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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
BAKER HUGHES INCORPORATED
-------------------------
(Name of Issuer)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
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(Title of Class of Securities)
057224 10 7
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(CUSIP Number)
JAMES E. BRASHER
WESTERN ATLAS INC.
10205 WESTHEIMER ROAD
HOUSTON, TX 77042-3115
(713) 972-4000
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(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
MAY 10, 1998
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(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box: |_|.
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SCHEDULE 13D
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CUSIP NO. 057224 10 7 Page 2 of 12
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- ------------ -------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
WESTERN ATLAS INC.
- ------------ -------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) |_|
(b) |_|
- ------------ -------------------------------------------------------------------
3 SEC USE ONLY |_|
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4 SOURCE OF FUNDS
BK, WC, OO
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) |_|
- ------------ -------------------------------------------------------------------
6 CITIZENSHIP OR PLACE ORGANIZATION
DELAWARE
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7
SOLE VOTING POWER
33,772,146
NUMBER OF ------- -----------------------------------------------------
8
SHARES SHARED VOTING POWER
-0-
BENEFICIALLY ------- -----------------------------------------------------
9
OWNED BY SOLE DISPOSITIVE POWER
33,772,146
EACH ------- -----------------------------------------------------
10
REPORTING SHARED DISPOSITIVE POWER
-0-
PERSON WITH
- ------------------ ------- -----------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
33,772,146
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES
|_|
- ------------------ -------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
16.6%
- ------------------ -------------------------------------------------------------
14 TYPE OF REPORTING PERSON
CO
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ITEM 1. SECURITY AND ISSUER.
This Statement on Schedule 13D (this "Schedule 13D") relates
to the common stock, par value $1.00 per share (the "Baker Hughes Common
Stock"), of Baker Hughes Incorporated, a Delaware corporation ("Baker Hughes" or
the "Issuer"). The principal executive offices of the Issuer are located at 3900
Essex Lane, Houston, Texas 77027-5177.
ITEM 2. IDENTITY AND BACKGROUND.
This Statement is being filed by Western Atlas Inc., a
Delaware corporation ("Western Atlas"). Western Atlas is a leading supplier of
oilfield services and reservoir information technologies for the worldwide oil
and gas industry, specializing in land, marine and transition-zone seismic data
acquisition and processing services; well-logging and completion services; and
reservoir characterization and project management services. The address of
Western Atlas' principle executive office is 10205 Westheimer Road, Houston, TX
77042-3115.
Neither this Schedule 13D nor anything contained herein shall
be construed as an admission that Western Atlas constitutes a "person" for any
purposes other than Section 13(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
The name, business address, present principal occupation or
employment and citizenship of each director and executive officer of Western
Atlas is set forth in Schedule I hereto and is incorporated herein by reference.
During the last five years, neither Western Atlas, nor, to the
knowledge of Western Atlas, any of the persons listed on Schedule I hereto, (i)
has been convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors) or (ii) has been a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as a result of
such proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to, federal
or state securities laws or finding any violation with respect to such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
As more fully described in Item 4 hereof, Western Atlas has
entered into the Western Atlas Option Agreement (as defined below) with Baker
Hughes. Pursuant to the Western Atlas Option Agreement, Baker Hughes has, among
other things, granted Western Atlas the Western Atlas Option to acquire shares
of Baker Hughes Common Stock as described below. If the conditions precedent
were satisfied to permit Western Atlas to exercise its option to purchase shares
of Baker Hughes Common Stock pursuant to the Western Atlas Option Agreement and
Western Atlas so exercised that option, Western Atlas currently anticipates that
funds for such exercise would be provided from general funds available to
Western Atlas and its affiliates and by borrowings from sources yet to be
determined.
No funds were used in connection with entering into the Merger
Agreement or the Western Atlas Option Agreement (as those terms are defined in
Item 4 of this Schedule 13D).
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ITEM 4. PURPOSE OF TRANSACTION.
The Merger Agreement
On May 10, 1998, Baker Hughes, Western Atlas and Baker Hughes
Delaware I, Inc., a Delaware corporation ("Merger Sub"), entered into an
Agreement and Plan of Merger (the "Merger Agreement"), whereby, subject to the
conditions stated therein, Merger Sub will merge (the "Merger") with and into
Western Atlas, and Western Atlas, as the surviving corporation, will become a
wholly owned subsidiary of Baker Hughes. In the Merger, each share of Western
Atlas Common Stock, par value $1.00 per share ("Western Atlas Common Stock"),
outstanding immediately prior to the effective time of the Merger will be
converted automatically into the right to receive a number of shares of Baker
Hughes Common Stock equal to the Exchange Ratio. The Merger is expected to be
accounted for as a pooling of interests and expected to be tax-free to the
Company's shareholders.
The "Exchange Ratio" will be 2.4 if the Baker Hughes Share
Price (defined below in this Item 4) is greater than or equal to $38.25 but 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 will be adjusted to
maintain the value 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 but less than or equal to $44.75, the Exchange Ratio will
be adjusted 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 is greater than $44.75, the Exchange Ratio will be fixed at 2.293. If the
Baker Hughes Share Price is below $35.00, Western Atlas will have the option to
terminate the Merger Agreement unless Baker Hughes elects to issue additional
shares of Baker Hughes Common Stock to maintain the value of Baker Hughes Common
Stock issued for each share of Western Atlas Common Stock at $91.80. The "Baker
Hughes Share Price" is the average of the per share closing prices of Baker
Hughes Common Stock for the twenty consecutive trading days ending on the fifth
trading day prior to the closing of the Merger, appropriately adjusted for any
stock splits, reverse stock splits, stock dividends, recapitalizations or other
similar transactions.
The closing of the Merger will occur on the first business day
immediately following the day on which all conditions to the Merger contained in
the Merger Agreement have been satisfied or waived or such other date as Baker
Hughes and Western Atlas may agree. The closing of the Merger is conditioned
upon approval of the stockholders of both Baker Hughes and Western Atlas as well
as the receipt of all applicable regulatory approvals, including the expiration
or termination of the waiting period prescribed by the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and other customary conditions
all as further described in the Merger Agreement.
The Merger Agreement provides that John R. Russell, President,
Chief Executive Officer and a director of Western Atlas will be elected as
President of Baker Hughes, and Max L. Lukens will continue as Chairman of the
Board of Directors and Chief Executive Officer of Baker Hughes. The Merger
Agreement also provides that Mr. Russell, Alton J. Brann, Chairman of the Board
of Western Atlas, and two other persons designated by Western Atlas, will be
appointed to be directors of Baker Hughes as of the effective time of the
Merger.
As a condition and inducement to each party's willingness to
enter into the Merger Agreement, each party requested, and the other party
agreed, to grant the requesting party
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an option to purchase a certain number of shares of the granting party's common
stock. Western Atlas granted Baker Hughes such an option pursuant to an Option
Agreement dated May 10, 1998 (the "Baker Hughes Option Agreement"), between
Western Atlas, as grantor, and Baker Hughes, as grantee. Baker Hughes granted
Western Atlas such an option pursuant to an Option Agreement dated May 10, 1998
(the "Western Atlas Option Agreement"), between Baker Hughes, as grantor, and
Western Atlas, as grantee. The Baker Hughes Option Agreement and the Western
Atlas Option Agreement are referred to collectively herein as the "Option
Agreements."
