and date the enclosed
proxy, and return it as soon as possible in the enclosed postage prepaid
envelope. You may revoke your proxy any time prior to its exercise, and you may
attend the meeting and vote in person, even if you have previously returned your
proxy. You may also exercise your proxy by telephone by following the
instructions on the enclosed proxy card. The deadline for voting by telephone is
7:00 p.m., Houston time, on August 9, 1998, the day before the meeting, or such
later date that is the day before any reconvened meeting after any adjournment
or postponement thereof. If you vote by telephone, you still may vote in person
or by returning a signed and later-dated proxy, and you may revoke your proxy
any time prior to its exercise.
By order of the Board of Directors,
LINDA J. SMITH
Secretary
Houston, Texas
July , 1998
<PAGE> 1
[Western Atlas Letterhead]
July , 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Western Atlas Inc. to be held on August 10, 1998, at 9:00 a.m., Houston time, at
the offices of Western Atlas located at 10205 Westheimer Road, 4th Floor
Auditorium, Houston, Texas.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger between Western
Atlas and Baker Hughes Incorporated. Under the Merger Agreement, a subsidiary of
Baker Hughes will be merged with Western Atlas, with Western Atlas surviving as
a wholly owned subsidiary of Baker Hughes. As a result of the merger, each
outstanding share of Western Atlas common stock will be converted into shares of
Baker Hughes common stock as described in the accompanying Joint Proxy
Statement/Prospectus based on the average closing price of Baker Hughes common
stock during a specified period prior to the closing date of the merger (the
"Exchange Ratio"). If the merger had occurred on July 1, 1998, the Exchange
Ratio would have been 2.5816. Based on this Exchange Ratio, former stockholders
of Western Atlas would own approximately 45% of the outstanding shares of Baker
Hughes common stock after the closing of the merger.
In connection with the merger, Alton J. Brann, John R. Russell, Joseph T.
Casey and Claire W. Gargalli, who are currently directors of Western Atlas, will
become directors of Baker Hughes as of the effective date of the merger.
The Board of Directors of Western Atlas has carefully reviewed and
considered the terms and conditions of the proposed merger. The Board of
Directors has received a written opinion dated May 10, 1998 of Credit Suisse
First Boston Corporation, financial advisor to Western Atlas in connection with
the merger, as to the fairness of the Exchange Ratio, from a financial point of
view, to the holders of Western Atlas common stock. A copy of this opinion is
attached as Appendix C to the accompanying Joint Proxy Statement/Prospectus and
should be read carefully in its entirety.
Under Delaware law, the affirmative vote of the holders of at least a
majority of the outstanding shares of Western Atlas common stock entitled to
vote on the matter is required to approve and adopt the Merger Agreement and the
merger. Western Atlas' stockholders will not be entitled to any appraisal or
dissenters' rights in connection with the merger.
FOR THE REASONS DETAILED IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS, THE BOARD OF DIRECTORS OF WESTERN ATLAS HAS UNANIMOUSLY
DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE MERGER, TAKEN TOGETHER, ARE FAIR TO, AND IN THE BEST INTERESTS OF,
WESTERN ATLAS' STOCKHOLDERS. ACCORDINGLY, THE BOARD HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND THE MERGER AND UNANIMOUSLY RECOMMENDS THAT ALL STOCKHOLDERS
VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
We urge you to review and consider the accompanying Joint Proxy
Statement/Prospectus carefully, which contains a detailed description of the
Merger Agreement, the merger and related matters.
If the Merger Agreement is approved and adopted and the merger is
consummated, you will be sent instructions regarding the surrender of your
certificates representing shares of Western Atlas common stock. Please do not
send any stock certificates at this time.
Whether or not you plan to attend the Special Meeting personally, please
complete, sign and date the enclosed proxy, and return it as soon as possible in
the enclosed postage prepaid envelope. You may revoke your proxy any time prior
to its exercise, and you may attend the Special Meeting and vote in person, even
if you have previously returned your proxy.
