-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EK5EsRMOtCHKmr83V8lkIHlaK+56PZ6NHxs5bT8x3ddEiAY+NbwBkO+4edcb2vos vbwGlxsZ0zwv6tq98dIWEA== 0000950128-98-000660.txt : 19980325 0000950128-98-000660.hdr.sgml : 19980325 ACCESSION NUMBER: 0000950128-98-000660 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980324 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CBS CORP CENTRAL INDEX KEY: 0000106413 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] IRS NUMBER: 250877540 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-00977 FILM NUMBER: 98572252 BUSINESS ADDRESS: STREET 1: WESTINGHOUSE BLDG STREET 2: 11 STANWIX STREET CITY: PITTSBURGH STATE: PA ZIP: 15222-1384 BUSINESS PHONE: 4122442000 FORMER COMPANY: FORMER CONFORMED NAME: WESTINGHOUSE ELECTRIC CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: WESTINGHOUSE ELECTRIC & MANUFACTURING CO DATE OF NAME CHANGE: 19710510 10-K405 1 CBS CORPORATION 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549-1004 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 ------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO -------------- ------------------ COMMISSION FILE NUMBER 1-977 CBS CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) PENNSYLVANIA 25-0877540 - ------------------------------------------------------ ------------------------------------------------------ (State of Incorporation) (I.R.S. Employer Identification No.) 51 WEST 52ND STREET NEW YORK, NEW YORK 10019 (212) 975-4321 - ------------------------------------------------------ ------------------------------------------------------ (Address of Principal Executive Offices) (Telephone No.)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED - --------------------------------------------------- --------------------------------------------------------------------- Common Stock, par value $1.00 per Share New York Stock Exchange Boston Stock Exchange Pacific Stock Exchange Philadelphia Stock Exchange Chicago Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by checkmark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X CBS Corporation had 714,593,724 shares of common stock outstanding at January 30, 1998. As of that date, the aggregate market value of common stock held by non-affiliates was $20.7 billion. DOCUMENT INCORPORATED BY REFERENCE INTO THE PARTS OF THIS REPORT INDICATED: 1. Portions of CBS Corporation's Notice of 1998 Annual Meeting and Proxy Statement to be filed with the Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934 (the Proxy Statement). (Parts I and III) ================================================================================ 2 The terms "CBS" and "Corporation" as used in this Report on Form 10-K refer to CBS Corporation and its consolidated subsidiaries unless the context indicates otherwise. PART I ITEM 1. BUSINESS. General Westinghouse Electric Corporation changed its name to CBS Corporation on December 1, 1997. CBS Corporation is one of the largest radio and television broadcasters in the United States. The Corporation was founded in 1886 and operates under a corporate charter granted by the Commonwealth of Pennsylvania in 1872. The Corporation operates its continuing businesses primarily in the United States through its Radio, Television Stations, Television Network, and Cable Groups. These businesses furnish network television services to affiliated television stations; operate the Corporation's non-broadcast television networks; produce news, sports, and entertainment programming; and operate 14 television broadcast stations and 76 radio stations under licenses from the Federal Communications Commission (FCC). During recent years, the Corporation dramatically redefined its business portfolio and future direction. The Corporation acquired CBS Inc. in November 1995, Infinity Broadcasting Corporation (Infinity) in December 1996, and Gaylord Entertainment Company's two major cable networks, The Nashville Network (TNN) and Country Music Television (CMT), in September 1997. Also in September 1997, the Corporation announced it had reached a definitive agreement to acquire the radio broadcasting operations of American Radio Systems Corporation (American Radio). Upon completing the American Radio transaction, CBS will own (subject to any required divestitures) approximately 175 radio stations. As the Corporation redefined its business portfolio, a number of businesses were identified as non-strategic and to be divested. The Corporation divested The Knoll Group (Knoll), its office furniture unit, and the Corporation's defense and electronic systems business in February and March 1996, respectively. In December 1996, the Corporation divested Westinghouse Security Systems, its residential security business. During 1996 and 1997, the Corporation continued to divest other non-strategic businesses. In November 1996, the Corporation's Board of Directors conditionally approved a plan to separate the Corporation's media and industrial businesses by way of a tax-free dividend to shareholders, forming a publicly traded company to be called Westinghouse Electric Company (WELCO). Modifications were made to the plan such that WELCO would consist primarily of the manufacturing and service businesses for the nuclear and fossil-fueled power generation industry and the government operations business. The Corporation would retain the media businesses and Thermo King Corporation (Thermo King). In September 1997, the Corporation reached a definitive agreement to sell Thermo King, and the sale was completed in October 1997. However, in light of consolidation in the power industry, the Corporation considered offers by various parties to acquire certain of the WELCO businesses. In November 1997, the Corporation announced a definitive agreement to sell its Power Generation business for $1.525 billion in cash. The remaining industrial businesses, consisting primarily of Energy Systems and Government Operations, are expected to be divested in 1998. Financial results for 1997 and prior years include as Discontinued Operations the Corporation's industrial businesses previously divested or expected to be divested in 1998. For information about principal acquisitions, pending acquisitions, and divestitures, see notes 1, 3, and 7 to the financial statements included in Part II, Item 8 of this report. Financial and other information by segment is included in note 19 to the financial statements included in Part II, Item 8 of this report. CBS CORPORATION 2 3 BUSINESS SEGMENTS Radio The Radio Group owns and operates 76 AM and FM radio stations in 17 markets (New York, Los Angeles, Chicago, San Francisco, Philadelphia, Detroit, Dallas-Ft. Worth, Washington, D.C., Houston-Galveston, Boston, Atlanta, Minneapolis-St. Paul, St. Louis, Baltimore, Pittsburgh, Tampa-St. Petersburg, and San Jose). Sixty-three of the Corporation's radio stations are in the nation's ten largest radio markets. Radio believes that its presence in large markets makes it attractive to advertisers and that the overall diversity of its stations reduces its dependence on any single station, local economy, or advertiser. The Corporation's stations serve diverse target demographics through a broad range of programming formats such as rock, oldies, news/talk, adult contemporary, sports/talk, and country, and include leading franchises in news, sports, and personality programming. Upon completing the American Radio acquisition, the Radio Group will own and operate approximately 175 radio stations, subject to any required divestitures. The Corporation also has a minority equity investment in Westwood One, which it manages. Westwood One, a leader in producing and distributing syndicated and network radio programming, manages the CBS Radio Network. The Corporation also participates in the outdoor advertising business through its wholly owned subsidiary, TDI Worldwide, Inc. (TDI). TDI is based in New York with 20 branch offices throughout the United States, United Kingdom, Republic of Ireland, and Northern Ireland. TDI is one of the largest outdoor advertising companies in the United States, operating some 100 franchises, the majority of which are in large metropolitan areas (including New York, Los Angeles, Atlanta, Washington, D.C., Philadelphia, Chicago, San Francisco, Minneapolis, and Phoenix). TDI sells space on various media including buses, trains, train platforms and terminals throughout commuter rail systems, and on painted billboards, thirty-sheet billboards, and phone kiosks. TDI also has the franchise to manage advertising space within the London Underground and certain London buses and has the exclusive rights to transit advertising in the Republic of Ireland and Northern Ireland. Television Stations The 14 owned and operated television stations are located in seven of the nation's ten largest markets, and 11 of the nation's top 20 markets, reaching approximately 32% of all U.S. television households. The CBS owned stations are: WCBS-TV New York, KCBS-TV Los Angeles, WBBM-TV Chicago, WCCO-TV Minneapolis, WFRV-TV Green Bay, WWJ-TV Detroit, WJZ-TV Baltimore, WBZ-TV Boston, KCNC-TV Denver, WFOR-TV Miami, KYW-TV Philadelphia, KDKA-TV Pittsburgh, KUTV-TV Salt Lake City, and KPIX-TV San Francisco. The stations produce news and broadcast public affairs and other programming to serve their local markets. Television Network Through the Television Network, the Corporation distributes a comprehensive schedule of news and public affairs broadcasts, entertainment and sports programming, and feature films to more than 200 domestic affiliates and to certain overseas affiliated stations. The Television Network's domestic affiliates include independently owned stations and the Corporation's 14 owned and operated television stations. These affiliates serve, in the aggregate, all 50 states and the District of Columbia. The Television Network is responsible for sales of advertising time for the CBS Television Network broadcasts and related merchandising and sales promotion activities. It is also responsible for managing the full range of ongoing activities and areas of mutual concern between the television network and the independently owned affiliated stations. CBS Entertainment produces and otherwise acquires and schedules entertainment series and other programming (primetime comedy and drama series, motion pictures made for television, mini-series, theatrical films, specials, and children's programs) broadcast on the CBS Television Network. CBS News operates a worldwide news gathering and production organization serving the CBS Television and Radio Networks with regularly scheduled news and public affairs broadcasts, and special reports. This unit also produces, for the CBS Television Network, certain news-oriented programming for broadcast in the early morning daypart and in designated hours during primetime. A unit of CBS News produces documentaries for sale to other media outlets. CBS News maintains news bureaus in the United States and abroad in addition to its headquarters in New York. CBS Sports produces and otherwise acquires sports programs for broadcast by the CBS Television Network, including the 1998 Olympic Winter Games from Nagano, Japan; NCAA basketball, including the men's Final Four tournament; auto racing, including the Daytona 500; golf, including the Masters(R) and PGA Championship; the U.S. Open Tennis Championships; and college football. In January 1998, CBS CBS CORPORATION 3 4 entered into an agreement with the National Football League to broadcast American Football Conference games beginning with the 1998 football season. CBS Enterprises is active in the production, distribution, and marketing of first-run and off-network programming to broadcast, cable, home video, in-flight, and emerging media worldwide. EYEMARK Entertainment oversees domestic syndication, while CBS Broadcast International is responsible for selling programming internationally. The division also manages licensing and merchandising opportunities, as well as video opportunities, for diverse programming produced by EYEMARK Entertainment and CBS Productions. CBS New Media is responsible for the Television Network's involvement with evolving technologies, including the Internet on which the Corporation operates two web services: CBS.com and Country.com. CBS.com, a co-branded network-affiliate web site, was launched in February 1998 with more than 150 affiliates participating. The site can be customized and offers subscribing CBS affiliates a variety of network provided national content, including up-to-date information from CBS News, as well as sports, weather, business, life, and local guides, all under the "banner" and branding of each affiliate's local market identity. CBS.com is also the Television Network's marketing and promotional web site. Country.com features the latest country lifestyle and entertainment news and promotes TNN and CMT programming. Also part of CBS New Media are the Corporation's minority investment in SportsLine USA, Inc. (which publishes several sports web sites, including CBS.Sportsline.com) and its joint venture with Data Broadcasting Corporation (which publishes CBS.Marketwatch.com). Cable The Cable Group owns and operates the Corporation's non-broadcast television networks, including TNN, CMT, Eye on People, TeleNoticias, and two regional sports networks. These networks are distributed by cable television and other multichannel technologies. TNN is an advertiser-supported cable network featuring country lifestyle and entertainment programming. The network serves approximately 70 million U.S. homes. TNN's programming includes country music performances, interviews with country music artists and personalities, specials, variety shows, talk shows, news, and sports. TNN's weekend programming focuses on outdoor sports, such as hunting, fishing, and motor sports, some of which, including a portion of the NASCAR Winston Cup Series, is broadcast live. CMT is an advertiser-supported, 24-hour cable network with a country music video format. It reaches approximately 41 million U.S. homes. Eye on People, launched in March 1997, is an entertainment and information network focusing on people and personalities. The programming is produced by CBS News and other CBS divisions as well as by outside producers. TeleNoticias is a leading 24-hour Spanish-language cable network. TeleNoticias is available in 22 countries and territories, primarily in Latin America. In addition, the Cable Group owns and operates the Midwest Sports Channel, a regional sports network in Minneapolis, and is a majority owner of Home Team Sports, a regional sports network serving the mid-Atlantic states. Also part of the Cable Group, Group W Network Services (GWNS) is a global provider of satellite services to broadcast, cable, and corporate networks. Based in Stamford, Connecticut, GWNS handles nearly 6,000 hours of television programming each week, providing transmission and other technical services to U.S. broadcast networks and many major cable networks, including A&E and the Discovery Channel. GWNS also provides full production and post-production services. In a joint venture with The Yellow River Network, GWNS operates Asia Broadcast Centre in Singapore, a full-service television