Western Atlas Option Agreement
Pursuant to the Western Atlas Option Agreement, Baker Hughes
granted Western Atlas an option (the "Western Atlas Option") to purchase
33,772,146 shares of Baker Hughes Common Stock (as adjusted to be equal to 19.9%
of the number of shares of Baker Hughes Common Stock issued and outstanding) at
the Exercise Price. The "Exercise Price" is $41.125 per share.
The Exercise Price and the type and number of shares or
securities subject to the Western Atlas Option will be adjusted appropriately
for any stock dividend, split-up, combination, recapitalization, exchange of
shares or similar transactions in respect of the Baker Hughes Common Stock. The
Western Atlas Option is exercisable in whole or in part.
The Western Atlas Option is exercisable, in whole or in part,
at any time and from time to time following the occurrence of an Exercise Event
(defined below in this Item 4). The Western Atlas Option expires on the earlier
to occur of:
(1) the effective time of the Merger,
(2) the first anniversary of the receipt by Western Atlas of
written notice from Baker Hughes of the occurrence of an
Exercise Event, and
(3) termination of the Merger Agreement in accordance with its
terms prior to the occurrence of an Exercise Event.
An "Exercise Event" is any of the events giving rise to the
obligation of Baker Hughes to pay Western Atlas a $50 million fee under Section
9.5 of the Merger Agreement. These events include the following:
(1) Baker Hughes terminates the Merger Agreement after the Board
of Directors of Baker Hughes both
(a) determines that proceeding with the Merger would be
inconsistent with its fiduciary obligations by reason
of a third party's proposal that is superior to the
Merger to acquire, or combine with, Baker Hughes, and
(b) elects to terminate the Merger Agreement prior to the
date that the stockholders of both of Western Atlas
and Baker Hughes have approved the Merger Agreement
and the Merger, subject to certain conditions;
(2) Western Atlas or Baker Hughes terminates the Merger Agreement
after both
(a) the public announcement of a third party's proposal
that is superior to the Merger to acquire, or combine
with, Baker Hughes, and
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(b) a Baker Hughes stockholders meeting (including
reconvened meetings after adjournments or
postponements thereof) has been held, and the
stockholders at that meeting failed to approve the
Merger and the Merger Agreement; and
(3) Western Atlas terminates the Merger Agreement after both
(a) the public announcement, or receipt by the Board of
Directors of Baker Hughes, of a third party's
proposal that is superior to the Merger to acquire,
or combine with, Baker Hughes, and
(b) the Board of Directors of Baker Hughes has withdrawn
or materially modified, in a manner adverse to
Western Atlas, the approval or recommendation of the
Board of Directors of Baker Hughes with respect to
the Merger or recommended the superior proposal.
Pursuant to a put right in the Western Atlas Option Agreement,
Western Atlas may require Baker Hughes to purchase the Western Atlas Option
Agreement (with respect to shares for which it has not been exercised or for
which it has been exercised but the purchase of the shares has not closed) and
shares of Baker Hughes Common Stock that Western Atlas acquired pursuant to
exercises of the Western Atlas Option beginning upon occurrence of an Exercise
Event and ending on the earlier of:
(1) 120 days after the expiration of the Western Atlas Option, and
(2) 120 days after the conditions to the payment by Baker Hughes
to Western Atlas of the additional $150 million fee pursuant
to Section 9.5 of the Merger Agreement.
If Western Atlas exercises this put right, Baker Hughes will
pay to Western Atlas for the shares with respect to which the put right is
exercised an aggregate price equal to the sum of:
(1) the aggregate Exercise Price paid by Western Atlas for any
shares of Baker Hughes Common Stock which Western Atlas owns
and as to which Western Atlas exercises the put right;
(2) the excess, if any, of the Applicable Price (as defined below
in this Item 4) over the Exercise Price paid by Western Atlas
for each share of Baker Hughes Common Stock as to which
Western Atlas exercises the put right multiplied by the number
of such shares; and
(3) the excess, if any, of the Applicable Price over the Exercise
Price multiplied by the number of shares of Baker Hughes
Common Stock subject to the Western Atlas Option with respect
to which Western Atlas has not yet exercised the Western Atlas
Option and as to which Western Atlas exercises the put right.
"Applicable Price" means the highest of the following:
(1) the highest purchase price per share paid pursuant to a third
party's tender or exchange offer made for shares of Baker
Hughes Common Stock after May 10, 1998 and on or prior to the
date on which Western Atlas exercises its put right;
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(2) the price per share to be paid by any third party for shares
of Baker Hughes Common Stock pursuant to an agreement for a
Business Combination Transaction (as defined in the Western
Atlas Option Agreement) entered into on or prior to the date
on which Western Atlas exercises its put right; and
(3) the Current Market Price (as defined in the Western Atlas
Option Agreement) of shares of the Baker Hughes Common Stock.
To the extent that Western Atlas does not exercise its rights
pursuant to the put right, Baker Hughes may during any time during the 120-day
period beginning when the put right expires, repurchase from Western Atlas all
of the shares of Baker Hughes Common Stock that Western Atlas acquired from
Baker Hughes pursuant to the Western Atlas Option Agreement that Western Atlas
owns at the time at a price per share equal to the greater of the Current Market
Price of shares of Baker Hughes Common Stock and the Exercise Price.
Subject to Western Atlas' put right and Baker Hughes'
repurchase right, both as described above in this Item 4, after the first
occurrence of an Exercise Event and prior to the second anniversary of the first
purchase of shares of Baker Hughes Common Stock by Western Atlas pursuant to the
Western Atlas Option, if Western Atlas desires to sell, assign, transfer or
otherwise dispose of all or any of the shares of Baker Hughes Common Stock that
Western Atlas acquired pursuant to the Western Atlas Option, Western Atlas must
first give Baker Hughes the right to repurchase those shares of Baker Hughes
Common Stock on the same terms and conditions and at the same price at which
Western Atlas is proposing to transfer such shares. This right of first refusal
will not apply to the following:
(1) any disposition as a result of which the transferee would own
beneficially not more than 2% of the outstanding voting power
of Baker Hughes;
(2) any disposition of Baker Hughes Common Stock by a person to
whom Western Atlas has assigned its rights under the Western
Atlas Option with the consent of Baker Hughes;
(3) any sale by means of a public offering registered under the
Securities Act, as amended (the "Securities Act"); or
(4) any transfer to a wholly owned subsidiary of Western Atlas
which agrees in writing to be bound by the terms of the
Western Atlas Option Agreement.
For two years following the first exercise of the Western
Atlas Option, Western Atlas may require Baker Hughes to register under the
Securities Act shares of Baker Hughes Common Stock that Western Atlas acquires
pursuant to an exercise of the Western Atlas Option, and to qualify such shares
under applicable state securities laws if such registration or qualification is
required in order to permit the offering, sale and delivery of any or all shares
of Baker Hughes Common Stock by Western Atlas. Western Atlas may require up to
two such registrations to be made effective.