Sincerely,
ALTON J. BRANN
Chairman of the Board JOHN R. RUSSELL
President and Chief Executive
Officer
<PAGE> 2
WESTERN ATLAS INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 10, 1998
To the Stockholders of Western Atlas Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of the Stockholders (the
"Special Meeting") of Western Atlas Inc., a Delaware corporation ("Western
Atlas"), will be held on August 10, 1998, at 9:00 a.m., Houston time, at the
offices of Western Atlas located at 10205 Westheimer Road, 4th Floor Auditorium,
Houston, Texas to consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger (the "Merger Agreement") dated as of May 10, 1998,
among Baker Hughes Incorporated ("Baker Hughes"), Baker Hughes Delaware I, Inc.,
a wholly owned subsidiary of Baker Hughes ("Merger Sub"), and Western Atlas, and
the merger of Merger Sub with and into Western Atlas, with Western Atlas
surviving as a direct, wholly owned subsidiary of Baker Hughes (the "Merger").
As a result of the Merger, each share of common stock, par value $1.00 per
share, of Western Atlas issued and outstanding immediately prior to the
effective time of the Merger will be converted into the right to receive a
number of shares (the "Exchange Ratio") of common stock, par value $1.00 per
share, of Baker Hughes based on the average of the per share closing prices of
Baker Hughes common stock as reported on the New York Stock Exchange, Inc. for
the 20 consecutive trading days ending on the fifth trading day prior to the
closing date of the Merger (the "Baker Hughes Share Price"), as described in the
accompanying Joint Proxy Statement/Prospectus.
The Exchange Ratio will be 2.4 if the Baker Hughes Share Price is greater
than or equal to $38.25 and less than or equal to $42.75. If the Baker Hughes
Share Price is greater than or equal to $35.00 and less than $38.25, the
Exchange Ratio adjusts to maintain the value (based on the Baker Hughes Share
Price) of the Baker Hughes common stock issued for each share of Western Atlas
common stock at $91.80. Similarly, if the Baker Hughes Share Price is greater
than $42.75 and less than or equal to $44.75, the Exchange Ratio adjusts to
maintain the value of the Baker Hughes common stock issued for each share of
Western Atlas common stock at $102.60. If the Baker Hughes Share Price exceeds
$44.75, the Exchange Ratio is fixed at 2.293. If the Baker Hughes Share Price is
below $35.00, the Exchange Ratio is fixed at 2.623, and Western Atlas has the
option to terminate the Merger Agreement unless Baker Hughes then elects to
issue additional shares of Baker Hughes common stock to maintain the value of
the Baker Hughes common stock issued for each share of Western Atlas common
stock at $91.80. If the Merger had occurred on July 1, 1998, the Baker Hughes
Share Price would have been $35.5594 and the Exchange Ratio accordingly would
have been 2.5816.
In connection with the Merger, Alton J. Brann, John R. Russell, Joseph T.
Casey and Claire W. Gargalli, who are currently directors of Western Atlas, will
become directors of Baker Hughes as of the effective time of the Merger.
Only stockholders of record at the close of business on June 17, 1998 are
entitled to notice of, and to vote at, the Special Meeting or any reconvened
meeting after any adjournment or postponement thereof. A complete list of such
stockholders will be open for examination by any stockholder for any purpose
germane to the Special Meeting at the offices of Western Atlas at 10205
Westheimer Road, Houston, Texas for a period of at least ten days prior to the
Special Meeting.
A Joint Proxy Statement/Prospectus containing a detailed description of the
matters to be considered at the Special Meeting accompanies this notice.
You are cordially invited to attend the Special Meeting in person. Whether
or not you plan to attend the Special Meeting personally, please complete, sign
and date the enclosed proxy, and return it as soon as possible in the enclosed
postage prepaid envelope. You may revoke your proxy any time prior to its
exercise, and you may attend the Special Meeting and vote in person, even if you
have previously returned your proxy. You may also exercise your proxy by
telephone by following the instructions on the enclosed proxy card. The deadline
for voting by telephone is 7:00 p.m., Houston time, on August 9, 1998, the day
before the Special Meeting, or such later date that is the day before any
reconvened meeting after any adjournment or
<PAGE> 3
postponement thereof. If you vote by telephone, you still may vote in person or
by returning a signed and later-dated proxy, and you may revoke your proxy at
any time prior to its exercise.