operations hub serving the Asia-Pacific region. COMPETITION The broadcast environment is highly competitive. The Telecommunications Act of 1996 provides both new opportunities and potential new competition for CBS. By deregulating station ownership limits, the Act has allowed the Corporation to pursue strategic growth in its Radio and Television Station Groups. Radio competes with other radio stations, other radio networks and suppliers of radio programming, and other advertising media. Developments in radio technology could affect competition in the radio marketplace. New radio technology, known as digital audio broadcasting, can provide sound the quality of compact discs, which is significantly CBS CORPORATION 4 5 higher than that now provided by radio stations and networks using analog technology. The Corporation is participating in the development of digital audio broadcasting. The CBS Television Network, Television Stations, and the Cable Group compete for audiences with other television networks, television stations, and cable networks, as well as with other media, including satellite television services and videocassettes. In recent years, broadcast television has seen total audience viewership decline. In the sale of advertising time, the CBS Television Network, Television Stations, and the Cable Group compete with other broadcast networks, other television stations, other cable networks, and other advertising media. The CBS Television Network, Television Stations, and the Cable Group also compete with other video media for distribution rights to television programming. In addition, the CBS Television Network competes with other television networks to secure affiliations with independently owned television stations in markets across the country, which are necessary to ensure the effective distribution of network programming to a nationwide audience. More than 95% of CBS affiliates are under long-term agreements with the Television Network. Current and future technological developments may affect competition within the television marketplace. Developments in advanced digital technology may enable competitors to provide high definition pictures and sound qualitatively superior to what television stations now provide. Developing technology to compress digital signals may also permit the same broadcast or cable channel or satellite transponder to carry multiple video and data services, and could result in an expanded field of competing services. An extended conversion to digital television broadcasting has begun. Television broadcasters will continue to operate their current stations while gradually building and operating digital facilities concurrently on separate channels. This transition is expected to continue well into the early 21st century because new consumer appliances are required to receive and display these digital signals. In April 1997, the FCC adopted a schedule under which television stations must build digital television transmission facilities and begin digital transmissions. The schedule includes a provision for extensions of time for certain unforeseeable or uncontrollable circumstances. Under that schedule, CBS is required to build digital facilities by May 1, 1999 for the stations it owns in seven of the ten largest television markets. Construction is required by November 1, 1999 for CBS's five additional owned television stations in the 30 largest television markets. CBS's two owned television stations in markets below the largest 30 must construct digital facilities by May 1, 2002. In addition, CBS, as well as other major station group owners, have volunteered to the FCC to make a good faith effort to construct digital facilities for some stations in the ten largest markets on an accelerated basis by November 1, 1998. The CBS markets currently planned for accelerated construction include New York, San Francisco, Philadelphia, and Detroit. All of the Corporation's television and radio stations operate under licenses from the FCC, which is empowered by the Communications Act of 1934, as amended, to, among other things, license and regulate television and radio broadcasting stations. The FCC has authority to grant or renew broadcast licenses for a maximum statutory term of eight years if it determines that the "public convenience, interest, or necessity" will be served thereby. During a specified period after an application for renewal of a broadcast station license has been filed, persons objecting to the license renewal application may file petitions to deny. The FCC's approval of the Corporation's acquisition of Infinity contained a number of temporary waivers of the FCC's television and radio cross-ownership rules (the "One-to-a-Market" Rule). These waivers were granted subject to the outcome of the pending ownership rulemaking in which certain deregulation of the "One-to-a-Market" Rule has been proposed. In the event that any station divestitures are required at the conclusion of this rulemaking, the Corporation would be required to file applications with the FCC for consent to the necessary divestitures within six months of the rulemaking order. The FCC orders approving both the CBS Inc. and Infinity acquisitions are subject to judicial appeals by certain third parties. The FCC has previously rejected the positions of these third parties, and the Corporation believes that such appeals are without merit. DISCONTINUED OPERATIONS Discontinued Operations currently consists of the Power Generation, Energy Systems, and Government Operations operating units which are described below. Discontinued Operations also consists of the remaining operations of the Communication & Information Systems Company (CISCO), the environmental services business, and the leasing CBS CORPORATION 5 6 portfolio from the Financial Services business. See note 7 to the financial statements included in Part II, Item 8 of this report. All of the businesses in Discontinued Operations are expected to be divested in 1998, except for the leasing portfolio which will liquidate in accordance with its contractual terms. Power Generation designs, manufactures, and services steam turbine-generators for nuclear and fossil-fueled power plants and combustion turbine-generators for natural gas and oil-fired power plants. This unit also constructs turnkey power plants worldwide. In addition to serving the electric utility industry, Power Generation supplies, services, and operates power plants for independent power producers and supplies power generation equipment and services to other non-utility customers. On November 14, 1997, the Corporation entered into an agreement with a subsidiary of Siemens A.G. to sell its Power Generation business. Energy Systems serves the domestic and international electric power industry by supplying fuel and other products and services to owners and operators of nuclear power plants. The unit supplies operating plant services ranging from performance-based maintenance programs, including operations and safety upgrades, to new products and services that enhance plant performance. It also has complete capabilities for supplying customers with nuclear fuel for pressurized water reactors. Energy Systems is marketing new nuclear power plants and components to the worldwide market. It is also working with government agencies to develop a simplified nuclear power plant design that incorporates passive safety systems. The Process Control Division of Energy Systems provides distributed control, communications, data acquisition, and information systems to domestic and international nuclear and fossil-fueled electric utilities, and to chemical processors, water and waste water treatment facilities, and the steel industry. Government Operations provides management services for: (1) certain government-owned facilities under contracts with the Department of Energy in the areas of waste management, environmental cleanup, and the safe management of the nation's nuclear materials inventory; (2) the nuclear reactors programs for the U.S. Navy; and (3) a chemical agent and weapons destruction program for the Department of Defense. It also manufactures nuclear waste storage containers. TRADEMARKS AND PATENTS CBS has a worldwide trademark portfolio that it considers important in the marketing of its products and services, including, among others, the trademarks "CBS," "WESTINGHOUSE," the CBS "Eye" logo, and the "CIRCLE W" logo. CBS believes that its rights in these trademarks are adequately protected and of unlimited duration. CBS owns or is licensed under a large number of patents and patent applications (primarily related to its industrial businesses which are classified as Discontinued Operations) in the United States and other countries that, taken together, are of material importance to the industrial businesses. Such patent rights are, in the judgment of CBS, adequate for the conduct of these businesses. No patents that CBS considers material to the industrial businesses as a whole will expire within the next five years. ENVIRONMENTAL MATTERS Information with respect to Environmental Matters is incorporated herein by reference to Management's Discussion and Analysis--Environmental Matters included in Part II, Item 7 and in note 12 to the financial statements included in Part II, Item 8 of this report. RESEARCH AND DEVELOPMENT The Corporation's Continuing Operations do not engage in any material research and development activities. EMPLOYEE RELATIONS During 1997, the Corporation employed an average of 51,444 people, of whom 46,113 were located in the United States. During the same period, 6,153 domestic employees were represented in collective bargaining by 24 labor organizations. The 1997 average number of employees includes 37,863 employees employed by businesses classified as Discontinued Operations. CBS CORPORATION 6 7 ITEM 2. PROPERTIES. The Corporation's corporate headquarters is located at 51 West 52nd Street, New York, New York, where the Corporation currently owns approximately 900,000 square feet of floor space, primarily utilized for executive and certain operating division offices. The majority of other properties used by the media businesses consist of both owned and leased office space, studio facilities, transmitter equipment, and antenna sites throughout the United States and in 14 countries around the world. As of December 31, 1997, the Corporation's Continuing Operations owned or leased 438 U.S. properties totaling 6,455,000 square feet of floor area and 37 foreign locations totaling 109,000 square feet. Domestic locations of Continuing Operations comprised approximately 98% of the total space. Leased facilities in the United States accounted for approximately 33% of the total space occupied by Continuing Operations, while facilities leased in foreign countries accounted for approximately 2% of the total space occupied by Continuing Operations. No individual lease was material. The physical properties described above are adequate and suitable, with an appropriate level of utilization, for the conduct of its business in the future. At December 31, 1997, the Corporation's Discontinued Operations owned or leased 255 locations totaling 17,127,000 square feet of floor area within the United States and 108 locations totaling 2,608,000 square feet in 27 foreign countries. Domestic operations of Discontinued Operations accounted for approximately 87% of the total space occupied by Discontinued Operations. Leased facilities in the United States accounted for approximately 24% of the total space occupied by Discontinued Operations, while facilities leased in foreign countries accounted for approximately 3% of the total space occupied by Discontinued Operations. No individual lease was material. A number of manufacturing plants and other facilities formerly used in operations are either vacant, partially utilized, or leased to others. All of these facilities are expected to be sold. ITEM 3. LEGAL PROCEEDINGS. (a) On February 27, 1996, suit was brought against the Corporation in the United States District Court (USDC) for the District of New Jersey by Public Service Electric & Gas Company, PECO Energy Company, Atlantic City Electric Company, and Delaware Power & Light Company, the owners of the Salem Generating Station. The suit alleges counts under the Racketeer Influenced and Corrupt Organization Act (RICO) for fraud, negligent misrepresentation, and breach of contract in connection with the Corporation's supply of steam generators and for service orders in 1993 and 1995 related to these steam generators. The parties are currently engaged in discovery. The Corporation is also a party to five tolling agreements with utility owners that have asserted steam generator claims. See note 12 to the financial statements included in Part II, Item 8 of this report. (b) In August 1988, the Pennsylvania Department of Environmental Resources (PDER) filed a complaint against the Corporation alleging violations of the Pennsylvania Clean Streams Law at the Corporation's Gettysburg, Pennsylvania, elevator plant. PDER requested that the Environmental Hearing Board assess a penalty in the amount of $9 million. The Corporation denied these allegations. The parties completed discovery, and a portion of the hearing on the complaint began in 1991. The hearing resumed in 1992 and concluded in February 1993. In November 1996, the Board assessed a civil penalty of approximately $5.5 million. The Corporation appealed the Board's decision to the Commonwealth Court. On January 2, 1998, the Commonwealth Court upheld the Board's findings with respect to violations of the Pennsylvania Clean Streams Law but not with respect to the amount of the penalty assessed. The Commonwealth Court returned the matter to the Board for a reassessment of the penalty. The Corporation has filed an application for a rehearing before the Commonwealth Court. (c) The Corporation has been defending, in the USDC for the Western District of Pennsylvania (the District Court), consolidated class and derivative actions and an individual lawsuit brought by shareholders against the Corporation, Westinghouse Financial Services, Inc. (WFSI) and Westinghouse Credit Corporation (WCC), previously subsidiaries of the Corporation, and/or certain present and former directors and officers of the Corporation, as well as other unrelated parties. Together, these actions allege various federal securities law and common law violations arising out of alleged misstatements or omissions contained in the Corporation's public filings concerning the financial condition of the Corporation, WFSI, and WCC in connection with a $975 million charge to earnings announced on February 27, 1991, a public offering of the Corporation's common stock in May 1991, a $1,680 million charge to earnings announced on October 7, 1991, and alleged misrepresentations regarding the adequacy of internal controls at the Corporation, WFSI, and WCC. In July 1993, the court dismissed in its entirety the derivative claim and dismissed most of the class action claims with leave to replead certain claims in both actions. Both actions were subsequently repled. On January 20, CBS CORPORATION 7 8 1995, the District Court again dismissed the derivative complaint in