The Western Atlas Option Agreement limits the aggregate profit
that Western Atlas may receive pursuant to the put right, the sale of shares of
Baker Hughes Common Stock acquired pursuant to an exercise of the Western Atlas
Option (including sales made to Baker Hughes or pursuant to a registration
statement under the Securities Act or any exemption therefrom) combined with all
amounts received by Western Atlas from Baker Hughes or concurrently paid to
Western Atlas pursuant to Section 9.5 of the Merger Agreement. The limit is $50
million, unless the conditions to the payment by Baker Hughes of the additional
$150
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million fee under Section 9.5 of the Merger Agreement have occurred, in which
case the limit will be $200 million.
The foregoing description of the Merger, the Merger Agreement,
the Western Atlas Option and the Western Atlas Option Agreement does not purport
to be complete and is qualified in its entirety by reference to the Merger
Agreement and the Western Atlas Option Agreement, copies of which are attached
hereto as Exhibits 1 and 2, respectively, and are incorporated herein by
reference.
Baker Hughes Option Agreement
Pursuant to the Baker Hughes Option Agreement, Western Atlas
granted Baker Hughes an option (the "Baker Hughes Option") to purchase
10,905,763 shares of Western Atlas Common Stock (as adjusted to be equal to
19.9% of the number of shares of Western Atlas Common Stock issued and
outstanding) at an exercise price equal to 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 exercise of the Baker Hughes Option.
The other provisions of the Baker Hughes Option Agreement are
substantially identical to the provisions of the Western Atlas Option Agreement.
Except as set forth in this Schedule 13D, Western Atlas has no
plans or proposals that relate to or would result in any of the actions
specified in clauses (a) through (j) of Item 4 of Schedule 13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
Neither Western Atlas nor any of the persons listed on
Schedule I hereto (except for Damir S. Skerl, an executive officer of Western
Atlas, who is the beneficial owner of 100 shares of Baker Hughes Common Stock)
beneficially owns any shares of Baker Hughes Common Stock other than as set
forth herein. Prior to the Western Atlas Option becoming exercisable and being
exercised, Western Atlas expressly disclaims beneficial ownership of the shares
of Baker Hughes Common Stock which are purchasable by Western Atlas upon the
Western Atlas Option becoming exercisable and being exercised. Neither the
filing of this Schedule 13D nor any of its contents shall be deemed to
constitute an admission that Western Atlas is the beneficial owner of the shares
of Baker Hughes Common Stock subject to the Western Atlas Option for purposes of
Section 13(d) or 16 of the Exchange Act or for any other purpose and such
beneficial ownership is expressly disclaimed.
(a) Pursuant to the Western Atlas Option, Western Atlas
has an option to purchase 33, 772,146 shares of Baker
Hughes Common Stock at the Western Atlas Exercise
Price. The Western Atlas Option becomes exercisable
under certain conditions described in this Schedule
13D. Based upon representations of Baker Hughes to
Western Atlas contained in the Merger Agreement, by
virtue of the Western Atlas Option, Western Atlas may
be deemed to beneficially own 33,772,146 shares of
Baker Hughes Common Stock representing 16.6% of the
shares of Baker Hughes Common Stock outstanding.
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(b) If the Western Atlas Option becomes exercisable, then
upon and to the extent of the exercise of the Western
Atlas Option, Western Atlas will have the sole power
to vote or to direct the vote of the number of shares
of Baker Hughes Common Stock acquired as a result of
such exercise.
(c) Except as described in Item 4 hereof, no transactions
in the Baker Hughes Common Stock were effected by
Western Atlas, or, to the best knowledge of Western
Atlas, any of the persons listed on Schedule I
hereto, during the 60-day period preceding May 10,
1998.
(d) Until the Western Atlas Option is exercised (if at
all), Western Atlas has no right to receive dividends
from, or the proceeds from the sale of, the shares of
Baker Hughes Common Stock subject to the Western
Atlas Option. If the Western Atlas Option is
exercised by Western Atlas, Western Atlas or its
designee, if any, would have the sole right to
receive dividends on the shares of Baker Hughes
Common Stock acquired pursuant thereto.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
SECURITIES OF THE ISSUER.
Except as set forth in this Schedule 13D, to the best
knowledge of Western Atlas, there are no other contracts, arrangements,
understandings or relationships (legal or otherwise) among the persons named in
Item 2 or listed on Schedule I hereto, and between such persons and any person
with respect to any securities of the Issuer, including but not limited to,
transfer or voting of any of the securities of the Issuer, joint ventures, loan
or option arrangements, puts or calls, guarantees or profits, division of
profits or loss, or the giving or withholding of proxies, or a pledge or
contingency the occurrence of which would give another person voting power over
the securities of the Issuer.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
1. Agreement and Plan of Merger, dated as of May 10, 1998, by
and among Western Atlas Inc., Baker Hughes Incorporated and
Baker Hughes Delaware I, Inc.
2. Stock Option Agreement, dated as of May 10, 1998, by and
between Baker Hughes Incorporated, as Grantor, and Western
Atlas Inc. as Grantee.
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SIGNATURES
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Dated as of: May 20, 1998
WESTERN ATLAS INC.
By: /s/James E. Brasher
Name: James E. Brasher
Title: Senior Vice President
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SCHEDULE I
The name and present principal occupation of each director and
executive officer of Western Atlas Inc. are set forth below. The business
address for each person listed below, unless otherwise indicated, is Western
Atlas Inc., 10205 Westheimer Road, Houston, TX 77042-3115. All executive
officers and directors listed on this Schedule I are United States citizens.
Name Title/Present Principal Occupation
- ---- ----------------------------------
Alton J. Brann Chairman of the Board, Director
Joseph T. Casey Director
Claire W. Gargalli Director
Vice Chairman, The Diversified Search and
Diversified Health Search Companies
2005 Market Street
Philadelphia, PA
Orion L. Hoch Director
Paul Bancroft, III Director
Venture Capitalist
79 Pine Lane
Snowmass Village, Colorado
William C. Edwards Director
Partner, Bryan & Edwards
3000 Sand Hill Road
Menlo Park, California
John R. Russell Director, President and Chief Executive Officer
William H. Flores Senior Vice President and Chief Financial Officer
James E. Brasher Senior Vice President and General Counsel
Orval F. Brannan Senior Vice President
Damir S. Skerl Senior Vice President
Richard C. White Senior Vice Presiden
Thomas B. Hix, Jr. Vice President of Finance and Administration
Gary E. Jones Vice President
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INDEX OF EXHIBITS
1. Agreement and Plan of Merger, dated as of May 10, 1998, by
and among Western Atlas Inc., Baker Hughes Incorporated and
Baker Hughes Delaware I, Inc.
2. Stock Option Agreement, dated as of May 10, 1998, by and
among Baker Hughes Incorporated, as Grantor, and Western
Atlas Inc. as Grantee.
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AGREEMENT AND PLAN OF MERGER
among
BAKER HUGHES INCORPORATED,
BAKER HUGHES DELAWARE I, INC.
and
WESTERN ATLAS INC.