By Order of the Board of Directors,
LOURDES T. HERNANDEZ
Vice President and Secretary
Houston, Texas
July , 1998
2
<PAGE> 1
EXHIBIT 99.5
CONSENT OF MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
We hereby consent to the use of our opinion letter dated May 8, 1998,
to the Board of Directors of Baker Hughes Incorporated ("Baker Hughes")
included as Appendix B to the Joint Proxy Statement/Prospectus which forms a
part of the Registration Statement on Form S-4 relating to the proposed merger
of Western Atlas, Inc. and a wholly-owned subsidiary of Baker Hughes and to the
references to such opinion in such Joint Proxy Statement/Prospectus under the
captions "SUMMARY -- THE MERGER -- Opinions of Financial Advisors" and "THE
MERGER -- Opinion of Merrill Lynch". In giving such consent, we do not admit
that we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder, nor do we
thereby admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission thereunder.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
Houston, Texas
June 30, 1998
<PAGE> 1
EXHIBIT 99.6
[LETTERHEAD OF CREDIT SUISSE FIRST BOSTON CORPORATION]
Board of Directors
Western Atlas Inc.
10205 Westheimer Road
Houston, Texas 77042
Members of the Board:
We hereby consent to the inclusion of our opinion letter to the Board of
Directors of Western Atlas Inc. ("Western Atlas") as Appendix C to the Joint
Proxy Statement/Prospectus of Western Atlas and Baker Hughes Incorporated
("Baker Hughes") relating to the proposed merger transaction involving Western
Atlas and Baker Hughes. In giving such consent, we do not admit that we come
within the category of persons whose consent is required under, and we do not
admit that we are "experts" for purposes of, the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
By: /s/ Credit Suisse First Boston Corporation
------------------------------------------
CREDIT SUISSE FIRST BOSTON CORPORATION
New York, New York
June 30, 1998
<PAGE> 1
EXHIBIT 99.7
CONSENT OF PERSON TO BECOME DIRECTOR
Pursuant to Rule 438 of the Securities Act of 1933, as amended, the
undersigned hereby consents to being named in the Joint Proxy
Statement/Prospectus forming a part of this Registration Statement on
Form S-4 as a person to become a director of Baker Hughes Incorporated upon
consummation of the merger of Baker Hughes Delaware I, Inc. with and into
Western Atlas Inc.
/s/ ALTON J. BRANN
--------------------------
Alton J. Brann
June 30, 1998
<PAGE> 2
CONSENT OF PERSON TO BECOME DIRECTOR
Pursuant to Rule 438 of the Securities Act of 1933, as amended, the
undersigned hereby consents to being named in the Joint Proxy
Statement/Prospectus forming a part of this Registration Statement on
Form S-4 as a person to become a director of Baker Hughes Incorporated upon
consummation of the merger of Baker Hughes Delaware I, Inc. with and into
Western Atlas Inc.
/s/ JOHN R. RUSSELL
--------------------------
John R. Russell
June 30, 1998
<PAGE> 3
CONSENT OF PERSON TO BECOME DIRECTOR
Pursuant to Rule 438 of the Securities Act of 1933, as amended, the
undersigned hereby consents to being named in the Joint Proxy
Statement/Prospectus forming a part of this Registration Statement on
Form S-4 as a person to become a director of Baker Hughes Incorporated upon
consummation of the merger of Baker Hughes Delaware I, Inc. with and into
Western Atlas Inc.
/s/ JOSEPH T. CASEY
--------------------------
Joseph T. Casey
June 30, 1998
<PAGE> 4
CONSENT OF PERSON TO BECOME DIRECTOR
Pursuant to Rule 438 of the Securities Act of 1933, as amended, the
undersigned hereby consents to being named in the Joint Proxy
Statement/Prospectus forming a part of this Registration Statement on
Form S-4 as a person to become a director of Baker Hughes Incorporated upon
consummation of the merger of Baker Hughes Delaware I, Inc. with and into
Western Atlas Inc.
/s/ CLAIRE W. GARGALLI
--------------------------
Claire W. Gargalli
June 30, 1998