its entirety. On February 8, 1995, this dismissal was appealed. Also on January 20, 1995, the court dismissed the class action claims but granted plaintiffs the right to replead certain of the claims. Plaintiffs in the class action did not replead the claims, and on February 28, 1995, the court dismissed these claims in their entirety. Plaintiffs in both the derivative and class action suits appealed the rulings and dismissals of their claims by the District Court to the United States Court of Appeals for the Third Circuit (Court of Appeals). In July 1996, the Court of Appeals affirmed in part and reversed in part the class action claims. Pursuant to this ruling, the class action claims have been remanded to the District Court where the plaintiffs will proceed with their surviving claims. The parties in the class action case are currently engaged in discovery. In the derivative action, the Court of Appeals affirmed the dismissal of this action by the District Court. In 1997, two duplicative class action suits were brought against the Corporation in the District Court. These cases allege similar facts and include the same defendants as in the previous class action complaint filed in the District Court. In November 1997, the District Court dismissed both of these actions. (d) The Corporation is a defendant in numerous lawsuits claiming various asbestos-related personal injuries, which allegedly occurred from use or inclusion of asbestos in certain of the Corporation's products supplied by its industrial businesses, generally in the pre-1970 time period. Typically, these lawsuits are brought against multiple defendants. The Corporation was neither a manufacturer nor a producer of asbestos and is oftentimes dismissed from these lawsuits on the basis that the Corporation has no relationship to the products in question or the claimant was not exposed to the Corporation's products. At December 31, 1997, the Corporation had approximately 115,700 claims outstanding against it. In court actions that have been resolved, the Corporation has prevailed in the vast majority of the asbestos claims and has resolved others through settlement. Furthermore, the Corporation has brought suit against certain of its insurance carriers with respect to these asbestos claims. Under the terms of a settlement agreement resulting from this suit, carriers that have agreed to the settlement are now reimbursing the Corporation for a substantial portion of its current costs and settlements associated with asbestos claims. A number of the asbestos-related cases pending against the Corporation, including those in Louisiana, Pennsylvania, and West Virginia, are consolidated or purported class action cases. In consolidated cases, the claims of a group of plaintiffs are tried together, and oftentimes limited findings with respect to common issues of fact and punitive damages are decided with respect to a representative grouping of plaintiffs and then applied to other individuals in the group. However, for the Corporation to be liable for damages to any particular claimant, that individual claimant must prove that he developed an asbestos-related disease, that he was exposed to a product manufactured or supplied by the Corporation, and that this exposure was a substantial factor in the development of the disease. (e) In January 1997, Innovative Business Systems (Overseas) Ltd. and Innovative Business Software, Inc. (collectively, Innovative) brought suit against the Corporation and others in the Judicial District Court, Dallas County, Texas. The suit alleges that in connection with the sale by the Corporation of its residential security business on December 31, 1996 the Corporation wrongfully transferred software to the buyers of that business. Innovative has filed four amended complaints against the Corporation; and the latest amended complaint, filed in the fourth quarter of 1997, seeks money damages, specific performance, and injunctive relief against the Corporation for alleged violations by the Corporation relating to software license agreements between the parties. Innovative seeks monetary damages in an amount of $425 million, punitive damages, and attorney's fees. The Corporation has denied the allegations, believes the allegations to be without merit, and has filed a counterclaim against Innovative and others based upon fraud, breach of contract, and tortious interference with a business relationship. Unless continued, trial of this case is scheduled for June 1, 1998. Litigation is inherently uncertain and always difficult to predict. Substantial damages are sought in certain of the foregoing matters and although management believes a significant adverse judgment is unlikely, any such judgment could have a material adverse effect on the Corporation's results of operations for a quarter or a year. However, based on its understanding and evaluation of the relevant facts and circumstances, management believes that the Corporation has meritorious defenses to the litigation described in items (a) through (e) above, and that the Corporation has adequately provided for costs arising from potential settlement of these matters when in the best interest of the Corporation. Management believes that the litigation should not have a material adverse effect on the financial condition of the Corporation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None during the fourth quarter of 1997. CBS CORPORATION 8 9 EXECUTIVE OFFICERS The names, ages, offices, and positions held during the past five years by each of the executive officers of the Corporation as of February 14, 1998 are listed below. Officers are elected annually. There are no family relationships among any of the executive officers of the Corporation.
AGE AT FEBRUARY 14, NAME, OFFICES, AND POSITIONS 1998 - ------------------------------------------------------------------------------- Michael H. Jordan--Chairman and Chief Executive Officer 61 since June 1993; Partner with Clayton, Dubilier & Rice, Inc. from September 1992 to June 1993. Louis J. Briskman--Senior Vice President and General Counsel 49 since January 1994; Senior Vice President, Secretary and General Counsel from January 1993 to January 1994. Mel Karmazin--Chairman and Chief Executive Officer of CBS 54 Station Group since May 1997; Chairman and Chief Executive Officer of CBS Radio from December 1996 to May 1997; President and Chief Executive Officer, Infinity Broadcasting Corporation from 1981 to December 1996. Leslie Moonves--President, CBS Television since August 1997; 48 President, CBS Entertainment Division from May 1995 to August 1997; President, Warner Bros. Television from July 1993 to May 1995; President, Lorimar Television from 1989 to 1993. Charles W. Pryor, Jr.--President and Chief Executive Officer 53 of Westinghouse Electric Company since November 1997; President, Energy Systems from March 5, 1997 to November 1997; management consultant from the end of 1995 to March 1997; President and Chief Executive Officer of B&W Nuclear Technologies (which became a subsidiary of Framatome, S.A. in 1993) from 1991 to the end of 1995. Fredric G. Reynolds--Executive Vice President and Chief 47 Financial Officer since March 1994; Senior Vice President, Finance, and Chief Financial Officer, PepsiCo International Foods from December 1990 to March 1994. Carol V. Savage--Vice President and Chief Accounting Officer 47 since July 1996; Director, Corporate Reporting and Policies from October 1994 to July 1996; Controller, Nuclear and Advanced Technology Division, Energy Systems from June 1992 to October 1994. Randy H. Zwirn--President, Power Generation since December 44 1996; Executive Vice President and Chief Operating Officer of Power Generation from January 1996 to December 1996; General Manager, Power Generation Systems Division from 1994 to January 1996; General Manager, Power Generation Projects Division from 1990 to 1994. - -------------------------------------------------------------------------------
CBS CORPORATION 9 10 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The principal markets for the Corporation's common stock are identified on page 1 of this report. The remaining information required by this item appears on page 51 of this report and is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA. The information required by this item appears on pages 50 and 51 of this report and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required by this item appears on pages 11 through 22 of this report and is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by this item, together with the reports of KPMG Peat Marwick LLP dated January 28, 1998 and Price Waterhouse LLP dated February 12, 1996, except for the restatements discussed in notes 1 and 7, for which the dates are March 31, 1996, November 13, 1996, and September 30, 1997, appears on pages 23 through 51 of this report and is incorporated herein by reference.
PAGE - ------------------------------------------------------------------ Report of Management 23 Reports of Independent Auditors and Accountants 24 Consolidated Statement of Income for each of the three years in the period ended December 31, 1997 26 Consolidated Balance Sheet at December 31, 1997 and 1996 27 Consolidated Statement of Cash Flows for each of the three years in the period ended December 31, 1997 28 Consolidated Statement of Shareholders' Equity for each of the three years in the period ended December 31, 1997 29 Notes to the Financial Statements 30 Quarterly Financial Information (unaudited) 50 Five-Year Summary of Selected Financial and Statistical Data (unaudited) 51 - ------------------------------------------------------------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There were no reportable events. CBS CORPORATION 10 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OVERVIEW During 1997, CBS Corporation completed several strategic actions providing the foundation for its future growth as a media company and culminating in the announcement to sell its remaining industrial businesses. In December 1997, the Corporation changed its name from Westinghouse Electric Corporation to CBS Corporation recognizing that it was nearing completion of its transformation to a pure media company. The Corporation completed the acquisition of Gaylord Entertainment Company's two major cable networks: The Nashville Network (TNN) and Country Music Television (CMT) on September 30, 1997. The acquisition included domestic and international operations of TNN, the U.S. and Canadian operations of CMT, and approximately $50 million of working capital. The total purchase price of $1.55 billion was paid through the issuance of 59 million shares of common stock. On September 19, 1997, the Corporation announced that it had reached a definitive agreement to acquire the radio broadcasting operations of American Radio Systems Corporation (American Radio) for $1.6 billion of cash plus the assumption of approximately $1 billion of debt. The transaction, which is expected to close in the second quarter of 1998, will add approximately 100 radio stations, subject to any required divestitures, to the Radio Group's current portfolio of 76 stations. In November 1996, the Corporation's Board of Directors conditionally approved a plan for a strategic restructuring whereby the Corporation would separate its media and industrial businesses. Considerable progress was made in 1997 toward achieving that goal by way of a tax-free dividend to shareholders forming a new publicly traded company to be called Westinghouse Electric Company (WELCO). A registration statement for WELCO, which included all of the Corporation's industrial businesses except Thermo King Corporation (Thermo King), its transport temperature control business, was filed with the Securities and Exchange Commission in August 1997. In September 1997, the Corporation reached a definitive agreement to sell Thermo King for cash proceeds of $2.56 billion. The assets and liabilities and the results of operations for Thermo King and for WELCO as presented in the registration statement were reclassified as Discontinued Operations except for certain liabilities expected to be retained by the Corporation. See notes 7 and 12 to the financial statements. However, in light of consolidation in the power industry, the Corporation considered offers by various parties to acquire certain of the industrial businesses. On November 14, 1997, the Corporation announced a definitive agreement to sell Power Generation, the largest component of WELCO, for cash proceeds of $1.525 billion. The sale of Power Generation is expected to be completed in mid-1998. The remaining industrial businesses, consisting primarily of Energy Systems and Government Operations, are expected to be divested in 1998. The sale of Thermo King was completed on October 31, 1997, and the proceeds were used to repay debt of Continuing Operations. In connection with the divestiture of Thermo King, the planned divestiture of WELCO, and the review of prior disposal plans, the Corporation recognized a combined after-tax gain of $871 million in the fourth quarter of 1997. With the sale of Thermo King, the definitive agreement for the sale of Power Generation, and the decision to sell the remaining industrial businesses, the Corporation was rapidly approaching its goal of becoming a pure media company. In recognition of this accomplishment, effective December 1, 1997, the Corporation's name was changed from Westinghouse Electric Corporation to CBS Corporation. Furthermore, the Corporation announced that it was moving its corporate headquarters from Pittsburgh to New York. A restructuring charge of $15 million was recognized in the fourth quarter of 1997 for severance benefits associated with reductions in the overhead functions at the former Pittsburgh headquarters. The 1997 performance for the Corporation's media businesses generally was strong. The Radio Group reported double-digit growth in revenues and earnings before interest, taxes, depreciation, and amortization (EBITDA) for the year, even after adjusting for the December 31, 1996 acquisition of Infinity Broadcasting Corporation (Infinity). The Television Group reported improved results in 1997 and began building momentum in the second half of the year. The Network's earnings, although lower for the year, showed improvement as the year progressed. The Corporation's two new cable networks, TNN and CMT, began making a strong contribution to earnings immediately after joining the Corporation. On January 13, 1998, the Corporation and the National Football League (NFL) announced that CBS was awarded the rights to broadcast American Football Conference games. The eight-year agreement, subject to rebid at the end of five years at the discretion of the NFL, will cost approximately $4 billion. The contract CBS CORPORATION 11 12 begins with the 1998 football season and includes two Super Bowls. On February 4, 1998, the Corporation announced that its Board of Directors authorized the purchase, through open market transactions, of up to $1 billion of its common stock. At the same time, the Corporation announced that it would suspend dividend payments on its common stock after payment of the March 1, 1998 dividend so that the