Dated as of May 10, 1998
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ARTICLE 1
THE MERGER
Section 1.1 The Merger................................................... 1
Section 1.2 The Closing.................................................. 1
Section 1.3 Effective Time............................................... 2
ARTICLE 2
CERTIFICATE OF INCORPORATION AND BYLAWS
OF THE SURVIVING CORPORATION
Section 2.1 Certificate of Incorporation................................. 2
Section 2.2 Bylaws....................................................... 2
ARTICLE 3
DIRECTORS AND OFFICERS OF THE
SURVIVING CORPORATION AND PARENT
Section 3.1 Directors of Surviving Corporation........................... 2
Section 3.2 Officers of Surviving Corporation............................ 3
Section 3.3 Parent Board of Directors; President......................... 3
ARTICLE 4
CONVERSION OF COMPANY COMMON STOCK
Section 4.1 Certain Definitions.......................................... 3
Section 4.2 Conversion of Company Stock.................................. 4
Section 4.3 Exchange of Certificates Representing
Company Common Stock......................................... 5
Section 4.4 Adjustment of Exchange Ratio................................. 7
Section 4.5 Rule 16b-3 Approval.......................................... 8
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 5.1 Existence; Good Standing; Corporate Authority................ 8
Section 5.2 Authorization, Validity and Effect of Agreements............. 8
Section 5.3 Capitalization............................................... 9
Section 5.4 Significant Subsidiaries..................................... 9
Section 5.5 No Violation of Law.......................................... 10
Section 5.6 No Conflict.................................................. 10
Section 5.7 SEC Documents................................................ 11
Section 5.8 Litigation................................................... 11
Section 5.9 Absence of Certain Changes................................... 11
Section 5.10 Taxes........................................................ 12
Section 5.11 Employee Benefit Plans....................................... 13
Section 5.12 Labor Matters................................................ 14
Section 5.13 Environmental Matters........................................ 14
Section 5.14 Intellectual Property........................................ 15
<PAGE>
Section 5.15 Insurance.................................................... 15
Section 5.16 No Brokers................................................... 15
Section 5.17 Opinion of Financial Advisor................................. 15
Section 5.18 Parent Stock Ownership....................................... 16
Section 5.19 Reorganization............................................... 16
Section 5.20 Pooling...................................................... 16
Section 5.21 Vote Required................................................ 16
Section 5.22 Amendment to the Company Rights Agreement.................... 16
Section 5.23 Certain Approvals............................................ 16
Section 5.24 Certain Contracts............................................ 17
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Section 6.1 Existence; Good Standing; Corporate Authority................ 17
Section 6.2 Authorization, Validity and Effect of Agreements............. 17
Section 6.3 Capitalization............................................... 18
Section 6.4 Significant Subsidiaries..................................... 18
Section 6.5 No Violation of Law.......................................... 19
Section 6.6 No Conflict.................................................. 19
Section 6.7 SEC Documents................................................ 20
Section 6.8 Litigation................................................... 20
Section 6.9 Absence of Certain Changes................................... 21
Section 6.10 Taxes........................................................ 21
Section 6.11 Employee Benefit Plans....................................... 22
Section 6.12 Labor Matters................................................ 23
Section 6.13 Environmental Matters........................................ 23
Section 6.14 Intellectual Property........................................ 23
Section 6.15 Insurance.................................................... 24
Section 6.16 No Brokers................................................... 24
Section 6.17 Opinion of Financial Advisor................................. 24
Section 6.18 Company Stock Ownership...................................... 24
Section 6.19 Reorganization............................................... 24
Section 6.20 Pooling...................................................... 25
Section 6.21 Vote Required................................................ 25
Section 6.22 Certain Approvals............................................ 25
Section 6.23 Certain Contracts............................................ 25
ARTICLE 7
COVENANTS
Section 7.1 Conduct of Businesses........................................ 25
Section 7.2 No Solicitation by the Company............................... 28
Section 7.3 No Solicitation by Parent.................................... 29
Section 7.4 Meetings of Stockholders..................................... 30
Section 7.5 Filings; Best Efforts........................................ 31
Section 7.6 Inspection................................................... 32
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Section 7.7 Publicity.................................................... 33
Section 7.8 Registration Statement....................................... 33
Section 7.9 Listing Application.......................................... 34
Section 7.10 Letters of Accountants....................................... 34
Section 7.11 Agreements of Rule 145 Affiliates............................ 34
Section 7.12 Expenses..................................................... 35
Section 7.13 Indemnification and Insurance................................ 35
Section 7.14 Certain Benefits............................................. 36
Section 7.15 Reorganization; Pooling...................................... 39
Section 7.16 Rights Agreement............................................. 39
ARTICLE 8
CONDITIONS
Section 8.1 Conditions to Each Party's Obligation to Effect
the Merger................................................... 40
Section 8.2 Conditions to Obligation of the Company to Effect
the Merger................................................... 41
Section 8.3 Conditions to Obligation of Parent and Merger Sub to
Effect the Merger............................................ 41
ARTICLE 9
TERMINATION
Section 9.1 Termination by Mutual Consent................................ 42
Section 9.2 Termination by Parent or the Company......................... 42
Section 9.3 Termination by the Company................................... 43
Section 9.4 Termination by Parent........................................ 44
Section 9.5 Effect of Termination........................................ 45
Section 9.6 Extension; Waiver............................................ 46
ARTICLE 10
GENERAL PROVISIONS
Section 10.1 Nonsurvival of Representations, Warranties and Agreements.... 47
Section 10.2 Notices...................................................... 47
Section 10.3 Assignment; Binding Effect; Benefit.......................... 48
Section 10.4 Entire Agreement............................................. 48
Section 10.5 Amendments................................................... 48
Section 10.6 Governing Law................................................ 48
Section 10.7 Counterparts................................................. 49
Section 10.8 Headings..................................................... 49
Section 10.9 Interpretation............................................... 49
Section 10.10 Waivers...................................................... 49
Section 10.11 Incorporation of Exhibits.................................... 50
Section 10.12 Severability................................................. 50
Section 10.13 Enforcement of Agreement..................................... 50
Section 10.14 Obligation of Parent......................................... 50
Section 10.15 Subsidiaries................................................. 50
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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 (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,
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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 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").
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
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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 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
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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 (a) applied" within the meaning of
section 424 of the Code or (ii) to the extent that 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
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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).
(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
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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 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
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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.
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:
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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.
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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 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,
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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 (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
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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 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
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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
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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 ) 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 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
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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 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).
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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
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Time. The Company has delivered to Parent a true and complete copy of the
Company Rights Agreement, as amended to date.
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
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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
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
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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.
(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
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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
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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.
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
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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 3 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) 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 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
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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 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
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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.
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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 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
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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)
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
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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;
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(n) shall not purchase any shares of Parent Common Stock or
Company Common Stock;
(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.
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(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 7.3 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.
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.
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(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.
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
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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
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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 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 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.
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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.
(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
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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.
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
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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
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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 set
forth in Schedule 7.14(a)(i) of the Company Disclosure Letter or permitted by
Section 7.14(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
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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 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
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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 (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
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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.
(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 (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
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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.
(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
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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.
(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.
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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 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
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pursuant to this Section 9.3(a) shall not be effective until the
Company has made the $50 million payment required by Section 9.3(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 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
9.2(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
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given by Parent to the Company; provided, however, that the right to
terminate this Agreement pursuant to (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
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.
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(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.
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)
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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
if to the Company:
Western Atlas Inc.
10205 Westheimer Road
Houston, Texas 77042
Attention: James E. Brasher
Facsimile: (713) 266-1717
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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.
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
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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. "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.
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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:
Name:
Title:
BAKER HUGHES DELAWARE I, INC.
By:
Name:
Title:
WESTERN ATLAS INC.
By:
Name:
Title:
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STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT dated as of May 10, 1998 is by and
between Baker Hughes Incorporated, a Delaware corporation (the "Company"), and
Western Atlas Inc., a Delaware corporation (the "Grantee").
RECITALS
The Grantee, the Company and Merger Sub propose to enter into
the Merger Agreement providing, among other things, for the Merger pursuant to
the Merger Agreement of Merger Sub with and into the Grantee which shall be the
surviving corporation.
As a condition and inducement to the Grantee's willingness to
enter into the Merger Agreement, the Grantee has requested that the Company
agree, and the Company has agreed, to grant the Grantee the Option.
The Board of Directors of the Grantee has approved the Merger
Agreement, the Merger and this Agreement and has recommended approval of the
Merger Agreement by the holders of common stock of the Company.
The Board of Directors of the Company has approved the Merger
Agreement, the Merger and this Agreement and has recommended approval of the
issuance of shares of Common Stock, par value $1.00 per share, of the Company
("Company Common Stock") pursuant to the Merger Agreement by the holders of
Company Common Stock.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein and in the Merger Agreement, the Company and the Grantee agree as
follows:
1. Capitalized Terms. Those capitalized terms used but not
defined herein that are defined in the Merger Agreement are used herein with the
same meanings as ascribed to them therein; provided, however, that, as used in
this Agreement, "Person" shall have the meaning specified in Sections 3(a)(9)
and 13(d)(3) of the Exchange Act. Those capitalized terms used in this Agreement
that are not defined in the Merger Agreement are defined in Annex A hereto and
are used herein with the meanings ascribed to them therein.
2. The Option.
(a) Grant of Option. Subject to the terms and conditions set
forth herein, the Company hereby grants to the Grantee an irrevocable option to
purchase, out of the authorized but unissued Company Common Stock, 33,772,146
shares of Company Common Stock (as adjusted as set forth herein) (the "Option
Shares"), at the Exercise Price.
(b) Exercise Price. The exercise price (the "Exercise Price")
of the Option shall be $41.125 per Option Share.
<PAGE>
(c) Term. The Option shall be exercisable at any time and from
time to time following the occurrence of an Exercise Event and shall remain in
full force and effect until the earliest to occur of (i) the Effective Time,
(ii) the first anniversary of the receipt by Grantee of written notice from the
Company of the occurrence of an Exercise Event and (iii) termination of the
Merger Agreement in accordance with its terms prior to the occurrence of an
Exercise Event (the "Option Term"). If the Option is not theretofore exercised,
the rights and obligations set forth in this Agreement shall terminate at the
expiration of the Option Term.
(d) Exercise of Option.
(i) The Grantee may exercise the Option, in whole or in part,
at any time and from time to time during the Option Term. Notwithstanding the
expiration of the Option Term, the Grantee shall be entitled to purchase those
Option Shares with respect to which it has exercised the Option in accordance
with the terms hereof prior to the expiration of the Option Term.
(ii) If the Grantee wishes to exercise the Option, it shall
send a written notice (an "Exercise Notice") (the date of which being herein
referred to as the "Notice Date") to the Company specifying (i) the total number
of Option Shares it intends to purchase pursuant to such exercise and (ii) a
place and a date (the "Closing Date") not earlier than three Business Days nor
later than 15 Business Days from the Notice Date for the closing of the purchase
and sale pursuant to the Option (the "Closing").
(iii) If the Closing cannot be effected by reason of the
application of any Law, Regulation or Order, the Closing Date shall be extended
to the tenth Business Day following the expiration or termination of the
restriction imposed by such Law, Regulation or Order. Without limiting the
foregoing, if prior notification to, or Authorization of, any Governmental
Authority is required in connection with the purchase of such Option Shares by
virtue of the application of such Law, Regulation or Order, the Grantee and, if
applicable, the Company shall promptly file the required notice or application
for Authorization and the Grantee, with the cooperation of the Company, shall
expeditiously process the same.
(iv) Notwithstanding Section 2(d)(iii), if the Closing Date
shall not have occurred within nine months after the related Notice Date as a
result of one or more restrictions imposed by the application of any Law,
Regulation or Order, the exercise of the Option effected on the Notice Date
shall be deemed to have expired.
(e) Payment and Delivery of Certificates.
(i) At each Closing, the Grantee shall pay to the Company in
immediately available funds by wire transfer to a bank account designated by the
Company an amount equal to the Exercise Price multiplied by the number of Option
Shares to be purchased on such Closing Date.
(ii) At each Closing, simultaneously with the delivery of
immediately available funds as provided above, the Company shall deliver to the
Grantee a certificate or
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certificates representing the Option Shares to be purchased at such Closing,
which Option Shares shall be duly authorized, validly issued, fully paid and
nonassessable and free and clear of all Liens, and the Grantee shall deliver to
the Company its written agreement that the Grantee will not offer to sell or
otherwise dispose of such Option Shares in violation of applicable Law or the
provisions of this Agreement.
(f) Certificates. Certificates for the Option Shares delivered
at each Closing shall be endorsed with a restrictive legend that shall read
substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS
OF MAY 10, 1998. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE
HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT BY THE COMPANY OF A WRITTEN
REQUEST THEREFOR.
A new certificate or certificates evidencing the same number of shares of the
Company Common Stock will be issued to the Grantee in lieu of the certificate
bearing the above legend, and such new certificate shall not bear such legend,
insofar as it applies to the Securities Act, if the Grantee shall have delivered
to the Company a copy of a letter from the staff of the Commission, or an
opinion of counsel in form and substance reasonably satisfactory to the Company
and its counsel, to the effect that such legend is not required for purposes of
the Securities Act.
(g) If at the time of issuance of any Company Common Stock
pursuant to any exercise of the Option, the Company shall have issued any share
purchase rights or similar securities to holders of Company Common Stock, then
each Option Share purchased pursuant to the Option shall also include rights
with terms substantially the same as and at least as favorable to the Grantee as
those issued to other holders of Company Common Stock.
3. Adjustment Upon Changes in Capitalization, Etc.
(a) In the event of any change in the Company Common Stock by
reason of a stock dividend, split-up, combination, recapitalization, exchange of
shares or similar transaction, the type and number of shares or securities
subject to the Option, and the Exercise Price therefor, shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
such transaction, so that the Grantee shall receive upon exercise of the Option
the same class and number of outstanding shares or other securities or property
that Grantee would have received in respect of the Company Common Stock if the
Option had been exercised immediately prior to such event, or the record date
therefor, as applicable.
(b) If any additional shares of Company Common Stock are
issued after the date of this Agreement (other than pursuant to an event
described Section 3(a) above), the number of shares of Company Common Stock then
remaining subject to the Option shall be adjusted so that, after such issuance
of additional shares, such number of shares then remaining subject to the
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Option, together with shares theretofore issued pursuant to the Option, equals
19.9% of the number of shares of Company Common Stock then issued and
outstanding.