cash could be used to better enhance shareholder value. Information Relating to Forward-Looking Statements This Annual Report on Form 10-K, including Item 7--"Management's Discussion and Analysis of Financial Condition and Results of Operations," contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are not historical facts but rather reflect the Corporation's current expectations concerning future results and events. The words "believes," "expects," "intends," "plans," "anticipates," "likely," "will," and similar expressions identify such forward-looking statements. These forward-looking statements are subject to risks, uncertainties, and other factors, some of which are beyond the Corporation's control, that could cause actual results to differ materially from those forecast or anticipated in such forward-looking statements. Such risks, uncertainties, and factors include, but are not limited to: the Corporation's ability to develop and/or acquire television programming and to attract and retain advertisers; the impact of significant competition from both over-the-air broadcast stations and programming alternatives such as cable television, wireless cable, in-home satellite distribution services, and pay-per-view and home video entertainment services; the Corporation's ability to complete its transition from a multi-faceted industrial conglomerate to a pure media company in a timely and cost-effective manner; the impact of new technologies; changes in Federal Communications Commission regulations; and such other competitive and business risks as from time to time may be detailed in the Corporation's Securities and Exchange Commission reports. Readers are cautioned not to place undue reliance on these forward-looking statements which reflect management's view only as of the date of this Annual Report. The Corporation undertakes no obligation to publicly release the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. CONSOLIDATED OPERATING RESULTS The Corporation reported net income for 1997 of $549 million, or $.84 per share, compared to $95 million, or $.12 per share, for 1996. In 1995, the Corporation lost $10 million, or $.25 per share. Net income includes results from Continuing Operations, Discontinued Operations, and, in 1996, an extraordinary loss on early extinguishment of debt, as presented below: COMPONENTS OF NET INCOME (LOSS) (in millions)
YEAR ENDED DECEMBER 31, 1997 1996 1995 - ------------------------------------------------------------------------- Income (loss) from Continuing Operations $(131) $(221) $ 47 Income (loss) from Discontinued Operations 680 409 (57) Extraordinary loss -- (93) -- - ------------------------------------------------------------------------- Net income (loss) $ 549 $ 95 $(10) - -------------------------------------------------------------------------
Despite generally strong performance by the media businesses, the Corporation reported a loss from Continuing Operations in both of the last two years. Two primary factors more than offset the profit from the businesses: interest expense and residual costs of discontinued businesses. Interest costs approximated $400 million in both 1997 and 1996. This expense level, which is approximately double the 1995 amount, reflects higher debt following the late-1995 acquisition of CBS Inc. Residual costs of discontinued businesses of $143 million in 1997 and $114 million in 1996 represent primarily pension and postretirement benefit costs for inactive and retired employees of businesses that the Corporation previously divested, including the defense and electronic systems business divested in early 1996. The residual costs in 1995 were substantially lower. Included in results of Continuing Operations were restructuring costs of $15 million in 1997, $57 million in 1996, and $25 million in 1995. A charge of $28 million related to litigation matters also was included in 1996 results. The results of Discontinued Operations include the operating results of the industrial businesses prior to the measurement date of the disposal plan, as well as the estimated gain or loss from disposal of those businesses. In 1997, the Corporation recorded a net gain of $871 million, primarily from the sale of Thermo King, and, in 1996, a net gain of $1,018 million, primarily from the sale of the defense and electronic systems business. A net loss of $76 million was recognized in 1995 from the disposal of the land development segment. CBS CORPORATION 12 13 SEGMENT RESULTS OF OPERATIONS--CONTINUING OPERATIONS The following table presents the segment results for the Corporation's Continuing Operations, which consist of the media businesses, for each of the years ended December 31, 1997, 1996, and 1995. EBITDA is presented in the following table because it is a widely accepted financial indicator of a company's ability to incur and service debt. It is commonly used in the media industry as a surrogate for cash flows. EBITDA differs from operating cash flows for the Corporation primarily because it does not consider changes in assets and liabilities from period to period and certain other factors. SEGMENT RESULTS OF OPERATIONS--CONTINUING OPERATIONS (in millions)
REVENUES OPERATING PROFIT (LOSS) EBITDA ------------------------ ------------------------ --------------------- YEAR ENDED DECEMBER 31, 1997 1996 1995 1997 1996 1995 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------- Radio $1,475 $ 554 $ 216 $ 390 $ 161 $ 55 $ 575 $ 197 $ 70 Television 836 809 405 325 295 149 370 352 168 Network 2,816 2,617 252 (107) (9) (18) (31) 65 6 Cable 302 191 143 10 40 40 73 50 48 Corporate and other (66) (28) 58 (226) (319) (29) (72) (162) 114 Residual costs of discontinued businesses -- -- -- (143) (114) (37) (143) (114) (37) - ------------------------------------------------------------------------------------------------------------------------------- Total Continuing Operations $5,363 $4,143 $1,074 $ 249 $ 54 $ 160 $ 772 $ 388 $ 369 - -------------------------------------------------------------------------------------------------------------------------------
Revenues of the Corporation's Continuing Operations increased $1,220 million in 1997 compared to 1996 and increased $3,069 million in 1996 compared to 1995 primarily due to the acquisitions of TNN and CMT, Infinity, and CBS Inc. After adjusting for the effects of these acquisitions, revenues increased 10% in 1997. Operating profit and EBITDA improved dramatically in 1997 reflecting the additional radio stations acquired with Infinity as well as the strong performance from the Radio and Television Groups. Operating profit for 1996, which declined from 1995, included approximately $120 million of goodwill amortization from the November 1995 acquisition of CBS Inc., $85 million for charges related to restructuring and litigation matters, and higher residual costs of discontinued businesses. As reflected in the table above, results for Continuing Operations have been unfavorably affected by residual costs of discontinued businesses. These costs primarily represent pension and postretirement benefit costs for inactive and retired employees of previously divested businesses. Although the Corporation's objective is to reduce this earnings constraint over the next few years by fully funding the pension plan, management expects that these costs will continue to negatively affect operating results in 1998 and future years. The reported results for each of the segments include depreciation and amortization of specifically identifiable assets based on their fair values when acquired. Amortization of goodwill arising from the CBS Inc. acquisition, which approximates $120 million per year, is included in the results of Corporate and other. Where appropriate, the separate business discussions that follow provide a comparison of the actual 1997 results with the pro forma results for 1996 and 1995 determined by adjusting prior-period amounts for recent acquisitions. Radio The Radio Group owns and operates 76 radio stations and TDI Worldwide, Inc. (TDI), its outdoor advertising business. Revenues and operating profit, as reported, increased dramatically in 1997. This growth was primarily driven by the inclusion of the results of operations for Infinity, which was acquired on December 31, 1996, and the overall strong performance across the Radio Group. On a pro forma basis, 1997 revenues for the Radio Group continued to outpace the industry, increasing 20% over 1996. These results reflect strong markets for radio and outdoor advertising combined with management's continued focus on improving revenue growth. On a pro forma basis, revenues grew 11% for 1996 compared to 1995. Pro forma operating profit increased at a greater rate than revenues resulting in improved profit of 27% for 1997. Higher revenues from the strong demand for advertising, combined with management's continued cost control efforts, drove the increased profit. On a pro forma basis, operating profit increased 51% for 1996 compared to 1995 also reflecting increased revenues and cost control. Pro forma EBITDA for the Radio Group increased 29% for 1997. This increase exceeds the increase in operating profit because it eliminates the amortization of goodwill CBS CORPORATION 13 14 arising from the Infinity acquisition. On a pro forma basis, EBITDA increased 49% for 1996 compared to 1995. Television The Television Group owns and operates 14 television stations. Television station revenues rebounded during the second half of 1997 resulting in a 3% increase over the prior year. The Television Group's revenues were up 13% in the second half of 1997 despite facing difficult comparisons from significant political advertising spending in the second half of 1996. The strong second half was attributable to broad-based improvements across the television stations. The Television Group also continued to benefit from the momentum of strong advertising markets and a renewed focus on revenue growth. These strong results offset the declines during the first half of 1997, which were attributable to lower ratings in certain major markets. On a pro forma basis, revenues for the television stations fell slightly in 1996 compared to 1995 due to lower ratings and affiliation changes at certain stations. Improvements in operating profit for 1997 significantly outpaced the revenue growth resulting in a profit increase of $30 million or 10%. The strength in the Television Group's performance reflects management's revenue focus as well as the positive impact of ongoing cost reduction initiatives. Operating profit on a pro forma basis declined slightly in 1996 compared to 1995 reflecting the lower revenues, although cost improvements at the stations partially offset that impact. Consistent with operating profit performance, EBITDA for the Television Group increased $18 million or 5% for the year ended December 31, 1997. On a pro forma basis, EBITDA for the television stations remained flat in 1996 compared to 1995. Network The Network segment consists of CBS Entertainment, News, and Sports, as well as CBS Enterprises (including EYEMARK Entertainment), which produces and distributes programming and develops and sells certain syndicated programming. The Network reported an increase in revenues of $199 million, or 8%, for the year. The 1997 results reflect increased program syndication revenues, as well as additional revenues generated by special programs such as the Emmy Awards. While pricing was generally higher, declines in ratings on certain dayparts partially offset these improvements. The Network, on a pro forma basis, experienced a 3% increase in revenues in 1996 compared to 1995. Higher advertising rates, revenues from the addition of college football, and increased syndication revenues were the primary factors driving the 1996 increase. The Network operating loss increased $98 million for the year ended December 31, 1997 resulting primarily from higher programming costs and lower audience levels in key demographic categories. Furthermore, results for 1997 were significantly less favorably affected by purchase accounting adjustments related to program rights acquired in the purchase of CBS Inc. as discussed below. The Network operating profit in 1996 compared to 1995 on a pro forma basis increased 57% reflecting the favorable effects of higher prices and increased syndication revenues, partially offset by lower demographic ratings and higher costs associated with the coverage of the presidential election, advertising and promotion for the new primetime season, programming, and affiliate compensation. In addition, operating profit included the favorable effect of purchase accounting adjustments related to program rights totaling $42 million in 1997, $131 million in 1996, and $24 million in 1995. EBITDA for the network decreased $96 million for 1997, which is consistent with the decline in operating profit. EBITDA on a pro forma basis for the network increased 55% in 1996 compared to 1995. Cable The Cable Group includes TNN and CMT, two cable networks acquired September 30, 1997; TeleNoticias, a 24-hour, Spanish-language news service acquired in 1996; Eye on People, which debuted March 31, 1997; two sports programming providers; and a network services provider. Prior to the acquisition of TNN and CMT, Cable received a commission to provide marketing and advertising services to those networks. In addition, the Corporation owned a 33% interest in CMT. Effective October 1, 1997, the results of these networks are included in full. Revenues for Cable increased $111 million, or 58%, compared to 1996. These increases were primarily attributable to the acquisitions of TNN, CMT, and TeleNoticias. In the first three quarters of 1997, prior to the acquisition of TNN and CMT, Cable received higher commissions than in the prior year, generated by increased sales levels achieved by TNN. In addition, Cable received increased cable license fees generated by the sports programming providers. Cable revenues for 1996 compared to 1995 increased $48 million, or 34%, as a result of certain cable channel and network services acquired, increased advertising revenues, and the acquisition of TeleNoticias. Operating profit decreased $30 million for 1997, which was attributable to increased expenses related to TeleNoticias and costs to develop and launch Eye on People. Operating profit for 1996 compared to 1995 was flat. CBS CORPORATION 14 15 EBITDA increased $23 million to $73 million for the year, driven by the inclusion of TNN and CMT during the fourth quarter and a gain on the sale of a partnership interest. Partially offsetting these improvements were increased expenses and startup costs related to TeleNoticias and Eye on People. EBITDA for 1996 compared to 1995 remained flat. Corporate and Other Corporate and other consists of three primary components: (i) corporate overhead costs; (ii) amortization of goodwill arising from the November 1995 acquisition of CBS Inc., which approximates $120 million per year; and (iii) special charges relating to restructuring and other matters. In 1996, the Corporation recognized a provision of $28 million related to litigation matters. In addition, costs for restructuring plans initiated in 1997, 1996, and 1995 