(c) To the extent any of the provisions of this Agreement
apply to the Exercise Price, they shall be deemed to refer to the Exercise Price
as adjusted pursuant to this Section 3.
4. Retention of Beneficial Ownership. To the extent that the
Grantee shall exercise the Option, the Grantee shall, unless the Grantee shall
exercise the Put Right or the Company shall exercise the Call Right, retain sole
ownership of the shares of Company Common Stock so acquired through the end of
the Call Period.
5. Repurchase at the Option of Grantee.
(a) 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 Company of the additional $150 million fee
under Section 9.5 of the Merger Agreement shall have occurred (the "Put
Period"), the Company (or any successor thereto) shall, at the election of the
Grantee (the "Put Right"), repurchase from the Grantee (i) that portion of the
Option relating to all or any part of the Unexercised Option Shares (or as to
which the Option has been exercised but the Closing has not occurred) and (ii)
all or any portion of the shares of Company Common Stock purchased by the
Grantee pursuant hereto and with respect to which the Grantee then has
ownership. The date on which the Grantee exercises its rights under this Section
5 is referred to as the "Put Date." Such repurchase shall be at an aggregate
price (the "Put Consideration") equal to the sum of:
(i) the aggregate Exercise Price paid by the
Grantee for any Option Shares which the Grantee owns and as to
which the Grantee is exercising the Put Right;
(ii) the excess, if any, of the Applicable Price
over the Exercise Price paid by the Grantee for each Option
Share as to which the Grantee is exercising the Put Right
multiplied by the number of such shares; and
(iii) the excess, if any, of (x) the Applicable
Price per share of Company Common Stock over (y) the Exercise
Price multiplied by the number of Unexercised Option Shares as
to which the Grantee is exercising the Put Right.
(b) If the Grantee exercises its rights under this Section 5,
the Company shall, within five Business Days after the Put Date, pay the Put
Consideration to the Grantee in immediately available funds, and the Grantee
shall surrender to the Company the Option or portion of the Option and the
certificates evidencing the shares of Company Common Stock purchased thereunder.
The Grantee shall warrant to the Company that, immediately prior to the
repurchase thereof pursuant to this Section 5, the Grantee had sole record and
Beneficial
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Ownership of the Option or such shares, or both, as the case may be,
and that the Option or such shares, or both, as the case may be, were then held
free and clear of all Liens.
(c) If the Option has been exercised, in whole or in part, as
to any Option Shares subject to the Put Right but the Closing thereunder has not
occurred, the payment of the Put Consideration shall, to that extent, render
such exercise null and void.
(d) Notwithstanding any provision to the contrary in this
Agreement, the Grantee may not exercise its rights pursuant to this Section 5 in
a manner that would result in Total Profit of more than the Profit Cap;
provided, however, that nothing in this sentence shall limit the Grantee's
ability to exercise the Option in accordance with its terms.
6. Repurchase at the Option of the Company.
(a) To the extent the Grantee shall not have previously
exercised its rights under Section 5, at the request of the Company made at any
time during the 120-day period commencing at the expiration of the Put Period
(the "Call Period"), the Company may repurchase from the Grantee, and the
Grantee shall sell, or cause to be sold, to the Company, all (but not less than
all) of the shares of Company Common Stock acquired by the Grantee pursuant
hereto and with respect to which the Grantee has ownership at the time of such
repurchase at a price per share equal to the greater of (A) the Current Market
Price and (B) the Exercise Price per share in respect of the shares so acquired
(such price per share multiplied by the number of shares of Company Common Stock
to be repurchased pursuant to this Section 6 being herein called the "Call
Consideration"). The date on which the Company exercises its rights under this
Section 6 is referred to as the "Call Date."
(b) If the Company exercises its rights under this Section 6,
the Company shall, within five Business Days pay the Call Consideration in
immediately available funds, and the Grantee shall surrender to the Company
certificates evidencing the shares of Company Common Stock purchased hereunder,
and the Grantee shall warrant to the Company that, immediately prior to the
repurchase thereof pursuant to this Section 6, the Grantee had sole record and
Beneficial Ownership of such shares and that such shares were then held free and
clear of all Liens.
7. Registration Rights.
(a) The Company shall, if requested by the Grantee at any time
and from time to time during the Registration Period, as expeditiously as
practicable, prepare, file and cause to be made effective up to two registration
statements under the Securities Act if such registration is required in order to
permit the offering, sale and delivery of any or all shares of Company Common
Stock or other securities that have been acquired by or are issuable to the
Grantee upon exercise of the Option in accordance with the intended method of
sale or other disposition stated by the Grantee, including, at the sole
discretion of the Company, a "shelf" registration statement under Rule 415 under
the Securities Act or any successor provision, and the Company shall use all
reasonable efforts to qualify such shares or other securities under any
applicable state securities laws. The Company shall use all reasonable efforts
to cause each such registration
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statement to become effective, to obtain all consents or waivers of other
parties that are required therefor and to keep such registration statement
effective for such period not in excess of 180 days from the day such
registration statement first becomes effective as may be reasonably necessary to
effect such sale or other disposition. The obligations of the Company hereunder
to file a registration statement and to maintain its effectiveness may be
suspended for one or more periods of time not exceeding 60 days in the aggregate
if the Board of Directors of the Company shall have determined in good faith
that the filing of such registration or the maintenance of its effectiveness
would require disclosure of nonpublic information that would materially and
adversely affect the Company. For purposes of determining whether two requests
have been made under this Section 7, only requests relating to a registration
statement that has become effective under the Securities Act and pursuant to
which the Grantee has disposed of all shares covered thereby in the manner
contemplated therein shall be counted. Notwithstanding any other provision of
this Section 7, any request for registration shall permit the Company, upon
notice given within 20 days of the request for registration, to repurchase from
the Grantee any shares as to which the Grantee requests registration at a price
per share equal to the Current Market Price at the date the Company notifies the
Grantee of its decision to so repurchase.
(b) The Registration Expenses shall be for the account of the
Company; provided, however, that the Company shall not be required to pay any
Registration Expenses with respect to such registration if the registration
request is subsequently withdrawn at the request of the Grantee unless the
Grantee agrees to forfeit its right to request one registration.
(c) The Grantee shall provide all information reasonably
requested by the Company for inclusion in any registration statement to be filed
hereunder. If during the Registration Period the Company shall propose to
register under the Securities Act the offering, sale and delivery of Company
Common Stock for cash for its own account or for any other stockholder of the
Company pursuant to a firm underwriting, it shall, in addition to the Company's
other obligations under this Section 7, allow the Grantee the right to
participate in such registration provided that the Grantee participates in the
underwriting; provided, however, that, if the managing underwriter of such
offering advises the Company in writing that in its opinion the number of shares
of Company Common Stock requested to be included in such registration exceeds
the number that can be sold in such offering, the Company shall, after fully
including therein all securities to be sold by the Company, include the shares
requested to be included therein by Grantee pro rata (based on the number of
shares intended to be included therein) with the shares intended to be included
therein by Persons other than the Company.
(d) In connection with any offering, sale and delivery of
Company Common Stock pursuant to a registration statement effected pursuant to
this Section 7, the Company and the Grantee shall provide each other and each
underwriter of the offering with customary representations, warranties and
covenants, including covenants of indemnification and contribution.
8. First Refusal. Subject to the provisions of Sections 4 and
5 herein, at any time after the first occurrence of an Exercise Event and prior
to the second anniversary of the first purchase of shares of Company Common
Stock pursuant to the Option, if the Grantee shall
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desire to sell, assign, transfer or otherwise dispose of all or any of the
Option Shares or other securities acquired by it pursuant to the Option, it
shall give the Company written notice of the proposed transaction (an "Offeror's
Notice"), identifying the proposed transferee, accompanied by a copy of a
binding offer to purchase such shares or other securities signed by such
transferee and setting forth the terms of the proposed transaction. An Offeror's
Notice shall be deemed an offer by the Grantee to the Company, which may be
accepted, in whole but not in part, within 20 Business Days of the receipt of
such Offeror's Notice, on the same terms and conditions and at the same price at
which the Grantee is proposing to transfer such shares or other securities to
such transferee. The purchase of any such shares or other securities by the
Company shall be settled within 20 Business Days of the date of the acceptance
of the offer and the purchase price shall be paid to the Grantee in immediately
available funds. If the Company shall fail or refuse to purchase all the shares
or other securities covered by an Offeror's Notice, the Grantee may, within 60
days from the date of the Offeror's Notice, 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 set forth in the
Offeror's Notice; provided, however, that the provisions of this sentence shall
not limit the rights the Grantee may otherwise have if the Company has accepted
the offer contained in the Offeror's Notice and wrongfully refuses to purchase
the shares or other securities subject thereto. The requirements of this Section
8 shall not apply to (a) any disposition as a result of which the proposed
transferee would own beneficially not more than 2% of the outstanding voting
power of the Company, (b) any disposition of Company Common Stock or other
securities by a Person to whom the Grantee has assigned its rights under the
Option with the consent of the Company, (c) any sale by means of a public
offering registered under the Securities Act or (d) any transfer to a wholly
owned Subsidiary of the Grantee which agrees in writing to be bound by the terms
hereof.
9. Profit Limitation.
(a) Notwithstanding any other provision of this Agreement, in
no event shall the Grantee's Total Profit exceed the Profit Cap and, if it
otherwise would exceed such amount, the Grantee, at its sole election, shall
either (i) deliver to the Company for cancellation Option Shares previously
purchased by Grantee, (ii) pay cash or other consideration to the Company, (iii)
reduce the amount of the fee payable to Grantee under Section 9.5 of the Merger
Agreement or (iv) undertake any combination thereof, so that the Grantee's Total
Profit shall not exceed the Profit Cap after taking into account the foregoing
actions.
(b) Notwithstanding any other provision of this Agreement,
this Stock Option may not be exercised for a number of Option Shares that would,
as of the Notice Date, result in a Notional Total Profit of more than the Profit
Cap, and, if exercise of the Option otherwise would exceed the Profit Cap, the
Grantee, at its sole option, may increase the Exercise Price for that number of
Option Shares set forth in the Exercise Notice so that the Notional Total Profit
shall not exceed the Profit Cap; provided, however, that nothing in this
sentence shall restrict any exercise of the Option otherwise permitted by this
Section 9(b) on any subsequent date at the Exercise Price set forth in Section
2(b) if such exercise would not then be restricted under this Section 9(b).
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10. Listing. If the Company Common Stock or any other
securities then subject to the Option are then listed on the NYSE, the Company,
upon the occurrence of an Exercise Event, will promptly file an application to
list on the NYSE the shares of the Company Common Stock or other securities then
subject to the Option and will use all reasonable efforts to cause such listing
application to be approved as promptly as practicable.
11. Replacement of Agreement. Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Agreement, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and cancellation of
this Agreement, if mutilated, the Company will execute and deliver a new
Agreement of like tenor and date. Any such new Agreement shall constitute an
additional contractual obligation of the Company, whether or not the Agreement
so lost, stolen, destroyed or mutilated shall at any time be enforceable by
anyone.
12. Miscellaneous.
(a) Expenses. Except as otherwise provided in the Merger
Agreement or as otherwise expressly provided herein, each of the parties hereto
shall bear and pay all costs and expenses incurred by it or on its behalf in
connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
(b) Waiver and Amendment. Any provision of this Agreement may
be waived at any time by the party that is entitled to the benefits of such
provision. This Agreement may not be modified, amended, altered or supplemented
except upon the execution and delivery of a written agreement executed by the
parties hereto.
(c) Entire Agreement; No Third Party Beneficiary;
Severability. Except as otherwise set forth in the Merger Agreement, this
Agreement (including the Merger Agreement and the other documents and
instruments referred to herein and therein) (i) constitutes the entire agreement
and supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof and (ii) is not
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder.
(d) Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
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<PAGE>
(e) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the Laws of the State of Delaware, regardless of
the Laws that might otherwise govern under applicable principles of conflicts of
law.
(f) Descriptive Headings. The descriptive headings contained
herein are for convenience or reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
(g) Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (with confirmation) or mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses or sent by
electronic transmission to the telecopier number specified below:
If to the Company to:
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
If to Grantee to:
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
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(h) Counterparts. This Agreement and any amendments hereto may
be executed in counterparts, each of which shall be deemed an original and all
of which taken together shall constitute but a single document.
(i) Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder or under the Option shall be sold, assigned
or otherwise disposed of or transferred by either of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the other
party, except that the Grantee may assign this Agreement to a wholly owned
Subsidiary of the Grantee; provided, however, that no such assignment shall have
the effect of releasing the Grantee from its obligations hereunder. Subject to
the preceding sentence, this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
(j) Further Assurances. In the event of any exercise of the
Option by the Grantee, the Company and the Grantee shall execute and deliver all
other documents and instruments and take all other action that may be reasonably
necessary in order to consummate the transactions provided for by such exercise.
(k) Specific Performance. The parties hereto hereby
acknowledge and agree that the failure of any party to this Agreement to perform
its agreements and covenants hereunder will cause irreparable injury to the
other party to this Agreement for which damages, even if available, will not be
an adequate remedy. Accordingly, each of the parties hereto hereby consents to
the granting of equitable relief (including specific performance and injunctive
relief) by any court of competent jurisdiction to enforce any party's
obligations hereunder. The parties further agree to waive any requirement for
the securing or posting of any bond in connection with the obtaining of any such
equitable relief and that this provision is without prejudice to any other
rights that the parties hereto may have for any failure to perform this
Agreement.
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IN WITNESS WHEREOF, the Company and the Grantee have caused
this Stock Option Agreement to be signed by their respective officers thereunto
duly authorized, all as of the day and year first written above.
BAKER HUGHES INCORPORATED
By:
Name:
Title:
WESTERN ATLAS INC.
By:
Name:
Title:
<PAGE>
ANNEX A
SCHEDULE OF DEFINED TERMS
The following terms when used in the Stock Option Agreement
shall have the meanings set forth below unless the context shall otherwise
require:
"Agreement" shall mean this Stock Option Agreement.