totaled $15 million, $57 million, and $25 million, respectively. These restructuring actions resulted in a 20% decline in corporate overhead costs from 1996 to 1997. The decision to transfer the corporate overhead functions from Pittsburgh to New York could result in the recognition of higher overhead costs in 1998 as a result of certain transition costs. Residual Costs of Discontinued Businesses Following past divestitures of the Corporation's industrial businesses, certain liabilities arising from those businesses remained with the Corporation, including pension and postretirement benefit obligations for inactive and retired employees, environmental liabilities, and litigation-related liabilities. The pension and postretirement benefit costs associated with these former employees, as well as administration costs associated with retained liabilities, have been presented separately in the income statement. For 1997 and 1996, these costs primarily reflect pension and postretirement benefit costs for retirees of the defense and electronic systems business, which was sold in the first quarter of 1996. Following the sale of Power Generation, these costs will increase approximately $8 million per quarter. RESTRUCTURING AND OTHER ACTIONS The Corporation is committed to strengthening its businesses and improving its profitability through restructuring actions ranging from changes in business strategies to downsizing for process reengineering and productivity improvements. To the extent possible, the Corporation is committed to reducing its workforce through normal attrition. See note 17 to the financial statements. During the last three years, the Corporation has undertaken restructuring programs primarily at its corporate headquarters. Restructuring actions for Continuing Operations have resulted in the recognition of restructuring costs totaling $15 million in 1997, $57 million in 1996, and $25 million in 1995. The 1997 plan involves workforce reductions related to corporate overhead functions performed in Pittsburgh. These overhead functions are being transferred to New York and generally will require increased staffing levels at that office. As a result, no material cost savings are expected from this plan. Implementation began in January 1998 with completion generally expected in early 1999. The 1996 plan included $41 million of costs for the Corporation's actions, as the acquiror of CBS Inc., to obtain operational synergies between the two companies. Costs included $9 million for the separation of employees, $15 million for asset writedowns, and $17 million for lease termination and other facility closure costs. Also in 1996, the Corporation reduced staffing levels at its corporate headquarters in Pittsburgh resulting in separation costs of $16 million. The 1995 plan also involved the separation of employees at its corporate headquarters, with separation costs totaling $25 million. At December 31, 1997, remaining expenditures for the 1996 and 1995 plans totaled $14 million. Annualized cost savings from these plans, which approximated $20 million for the 1996 plan and $12 million for the 1995 plan, generally were realized in 1997. Results of operations for the Corporation's Discontinued Operations included restructuring actions, principally for the Power Generation and Energy Systems businesses of WELCO. These actions involved the separation of employees and the exiting of various product lines and closure of facilities. The restructuring liability at December 31, 1997 either will be paid prior to divestiture of these businesses or will be assumed by buyers. In connection with the CBS Inc. acquisition, a plan was developed to integrate the CBS Inc. headquarters and radio and television operations with those of the Corporation. The estimated cost for restructuring the CBS Inc. organization, including separating employees and closing facilities, was $100 million, the majority of which was spent as of year-end 1997. Restructuring costs associated with the integration of the acquiror are included in the Corporation's 1996 restructuring plan discussed previously. No significant restructuring costs were incurred for the TNN and CMT or Infinity acquisitions. Cost reduction initiatives are undertaken when the expected benefits are substantial in relation to the cost of the programs and are realizable in the near term. The Corporation will continue to implement further restructuring initiatives as competitive conditions dictate in an ongoing effort to reduce its overall cost structure and improve its competitiveness. CBS CORPORATION 15 16 OTHER INCOME (EXPENSE), NET The net of other income and expense items produced income of $78 million in 1997, $55 million in 1996, and $152 million in 1995. Such items generally include interest income, operating results of non-consolidated affiliates, and any gains or losses on disposition of other assets. In 1997, the gain on the disposition of assets included a $24 million gain on the sale of a partnership interest, a $4 million gain on the sale of a radio station, and a $6 million gain on the sale of artwork from the New York office. In 1996, other income (expense), net included a $12 million gain from the sale of an equity investment and, in 1995, a $115 million gain from the sale of the Corporation's 62% interest in MICROS Systems, Inc. INTEREST EXPENSE Interest expense for Continuing Operations totaled $386 million in 1997, $401 million in 1996, and $184 million in 1995. The $217 million increase in 1996 compared to 1995 resulted from higher debt attributable primarily to the acquisition of CBS Inc. The entire acquisition price of $5.4 billion was financed with debt. The Corporation repaid $3.6 billion of this debt in the first quarter of 1996 through proceeds from the divestiture of The Knoll Group (Knoll) and the defense and electronic systems business. In August 1996, the Corporation prepaid the remaining $3.2 billion of debt under its then-existing credit facility and replaced it with borrowings under a new revolving credit facility with more favorable borrowing rates (see Revolving Credit Facility). As a result of extinguishing the $6.8 billion of debt prior to maturity, the Corporation recognized a $93 million extraordinary loss, net of taxes, for the write-off of the related debt issue costs. Although average debt increased over the three-year period, average interest rates declined. In connection with the presentation of various businesses as Discontinued Operations, interest expense on Continuing Operations' debt totaling $42 million in 1997, $60 million in 1996, and $96 million in 1995 was allocated to Discontinued Operations. See note 7 to the financial statements. DISCONTINUED OPERATIONS In November 1996, the Corporation's Board of Directors conditionally approved a plan for a strategic restructuring whereby the Corporation would separate its media and industrial businesses. The Corporation planned to form a new company to be called WELCO, which, after revision, included all of the Corporation's then-remaining industrial businesses except for Thermo King. With the pending separation of the Corporation's industrial businesses, the assets, liabilities, and results of operations for WELCO and Thermo King were reclassified as Discontinued Operations, except for certain liabilities expected to be retained by the Corporation. The Corporation completed the sale of Thermo King on October 31, 1997 for $2.56 billion of cash and repaid debt of Continuing Operations. On November 14, 1997, the Corporation announced that it had reached a definitive agreement to sell its Power Generation business, the largest component of WELCO, to a subsidiary of Siemens A.G. for $1.525 billion of cash. The remaining businesses of WELCO, consisting primarily of Energy Systems and Government Operations, are expected to be divested in 1998. In the fourth quarter of 1997, the Corporation recognized a combined after-tax gain on the disposal of Thermo King and WELCO totaling $871 million, including an adjustment of prior disposal plans. In 1996, the Corporation completed the sales of Knoll and its defense and electronic systems business for a combined after-tax gain of $1.2 billion. The purchase price totaled $3.6 billion of cash plus the assumption by the buyer of certain pension and postretirement liabilities associated with the active employees of the defense and electronic systems business. The net proceeds from these transactions were used to repay debt of Continuing Operations. Also in 1996, the Corporation adopted plans to dispose of its environmental services businesses and its Communication & Information Systems (CISCO) segment. The combined after-tax losses from these disposals approximated $200 million in 1996. Various businesses comprising these segments were divested in 1997 and 1996, including the residential security business, the largest component of the CISCO segment. The remaining businesses are expected to be divested in 1998. In July 1995, the Corporation sold its land development subsidiary for $430 million of cash and retained approximately $125 million of mortgage notes receivable, the majority of which have been repaid, and other securities. In addition, the buyer assumed $19 million of debt. Concurrently, the Corporation invested $48 million for a 24% equity interest in the new business. The Corporation expects to complete the divestiture of this investment in the near term. The net cash proceeds from the divestiture of this subsidiary were used to repay debt of Discontinued Operations. A net loss of $76 million was recognized on the disposal. CBS CORPORATION 16 17 Following the divestitures of the remaining industrial businesses, which are expected in 1998, the assets of Discontinued Operations will consist primarily of the leasing portfolio, which will liquidate through the year 2015 in accordance with contractual terms. Debt of Discontinued Operations will include only that amount which can be repaid through liquidation of the leasing portfolio. Such debt totaled $536 million at December 31, 1997. Other liabilities for lagging divestiture costs or unresolved issues related to the sale of the industrial businesses also may remain at year-end 1998. Except for the leasing portfolio and related debt, all future cash inflows and outflows related to Discontinued Operations will affect Continuing Operations. Management believes that the liability for estimated loss on disposal of Discontinued Operations of $989 million at December 31, 1997 is adequate to cover future operating costs, estimated losses on disposal, and the remaining divestiture costs associated with all Discontinued Operations. The following represents the segment results for all Discontinued Operations for 1997, 1996, and 1995: SEGMENT RESULTS OF OPERATIONS--DISCONTINUED OPERATIONS (in millions)
OPERATING PROFIT (LOSS) SALES OF PRODUCTS OPERATING PROFIT EXCLUDING SPECIAL & SERVICES (LOSS) CHARGES ------------------------ ----------------------- ----------------------- YEAR ENDED DECEMBER 31, 1997 1996 1995 1997 1996 1995 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------ WELCO: Power Generation $2,004 $2,172 $1,718 $(305) $ (75) $ (57) $(305) $ (2) $ (29) - ------------------------------------------------------------------------------------------------------------------------------ Energy Systems 1,098 1,234 1,369 3 (30) 114 (8) 94 130 Other Energy Systems (208) (172) (138) (78) (362) (305) (78) (73) (69) - ------------------------------------------------------------------------------------------------------------------------------ Energy Systems, net 890 1,062 1,231 (75) (392) (191) (86) 21 61 Government Operations 141 121 155 70 63 81 71 71 81 Corporate and other 67 112 331 (189) (485) (112) (157) (91) (98) - ------------------------------------------------------------------------------------------------------------------------------ Total WELCO 3,102 3,467 3,435 (499) (889) (279) (477) (1) 15 Thermo King 862 996 1,039 169 187 180 169 193 180 Other segments 305 952 3,969 (61) (195) 175 (61) (154) 227 - ------------------------------------------------------------------------------------------------------------------------------ Total Discontinued Operations $4,269 $5,415 $8,443 $(391) $ (897) $ 76 $(369) $ 38 $ 422 - ------------------------------------------------------------------------------------------------------------------------------
The segment results shown in the table above include sales and operating profit for each segment prior to the measurement date of the plan as well as those after the measurement date. All operating results after the measurement date are charged to the liability for estimated loss on disposal. WELCO experienced an 11% decline in sales in 1997 compared to 1996, attributable both to Power Generation and to Energy Systems. The 1997 operating loss for Power Generation includes provisions for contract, warranty, and other costs associated with several projects. Both sales and operating profit for Energy Systems in 1997 include a $49 million unfavorable adjustment for higher costs to complete a complex international nuclear project. Other Energy Systems, which reflects the impact of litigation matters, includes special provisions in 1996 and 1995 for resolution of such matters. Government Operations reported growth in both sales and operating profit for 1997 compared to 1996. WELCO recognized various special charges in 1996 and 1995 for certain matters, including restructuring, litigation, and environmental remediation activities. The sale of Thermo King on October 31, 1997 resulted in lower reported sales and operating profit for the year although their results through the date of sale were strong compared to the prior period. Declining sales for the other segments reflect continued disposals of the CISCO and environmental services businesses. Other segment results also include income related to the leasing portfolio as well as interest expense on the debt of Discontinued Operations. INCOME TAXES The Corporation's 1997 provision for income taxes in total was 57% of the income before taxes and minority interest. The 1997 total provision of $740 million consists of a $73 million expense from Continuing Operations and a $667 million expense from Discontinued Operations primarily related to the gain on the sale of Thermo King. The Corporation's 1996 provision for income taxes in total was 81% of the income before taxes and minority interest. The 1996 total provision of $442 million consists of a $71 million benefit from Continuing Operations, a $573 million expense from Discontinued Operations CBS CORPORATION 17 18 primarily related to the gain on the sale of the defense and electronic systems businesses, and a $60 million benefit from an extraordinary item. The Corporation's 1995 provision for income taxes in total was 95% of the income before taxes and minority interest. The 1995 total provision of $28 million consists of a $75 million expense from Continuing Operations and a $47 million benefit from Discontinued Operations. The Corporation's tax provision or benefit has fluctuated dramatically from the statutory tax rate of 35% of pre-tax income. The items that caused the fluctuations for Continuing Operations are set