"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 Company Common Stock after the date hereof and on or
prior to the Put Date, (ii) the price per share to be paid by any third Person
for shares of Company Common Stock pursuant to an agreement for a Business
Combination Transaction entered into on or prior to the Put Date, and (iii) the
Current Market Price. If the consideration to be offered, paid or received
pursuant to either of the foregoing clauses (i) or (ii) shall be other than in
cash, the value of such consideration shall be determined in good faith by an
independent nationally recognized investment banking firm jointly selected by
the Grantee and the Company, which determination shall be conclusive for all
purposes of this Agreement.
"Authorization" shall mean any and all permits, licenses,
authorizations, orders certificates, registrations or other approvals granted by
any Governmental Authority.
"Beneficial Ownership," "Beneficial Owner" and "Beneficially
Own" shall have the meanings ascribed to them in Rule 13d-3 under the Exchange
Act.
"Business Combination Transaction" shall mean (i) a
consolidation, exchange of shares or merger of the Company with any Person,
other than the Grantee 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 the Grantee 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 common shares and common share equivalents of the Company
outstanding immediately after the merger or (iii) a sale, lease or other
transfer of all or substantially all the assets of the Company to any Person,
other than the Grantee or one of its Subsidiaries.
"Business Day" shall mean a day other than Saturday, Sunday or
a federal holiday.
"Call Consideration" shall have the meaning ascribed to such
term in Section 5 herein.
"Call Date" shall have the meaning ascribed to such term in
Section 5 herein.
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"Call Period" shall have the meaning ascribed to such term in
Section 5 herein.
"Closing" shall have the meaning ascribed to such term in
Section 2 herein.
"Closing Date" shall have the meaning ascribed to such term in
Section 2 herein.
"Court" shall mean any court or arbitration tribunal of the
United States, any foreign country or any domestic or foreign state, and any
political subdivision thereof, and shall include the European Court of Justice.
"Current Market Price" shall mean, as of any date, the average
of the closing prices (or, if such securities should not trade on any trading
day, the average of the bid and asked prices therefor on such day) of the
Company Common Stock as reported on the New York Stock Exchange Composite Tape
during the ten consecutive trading days ending on (and including) the trading
day immediately prior to such date or, if the shares of Company Common Stock are
not quoted thereon, on The Nasdaq Stock Market or, if the shares of Company
Common Stock are not quoted thereon, on the principal trading market (as defined
in Regulation M under the Exchange Act) on which such shares are traded as
reported by a recognized source during such ten Business Day period.
"Exercise Event" shall mean any of the events giving rise to
the obligation of the Company to pay the $50 million fee under Section 9.5 of
the Merger Agreement.
"Exercise Notice" shall have the meaning ascribed to such term
in Section 2(d) herein.
"Exercise Price" shall have the meaning ascribed to such term
in Section 2 herein.
"Governmental Authority" shall mean any governmental agency or
authority (other than a Court) of the United States, any foreign country, or any
domestic or foreign state, and any political subdivision thereof, and shall
include any multinational authority having governmental or quasi-governmental
powers.
"Law" shall mean all laws, statutes and ordinances of the
United States, any state of the United States, any foreign country, any foreign
state and any political subdivision thereof, including all decisions of Courts
having the effect of law in each such jurisdiction.
"Lien" shall mean any mortgage, pledge, security interest,
adverse claim, encumbrance, lien or charge of any kind (including any agreement
to give any of the foregoing), any conditional sale or other title retention
agreement, any lease in the nature thereof or the filing of or agreement to give
any financing statement under the Laws of any jurisdiction.
"Merger Agreement" shall mean that certain Agreement and Plan
of Merger dated as of the date hereof among Baker Hughes Incorporated, a
Delaware corporation, Baker Hughes Delaware I, Inc., a Delaware corporation, and
Western Atlas Inc., a Delaware corporation.
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"Merger Sub" shall mean Baker Hughes Delaware I, Inc., a
Delaware corporation and a wholly owned subsidiary of the Company.
"Notice Date" shall have the meaning ascribed to such term in
Section 2 herein.
"Notional Total Profit" shall mean, with respect to any number
of Option Shares as to which the Grantee may propose to exercise the Option, the
Total Profit determined as of the date of the Exercise Notice assuming that the
Option were exercised on such date for such number of Option Shares and assuming
such Option Shares, together with all other Option Shares held by the Grantee
and its Affiliates as of such date, were sold for cash at the closing market
price for the Company Common Stock as of the close of business on the preceding
trading day (less customary brokerage commissions) and including all amounts
theretofore received or concurrently being paid to the Grantee pursuant to
clauses (i), (ii) and (iii) of the definition of Total Profit.
"Offeror's Notice" shall have the meaning ascribed to such
term in Section 8 herein.
"Option" shall mean the option granted by the Company to
Grantee pursuant to Section 2 herein.
"Option Shares" shall have the meaning ascribed to such term
in Section 2 herein.
"Option Term" shall have the meaning ascribed to such term in
Section 2 herein.
"Order" shall mean any judgment, order or decree of any Court
or Governmental Authority, federal, foreign, state or local, of competent
jurisdiction.
"Profit Cap" shall mean $50 million, unless the conditions to
the payment by the Company of the additional $150 million fee under Section 9.5
of the Merger Agreement shall have occurred, in which case "Profit Cap" shall
mean $200 million.
"Put Consideration" shall have the meaning ascribed to such
term in Section 5 herein.
"Put Date" shall have the meaning ascribed to such term in
Section 5 herein.
"Put Period" shall have the meaning ascribed to such term in
Section 5 herein.
"Put Right" shall have the meaning ascribed to such term in
Section 5 herein.
"Registration Expenses" shall mean the expenses associated
with the preparation and filing of any registration statement pursuant to
Section 7 herein and any sale covered thereby (including any fees related to
blue sky qualifications and filing fees in respect of the National Association
of Securities Dealers, Inc.), but excluding underwriting discounts or
commissions or broker's fees in respect to shares to be sold by the Grantee and
the fees and disbursements of the Grantee's counsel.
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"Registration Period" shall mean, subject to Section 4 hereof,
the period of two years following the first exercise of the Option by the
Grantee.
"Regulation" shall mean any rule or regulation of any
Governmental Authority having the effect of Law or of any rule or regulation of
any self-regulatory organization, such as the NYSE.
"Total Profit" shall mean the aggregate (before income taxes)
of the following: (i) all amounts received by the Grantee or concurrently being
paid to the Grantee pursuant to Section 5 for the repurchase of all or part of
the unexercised portion of the Option, (ii) (A) the amounts received by the
Grantee or concurrently being paid to the Grantee pursuant to the sale of Option
Shares (or any other securities into which such Option Shares are converted or
exchanged), including sales made to the Company or pursuant to a registration
statement under the Securities Act or any exemption therefrom, less (B) the
Grantee's purchase price for such Option Shares and (iii) all amounts received
by the Grantee from the Company or concurrently being paid to the Grantee
pursuant to Section 9.5 of the Merger Agreement.
"Unexercised Option Shares" shall mean, from and after the
Exercise Date until the expiration of the Option Term, those Option Shares as to
which the Option remains unexercised from time to time.
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