forth in note 6 to the financial statements. Amortization of intangible assets has a significant effect on the relationship between income taxes and pre-tax income. No tax benefit is recognized on the goodwill amortization recorded as a result of the TNN and CMT, Infinity, and CBS Inc. acquisitions, which approximates $240 million per year. In future years, the effect will be more dramatic because of increased goodwill amortization that will result from the American Radio acquisition and a full year of amortization of TNN and CMT goodwill. The net deferred tax asset at December 31, 1997 totaled $661 million. This amount consists of a net deferred tax asset of $170 million from Continuing Operations and a net deferred tax asset of $491 million from Discontinued Operations. The temporary differences that give rise to deferred income taxes are shown in the Consolidated Deferred Income Taxes by Source table in note 6 to the financial statements. The significant sources of the net deferred tax asset are: (i) the tax effect of cumulative net temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes of $1,863 million representing future net income tax deductions; and (ii) alternative minimum tax credit carryforwards of $302 million that have no expiration date. Of the net temporary difference of $1,863 million, approximately $1,092 million relates to a net pension obligation, $1,262 million relates to obligations for postretirement and postemployment benefits, and $2,016 million relates to reserves for restructuring, litigation, and other matters. These are partially offset by temporary differences of approximately $2,351 million related primarily to FCC licenses and other broadcasting intangible assets. Management believes that the Corporation will have sufficient future taxable income to make it more likely than not that the net deferred tax asset will be realized. The reversal of temporary differences may cause tax losses in future years. Each tax-loss year would receive a new twenty-year carryforward period for tax years beginning after 1997. Under a conservative assumption that all net cumulative temporary differences had reversed in 1997, the Corporation would have through the year 2012 to recover the tax asset. This would require the Corporation to generate average annual taxable income of at least $125 million. The following table shows a reconciliation of income (loss) from Continuing Operations before income taxes to taxable income (loss) from Continuing Operations: RECONCILIATION OF PRE-TAX INCOME (LOSS) FROM CONTINUING OPERATIONS TO U.S. FEDERAL TAXABLE INCOME (LOSS) (in millions)
YEAR ENDED DECEMBER 31, 1997 1996 1995 - ----------------------------------------------------------- Pre-tax income (loss) from Continuing Operations $ (59) $(292) $ 128 State income tax (benefit) (21) 26 (12) - ----------------------------------------------------------- Permanent differences: Goodwill 225 120 20 Other (19) 105 44 - ----------------------------------------------------------- Net permanent differences 206 225 64 - ----------------------------------------------------------- Temporary differences: Pensions 16 94 136 Depreciation 59 7 -- Provision for restructuring and other actions (133) (629) 487 Other 17 (122) 26 - ----------------------------------------------------------- Net temporary differences (41) (650) 649 - ----------------------------------------------------------- U.S. federal taxable income (loss) $ 85 $(691) $ 829 - -----------------------------------------------------------
YEAR 2000 The Corporation is addressing the issues associated with its existing computer systems and their ability to operate effectively as the millennium (year 2000) approaches. Both internal and external resources are being utilized to address these matters throughout the Corporation. For the Corporation's Continuing Operations, the assessing and planning phases of the project are essentially complete. The Corporation believes that, based on available information, its year 2000 transition will not have a material adverse effect on its business, operations, or financial results. For the businesses that the Corporation expects to divest in 1998, the assessing phase of the project is complete and the planning phase is well under way. These matters are not anticipated to materially affect the disposition of the businesses or the sale proceeds. CBS CORPORATION 18 19 LIQUIDITY AND CAPITAL RESOURCES Overview The Corporation manages its liquidity as a consolidated enterprise without regard to whether assets or debt are classified for balance sheet purposes as part of Continuing Operations or Discontinued Operations. As a result, the following discussion focuses on the Corporation's consolidated cash flows and capital resources. In November 1996, the Corporation announced that it intended to separate its media and industrial businesses. By the end of 1997, Thermo King had been sold for $2.56 billion. Power Generation was under agreement to be sold for $1.525 billion. The largest remaining industrial businesses, Energy Systems and Government Operations, as well as several smaller industrial operations, are expected to be sold in 1998. Following these sales, the Corporation's operations will consist of only its media businesses. The acquisitions of TNN and CMT on September 30, 1997 and Infinity on December 31, 1996 were accomplished through the issuance of additional shares of the Corporation's common stock. As a result of these acquisitions, the Corporation's equity increased more than $5 billion through the issuance of nearly 250 million additional shares. At December 31, 1997, the Corporation had nearly 700 million shares outstanding. By divesting the industrial businesses for cash and acquiring the media businesses with stock, the Corporation was able to reduce its total debt to $3.9 billion at December 31, 1997 from $6.1 billion at December 31, 1996. In September 1997, the Corporation announced that it had reached a definitive agreement to acquire American Radio's radio broadcasting operations for $1.6 billion of cash plus the assumption of approximately $1 billion of debt. The transaction, which is expected to close in the second quarter of 1998, will add approximately 100 radio stations to the Radio Group's current portfolio. In January 1998, the Corporation and the NFL announced that CBS was awarded the rights to broadcast American Football Conference games. The eight-year agreement, subject to rebid at the end of five years at the discretion of the NFL, will cost approximately $4 billion. The contract begins with the 1998 football season and includes two Super Bowls. In February 1998, the Corporation announced that its Board of Directors authorized the purchase, through open market transactions, of up to $1 billion of its common stock. At the same time, the Corporation announced that it would suspend dividend payments on its common stock after payment of the March 1, 1998 dividend so that the cash could be used to better enhance shareholder value. Management expects that the Corporation will have sufficient liquidity to meet ordinary future business needs. Sources of liquidity generally available to the Corporation include cash from operations, proceeds from sales of non-strategic assets, cash and cash equivalents, availability under its credit facility, borrowings from other sources, including funds from the capital markets, and the issuance of additional capital stock. Operating Activities The operating activities of Continuing Operations used $201 million of cash in 1997 compared to $95 million of cash used in 1996. The primary factor causing the additional use of cash in 1997 was the substantial payment of accrued liabilities early in the year. The additional cash generated by the businesses in 1997 was essentially offset by an increase in receivables. In 1995, the operating activities of Continuing Operations generated $175 million of cash. The decline in operating cash flows from 1995 to 1996 was driven by a $227 million increase in interest payments in 1996. In general, the media businesses, through their operations, generate significant cash. The Corporation continues to invest in program rights in an ongoing effort to maintain quality programming and improve ratings in key demographic categories. In each of the last two years, the Corporation has paid nearly $400 million of interest on debt of Continuing Operations, much of which was incurred to substantially expand the media operations. This debt was more than $2 billion lower at year-end 1997 compared to the prior year end. In future years, the Corporation's operating cash flows from Continuing Operations will be unfavorably affected by payments associated with retained liabilities of discontinued businesses. However, the annual impact generally is not expected to be significant because the payments could extend for periods of up to 30 years. Cash contributions to all of the Corporation's pension plans totaled $164 million in 1997, $250 million in 1996, and $315 million in 1995. A $73 million cash contribution was made in January 1998 in accordance with applicable minimum funding requirements. The 1996 decrease in contributions resulted from the divestiture of the defense and electronic systems business and the assumption of certain pension liabilities by the buyer. The Corporation's contribution level for 1998, which is expected to approximate $300 million (including the $73 million contribution made in January 1998), is consistent with the Corporation's goal to fully fund its qualified pension plans over the next several years. CBS CORPORATION 19 20 The operating activities of Discontinued Operations used $437 million of cash during 1997 compared to $312 million in 1996. In 1995, operating activities of Discontinued Operations generated cash of $518 million. These cash flows consist of those provided by or used in the operations of the businesses prior to their disposal and the payment of divestiture and other costs associated with divested businesses. The unfavorable cash flows in 1997 and 1996 reflect cash used in the operations of WELCO, particularly in 1997. Cash used in 1996 included substantial payments related to the sale of the defense and electronic systems business. The operations of the defense and electronic systems business, Thermo King, and WELCO generated significant cash in 1995. Future operating cash flows of Discontinued Operations will consist primarily of operating revenues, operating costs, and disposal costs associated with WELCO and certain other remaining industrial businesses. These cash flows, along with proceeds generated through divestiture of these businesses, will affect the cash flows of Continuing Operations. Interest costs on debt of Discontinued Operations, as well as the repayment of that debt, will be paid through the continued liquidation of the leasing portfolio and are not expected to impact future cash flows of Continuing Operations. Investing Activities Investing activities provided cash of $2.5 billion during 1997 and $2.9 billion during 1996 and used $4.3 billion of cash during 1995. The sale of Thermo King in 1997 for $2.56 billion and the sales of Knoll and the defense and electronic systems business in 1996 for $3.6 billion provided the significant investing cash inflows in 1997 and 1996. The completion of the CBS Inc. acquisition in 1995 for $5.4 billion caused the major cash outflow in 1995. The acquisitions of TNN and CMT and Infinity were accomplished using common stock and, except as noted below, did not require the use of cash. Acquisitions for cash of $59 million completed during 1997 included a U.K. transit advertising company and a payment in connection with a swap of radio stations. Acquisitions of $1.1 billion completed during 1996 included the cash investment associated with the repayment of Infinity debt at the time of its acquisition, as well as purchases of two Chicago radio stations, TeleNoticias, and several smaller businesses and investments. CBS Inc. was the only major acquisition in 1995. In 1997, the Corporation completed the sale of Thermo King, generating cash proceeds of $2.56 billion. Additional cash of approximately $200 million was generated in 1997 from continued divestiture of non-strategic businesses. The Corporation completed the sales of Knoll and the defense and electronic systems business in 1996, generating $3.6 billion of cash. Remaining 1996 divestiture cash proceeds resulted primarily from the sales of non-strategic businesses, including Westinghouse Security Systems, and a Providence, Rhode Island, television station acquired with CBS Inc. During 1995, liquidations of Financial Services assets and divestitures generated cash proceeds of $1 billion and included the sale of the Corporation's land development subsidiary, a majority interest in MICROS, and several smaller businesses. The Corporation's capital expenditures for Continuing Operations totaled $121 million in 1997 compared to $93 million in 1996 and $32 million in 1995. The increase is primarily attributable to recent acquisitions. Over the next six to 15 years, the Corporation expects to spend approximately $250 million for equipment and other capital assets to meet commitments for digital transmission capability. Capital expenditures for Discontinued Operations will continue to decline as those businesses are sold. In 1996 and 1995, the Corporation generated $44 million and $305 million of cash, respectively, through the sales of investments held in two trusts that were established to fund executive benefit plans. The trust investments were replaced with the Corporation's common stock. The Corporation expects to liquidate the remaining assets of Discontinued Operations in 1998. The sale of Power Generation for $1.525 billion is expected to be completed in mid-1998. Financing Activities Cash used by financing activities during 1997 totaled $2 billion compared to $2.5 billion in 1996. Financing cash outflows in 1997 included $2.56 billion of debt prepaid upon the sale of Thermo King. Financing cash outflows in 1996 included $3.6 billion of debt prepaid upon the sales of Knoll and the defense and electronic systems business. Also in 1996, the Corporation prepaid the remaining outstanding debt under its then-existing $7.5 billion credit facility and replaced it with borrowings under a new $5.5 billion credit facility (see Revolving Credit Facility). In 1995, financing activities provided cash of $3.5 billion including $5.4 billion of borrowings to finance the CBS Inc. acquisition. Total borrowings under the Corporation's $5.5 billion revolving credit facility were $1.5 billion at year-end 1997 (see Revolving Credit Facility). These borrowings were subject to a floating interest rate of 6.7% at December 31, 1997, which was based on the London Interbank Offer Rate (LIBOR), plus a margin based on the Corporation's senior unsecured debt rating and leverage. Dividends paid in 1997 included $23 million for Series C preferred stock, which converted into 32 million shares CBS CORPORATION 20 21 of common stock in the second quarter of 1997, and $125 million for common stock dividends. Dividends paid in 1996 included $47 million for Series C preferred stock, with the remaining $80 million representing common stock dividends. Dividends paid in 1995 included $47 million for Series C preferred stock, $38 million for Series B preferred stock, which converted into 33 million common shares in the third quarter of 1995, and $74 million representing common stock dividends. The increase in the common stock dividends from 1996 to 1997 reflects nearly 250 million additional shares issued to acquire TNN and CMT and Infinity. In February 1998, the Corporation announced that its Board of Directors authorized the purchase, through open market transactions, of up to $1 billion of its common stock. At the same time, the Corporation announced that it would suspend dividend payments on its common stock after payment of the March 1, 1998 dividend so that the cash could be used to better enhance shareholder value. As a result of the increase in equity from the TNN and CMT and Infinity acquisitions and the financing activities described previously, the Corporation's net debt decreased from 84% of consolidated net capitalization at December 31, 1995 to 50% at December 31, 1996 and to 32% at December 31, 1997. Revolving Credit Facility In August 1996, the Corporation completed a bank credit agreement with a total commitment of $5.5 billion. The new agreement was structured as a revolving credit facility with a bullet maturity in five years. The unused capacity under the revolving credit facility equaled $4 billion at December 31, 1997. Borrowing availability under the revolver is subject to compliance with certain covenants, representations, and warranties, including a no material adverse change provision with respect to the Corporation taken as a whole, restrictions on liens incurred, a maximum leverage ratio, minimum interest coverage ratio, and minimum consolidated net worth. Certain of the financial covenants become more restrictive over the term of the agreement. At December 31, 1997, the Corporation was in compliance with the financial covenants, which were modified in the fourth quarter of 1997. Certain of the financial covenants were also modified in the first quarter of 1998. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Corporation is exposed to market risk from changes in interest rates and foreign exchange rates. To manage this exposure, the Corporation enters into interest rate and currency exchange agreements. The Corporation does not use financial instruments for trading purposes and is not a party to any leveraged derivatives. At December 31, 1997, the Corporation's debt of Continuing Operations was $3,387 million, of which $2,181 million was in fixed rate obligations. Additionally, the Corporation had interest rate exchange agreements that converted $130 million of variable-rate debt to fixed-rate debt. Assuming a 1% increase in interest rates, annual interest expense would be approximately $12 million higher based on the balance of variable-rate debt outstanding at December 31, 1997. With regard to fixed-rate obligations and interest rate exchange agreements, a 1% decrease in interest rates would increase the value of these instruments by approximately $150 million. The Corporation continually monitors its economic exposure to changes in foreign exchange rates and enters into foreign exchange forward or option contracts to hedge its transaction exposure where appropriate. The notional amount of the Corporation's foreign currency forward contracts, which were hedging firm commitments at year-end 1997, was $16 million. The majority of these related to the Japanese Yen, German Mark, and Canadian Dollar. A 10% change in foreign exchange rates across all currencies in the Corporation's portfolio would not be material. The Corporation's credit exposure under these agreements is limited to the cost of replacing an agreement in the event of non-performance by its counterparty. To minimize this risk, the Corporation selects high credit quality counterparties. For further information regarding the Corporation's debt and foreign exchange portfolio, see note 20 to the financial statements. ENVIRONMENTAL MATTERS Compliance with federal, state, and local laws and regulations relating to the discharge of pollutants into the environment, the disposal of hazardous wastes, and other related activities affecting the environment have had and will continue to have an impact on the Corporation. It is difficult to estimate the timing and ultimate costs to be incurred in the future due to uncertainties about the status of laws, regulations, and technology; the adequacy of information available for individual sites; the extended time periods over which site remediation occurs; and the identification of new sites. See note 12 to the financial statements. The majority of the environmental matters being addressed by the Corporation have arisen from past operation of its industrial businesses. Although the remaining industrial businesses are anticipated to be divested by year-end 1998, the Corporation expects to retain certain obligations relating to these past activities. CBS CORPORATION 21 22 At December 31, 1997, the Corporation had an accrued liability of $402 million to cover site investigation, remediation, post-closure, and monitoring activities for approximately 90 sites for which environmental responsibility is expected to remain with the Corporation. Management anticipates that the majority of expenditures for site investigation and remediation will occur during the next five to ten years. Expenditures for post-closure and monitoring activities will be made over periods up to 30 years. Should alternative remediation strategies be selected, the costs related to these sites could differ from the amounts currently accrued. The Corporation recognizes changes in estimates as new remediation requirements are defined or as more information becomes available. In addition, included in Discontinued Operations are environmental liabilities directly related to active sites that are expected to be assumed by buyers in divestiture transactions. Management believes, based on its best estimate, that the Corporation has adequately provided for its present environmental obligations and that complying with existing government regulations will not materially impact the Corporation's financial position, liquidity, or results of operations. LEGAL MATTERS The Corporation is defending a number of lawsuits on various matters. See note 12 to the financial statements. The Corporation recorded special charges for litigation matters during 1996 and 1995 of $486 million and $236 million, respectively, of which $28 million in 1996 was included in Continuing Operations. These amounts represent management's best estimate of incremental costs associated with resolution of these matters. Since 1993, the Corporation has entered into agreements to resolve ten litigation claims in connection with alleged tube degradation in steam generators sold by the Corporation as components for nuclear steam supply systems. These agreements, among other things, require the Corporation to provide certain products and services at prices discounted at varying rates. These discounted products and services are expected to be provided primarily over the next nine years. Certain of these discounts will impact future operating results of the Energy Systems business, which is included in Discontinued Operations. The Corporation expects the obligations for these matters to be assumed by a buyer in a divestiture transaction. The Corporation is a defendant in numerous lawsuits claiming various asbestos-related personal injuries. The Corporation was neither a manufacturer nor a producer of asbestos and is oftentimes dismissed from these lawsuits on this basis. In court actions resolved, the Corporation has prevailed in the vast majority of these claims and has resolved others through settlement. The Corporation is reimbursed for a substantial portion of its current costs and settlements through its insurance carriers. The Corporation has provided for its share of estimated costs associated with outstanding claims; however, it cannot reasonably estimate costs for unasserted asbestos claims. Litigation is inherently uncertain and always difficult to predict. Substantial damages are sought in certain of the Corporation's pending cases and, although management believes a significant adverse judgment is unlikely, any such judgment could have a material adverse effect on the Corporation's results of operations for a quarter or a year. However, based on its understanding and evaluation of the relevant facts and circumstances, management believes that the Corporation has meritorious defenses to the litigation referenced in note 12 and that the Corporation has adequately provided for costs arising from potential settlement of these matters when in the best interest of the Corporation. Management believes that the litigation should not have a material adverse effect on the financial condition of the Corporation. RETAINED LIABILITIES OF DISCONTINUED BUSINESSES Liabilities for the environmental matters and certain of the litigation matters discussed previously, although arising from discontinued businesses, are expected to be retained by the Corporation following the divestiture of the remainder of the industrial businesses. As a result, liabilities totaling $958 million at December 31, 1997 and related assets of $244 million have been separately presented on the Corporation's balance sheet. See note 12 to the financial statements. CBS CORPORATION 22 23 REPORT OF MANAGEMENT The Corporation has prepared the consolidated financial statements and related financial information included in this report. Management has the primary responsibility for the financial statements and other financial information and for ascertaining that the data fairly reflect the financial position, results of operations, and cash flows of the Corporation. The financial statements were prepared in accordance with generally accepted accounting principles appropriate in the circumstances, and necessarily include amounts that are based on best estimates and judgments with appropriate consideration given to materiality. Financial information included elsewhere in this report is presented on a basis consistent with the financial statements. The Corporation maintains a system of internal accounting controls, supported by adequate documentation, to provide reasonable assurance that assets are safeguarded and that the books and records reflect the authorized transactions of the Corporation. Limitations exist in any system of internal accounting controls based on the recognition that the cost of the system should not exceed the benefits derived. The Corporation believes its system of internal accounting controls, augmented by its corporate auditing function, appropriately balances the cost/benefit relationship. The independent auditors provide an objective assessment of the degree to which management meets its responsibility for fair financial reporting. They regularly evaluate elements of the internal control structure and perform such tests and procedures as they deem necessary to express an opinion on the fairness of the financial statements. The Board of Directors pursues its responsibility for the Corporation's financial statements through its Audit Review Committee composed of directors who are not officers or employees of the Corporation. The Audit Review Committee meets regularly with the independent auditors, management, and the corporate auditors. The independent auditors and the corporate auditors have direct access to the Audit Review Committee, with and without the presence of management representatives, to discuss the scope and results of their audit work and their comments on the adequacy of internal accounting controls and the quality of financial reporting. We believe that the Corporation's policies and procedures, including its system of internal accounting controls, provide reasonable assurance that the financial statements are prepared in accordance with the applicable securities laws and with a corresponding standard of business conduct. CBS CORPORATION 23 24 INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF CBS CORPORATION We have audited the accompanying consolidated balance sheets of CBS Corporation and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, cash flows, and shareholders' equity for the years then ended. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CBS Corporation and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP Pittsburgh, Pennsylvania January 28, 1998 CBS CORPORATION 24 25 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF CBS CORPORATION In our opinion, the accompanying consolidated financial statements appearing on pages 26 through 49 of this Annual Report on Form 10-K present fairly, in all material respects, the results of operations of CBS Corporation and its subsidiaries and their cash flows for the year ended December 31, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Corporation's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. We have not audited the consolidated financial statements of the Corporation and its subsidiaries for any period subsequent to December 31, 1995. /s/ PRICE WATERHOUSE LLP Price Waterhouse LLP Pittsburgh, Pennsylvania February 12, 1996 except for the restatements discussed in notes 1 and 7, for which the dates are March 31, 1996, November 13, 1996, and September 30, 1997. CBS CORPORATION 25 26 CONSOLIDATED STATEMENT OF INCOME (in millions except per-share amounts)
YEAR ENDED DECEMBER 31, 1997 1996 1995 - ---------------------------------------------------------------------------------------------- Revenues $ 5,363 $ 4,143 $1,074 Operating expenses (3,483) (2,786) (427) Depreciation and amortization (445) (279) (57) Residual costs of discontinued businesses (note 19) (143) (114) (37) Marketing, administration, and general expenses (1,043) (910) (393) - ---------------------------------------------------------------------------------------------- Operating profit 249 54 160 Other income (expense), net (note 18) 78 55 152 Interest expense (386) (401) (184) - ---------------------------------------------------------------------------------------------- Income (loss) from Continuing Operations before income taxes and minority interest in income of consolidated subsidiaries (59) (292) 128 Income tax (expense) benefit (note 6) (73) 71 (75) Minority interest in (income) loss of consolidated subsidiaries 1 -- (6) - ---------------------------------------------------------------------------------------------- Income (loss) from Continuing Operations (131) (221) 47 - ---------------------------------------------------------------------------------------------- Discontinued Operations, net of income taxes (notes 1 and 7): Income (loss) from Discontinued Operations (191) (609) 19 Estimated gain (loss) on disposal of Discontinued Operations 871 1,018 (76) - ---------------------------------------------------------------------------------------------- Income (loss) from Discontinued Operations 680 409 (57) Extraordinary item, net of income taxes: Loss on early extinguishment of debt (note 2) -- (93) -- - ---------------------------------------------------------------------------------------------- Net income (loss) $ 549 $ 95 $ (10) - ---------------------------------------------------------------------------------------------- Basic and diluted earnings (loss) per common share (note 15): Continuing Operations $ (.24) $ (.67) $ (.09) Discontinued Operations 1.08 1.02 (.16) Extraordinary item -- (.23) -- - ---------------------------------------------------------------------------------------------- Basic and diluted earnings (loss) per common share $ .84 $ .12 $ (.25) - ---------------------------------------------------------------------------------------------- Cash dividends per common share $ .20 $ .20 $ .20 - ----------------------------------------------------------------------------------------------
The Notes to the Financial Statements are an integral part of these financial statements. Per-share amounts for 1996 and 1995 have been restated to reflect the adoption of SFAS No. 128, "Earnings per Share." CBS CORPORATION 26 27 CONSOLIDATED BALANCE SHEET (in millions)
AT DECEMBER 31, 1997 1996 - ---------------------------------------------------------------------------------- ASSETS: Cash and cash equivalents (note 2) $ 8 $ 129 Customer receivables (net of allowance for doubtful accounts of $35 million and $27 million) 936 783 Program rights 502 431 Deferred income taxes (note 6) 394 377 Prepaid and other current assets 135 182 - ---------------------------------------------------------------------------------- Total current assets 1,975 1,902 Property and equipment, net (note 8) 1,066 1,017 FCC licenses, net (note 9) 2,171 2,199 Goodwill, net (note 9) 9,681 8,721 Other intangible and noncurrent assets (note 9) 1,610 1,567 Net assets of Discontinued Operations (note 7) 212 1,646 - ---------------------------------------------------------------------------------- Total assets $16,715 $17,052 - ---------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY: Short-term debt (note 10) $ 89 $ 484 Current maturities of long-term debt (note 10) 62 4 Accounts payable 221 206 Liabilities for talent and program rights 309 308 Other current liabilities (note 11) 868 1,380 - ---------------------------------------------------------------------------------- Total current liabilities 1,549 2,382 Long-term debt (note 10) 3,236 5,147 Pension liability (note 4) 1,149 1,061 Other noncurrent liabilities (note 11) 2,696 2,728 - ---------------------------------------------------------------------------------- Total liabilities 8,630 11,318 - ---------------------------------------------------------------------------------- Contingent liabilities and commitments (notes 12 and 13) Minority interest in equity of consolidated subsidiaries 5 3 - ---------------------------------------------------------------------------------- Shareholders' equity (note 14): Preferred stock, $1.00 par value (25 million shares authorized): Series C conversion preferred (no shares and 4 million shares issued) -- 4 Common stock, $1.00 par value (1,100 million shares authorized, 718 million and 609 million shares issued) 718 609 Capital in excess of par value 7,178 5,376 Common stock held in treasury, at cost (530) (546) Minimum pension liability adjustment (note 4) (771) (796) Retained earnings 1,485 1,084 - ---------------------------------------------------------------------------------- Total shareholders' equity 8,080 5,731 - ---------------------------------------------------------------------------------- Total liabilities and shareholders' equity $16,715 $17,052 - ----------------------------------------------------------------------------------
The Notes to the Financial Statements are an integral part of these financial statements. CBS CORPORATION 27 28 CONSOLIDATED STATEMENT OF CASH FLOWS (in millions)
YEAR ENDED DECEMBER 31, 1997 1996 1995 - ----------------------------------------------------------------------------------------------- Cash flows from operating activities of Continuing Operations: Income (loss) from Continuing Operations $ (131) $ (221) $ 47 Adjustments to reconcile income (loss) from Continuing Operations to net cash provided (used) by operating activities: Depreciation and amortization 445 279 57 Gains on asset dispositions (39) (13) (121) Other noncash adjustments (81) (164) -- Changes in assets and liabilities, net of effects of acquisitions and divestitures of businesses: Receivables, current and noncurrent (144) (22) 208 Accounts payable 14 67 (37) Deferred and current income taxes 5 37 14 Program rights (79) (148) (47) Other assets and liabilities (191) 90 54 - ----------------------------------------------------------------------------------------------- Cash provided (used) by operating activities of Continuing Operations (201) (95) 175 - ----------------------------------------------------------------------------------------------- Cash provided (used) by operating activities of Discontinued Operations (note 7) (437) (312) 518 - ----------------------------------------------------------------------------------------------- Cash flows from investing activities: Business acquisitions (59) (1,110) (5,411) Business divestitures and other asset liquidations 2,752 4,165 1,045 Capital expenditures--Continuing Operations (121) (93) (32) Capital expenditures--Discontinued Operations (85) (113) (258) Asset liquidations of trust investments -- 44 305 Other -- -- 15 - ----------------------------------------------------------------------------------------------- Cash provided (used) by investing activities 2,487 2,893 (4,336) - ----------------------------------------------------------------------------------------------- Cash flows from financing activities: Bank revolver borrowings 2,970 7,263 7,480 Bank revolver repayments (4,555) (4,318) (8,294) Net reduction in other short-term debt (406) (403) (416) Long-term borrowings -- -- 5,009 Repayments of long-term debt (153) (5,012) (9) Stock issued 287 130 90 Debt issue costs (10) (12) (176) Dividends paid (148) (127) (159) - ----------------------------------------------------------------------------------------------- Cash provided (used) by financing activities (2,015) (2,479) 3,525 - ----------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (166) 7 (118) Cash and cash equivalents at beginning of period for Continuing and Discontinued Operations (notes 2 and 7) 233 226 344 - ----------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period for Continuing and Discontinued Operations (notes 2 and 7) $ 67 $ 233 $ 226 - ----------------------------------------------------------------------------------------------- Supplemental disclosure of cash flow information: Interest paid--Continuing Operations $ 395 $ 392 $ 165 Interest paid--Discontinued Operations 95 106 188 - ----------------------------------------------------------------------------------------------- Total interest paid $ 490 $ 498 $ 353 - ----------------------------------------------------------------------------------------------- Income taxes paid (refunded) $ 68 $ (34) $ 61 - -----------------------------------------------------------------------------------------------
The Notes to the Financial Statements are an integral part of these financial statements and include descriptions of noncash transactions. CBS CORPORATION 28 29 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (in millions)
MINIMUM COMMON CAPITAL IN PENSION PREFERRED STOCK AT EXCESS OF TREASURY LIABILITY RETAINED STOCK PAR VALUE PAR VALUE STOCK ADJUSTMENT EARNINGS TOTAL - ------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1994 $ 12 $ 393 $ 1,931 $ (870) $ (962) $ 1,285 $ 1,789 Series B preferred shares converted (8) 33 (25) -- Shares issued under various compensation and benefit plans (55) 139 84 Shares issued under dividend reinvestment plan (4) 11 7 Pension liability adjustment, net of deferred taxes (258) (258) Net loss (10) (10) Dividends paid (159) (159) - ------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1995 $ 4 $ 426 $ 1,847 $ (720) $(1,220) $ 1,116 $ 1,453 - ------------------------------------------------------------------------------------------------------------------------ Shares issued under various compensation and benefit plans (41) 161 120 Shares issued under dividend reinvestment plan (3) 13 10 Shares issued for Infinity acquisition 183 3,573 3,756 Pension liability adjustment, net of deferred taxes 424 424 Net income 95 95 Dividends paid (127) (127) - ------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1996 $ 4 $ 609 $ 5,376 $ (546) $ (796) $ 1,084 $ 5,731 - ------------------------------------------------------------------------------------------------------------------------ Series C preferred shares converted (4) 32 (28) -- Shares issued under various compensation and benefit plans 18 333 15 366 Shares issued under dividend reinvestment plan 7 1 8 Shares issued for TNN and CMT acquisition 59 1,490 1,549 Pension liability adjustment, net of deferred taxes 25 25 Net income 549 549 Dividends paid (148) (148) - ------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1997 $ -- $ 718 $ 7,178 $ (530) $ (771) $ 1,485 $ 8,080 - ------------------------------------------------------------------------------------------------------------------------
The Notes to the Financial Statements are an integral part of these financial statements. CBS CORPORATION 29 30 NOTES TO THE FINANCIAL STATEMENTS NOTE 1: BASIS OF PRESENTATION Consolidation On December 1, 1997, Westinghouse Electric Corporation (Westinghouse) changed its name to CBS Corporation. These consolidated financial statements include the accounts of CBS Corporation and its subsidiary companies (together, the Corporation) after elimination of intercompany accounts and transactions. Investments in joint ventures and other companies that the Corporation does not control but has the ability to exercise significant management influence over operating and financial policies are accounted for by the equity method. The Corporation's Continuing Operations include the Radio Group, the Television Group, Network, and Cable. Segment information is included in note 19 to the financial statements. On September 30, 1997, the Corporation acquired Gaylord Entertainment Company's (Gaylord) two major cable networks: The Nashville Network (TNN) and Country Music Television (CMT). On December 31, 1996, the Corporation acquired Infinity Broadcasting Corporation (Infinity), and on November 24, 1995, it acquired CBS Inc. The Corporation's Consolidated Statement of Income includes the operating results of the acquired entities from their respective dates of acquisition. See note 3 to the financial statements. In September 1997, the Corporation announced that it had reached a definitive agreement to acquire the radio broadcasting operations of American Radio Systems Corporation (American Radio) for $1.6 billion of cash plus the assumption of approximately $1 billion of debt. The transaction is expected to close in the second quarter of 1998. Certain previously reported amounts have been reclassified to conform to the 1997 presentation. Discontinued Operations Under various disposal plans adopted in recent years, the Corporation has either completed or planned the divestiture of all of its industrial businesses. See note 7 to the financial statements. In November 1996, the Corporation announced a conditional plan to separate its media and industrial businesses. The Corporation planned to form a new company to be called Westinghouse Electric Company (WELCO), which, after modification of the plan, would include all of the Corporation's then-remaining industrial businesses except for Thermo King Corporation (Thermo King), its transport temperature control business. In September 1997, the Corporation announced a definitive agreement to sell Thermo King and completed the sale in October 1997. In November 1997, the Corporation announced that it would separate the remaining industrial businesses by way of sale and that it had reached a definitive agreement to sell Power Generation, the largest of those businesses. All of the remaining industrial businesses are expected to be divested in 1998. In connection with these actions, the Corporation reclassified the assets and liabilities of Thermo King and WELCO as Discontinued Operations except for certain liabilities expected to be retained by the Corporation. See note 12 to the financial statements. In November 1996, the Corporation adopted a plan to exit its Communication & Information Systems (CISCO) segment, and in March 1996, adopted a plan to exit its environmental services segment. These businesses were reclassified as Discontinued Operations in 1996. In December 1995, the Corporation announced a plan to divest its defense and electronic systems business and The Knoll Group (Knoll), its office furniture segment. In July 1995, the Corporation sold WCI Communities, Inc. (WCI), its land development subsidiary. These businesses were reclassified as Discontinued Operations in 1995. As a result, certain financial information previously issued has been restated to give effect to the classification of these businesses as discontinued operations in accordance with Accounting Principles Board (APB) Opinion No. 30, "Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition Revenues are primarily derived from the sale of advertising spots and are recognized when the spots are broadcast. The Corporation also receives syndication revenues on sales of owned programming, cable license fees from distribution of its cable networks, and advertising revenues on the sale of outdoor advertising space. Syndication revenues are recognized when the programming is available to telecast and certain other conditions are met. Revenues from cable license fees are recorded in the period that service is provided. Revenues on outdoor advertising space are recognized proportionately over the contract term. CBS CORPORATION 30 31 Stock-Based Compensation The Corporation measures compensation cost for stock-based awards using the intrinsic value based method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." The pro forma net income and pro forma earnings per share disclosures using the fair value based method defined in Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," are provided in note 16 to the financial statements. Legal Costs When estimating the amount of probable loss to be recognized in connection with litigation matters, the Corporation includes estimated external legal costs through the date of resolution. All other legal costs are recognized in the period in which they are incurred. Environmental Costs The Corporation records liabilities when environmental assessments or remedial efforts are probable and the costs can be reasonably estimated. Such estimates are adjusted if necessary as new remediation requirements are defined or as more information becomes available. Extraordinary Item In 1996, the Corporation extinguished prior to maturity $6.8 billion of debt under its then-existing $7.5 billion credit facility. These prepayments represented all outstanding borrowings under this facility. As a result of the early extinguishment of debt and the write-off of related debt issue costs, the Corporation recognized an extraordinary loss of $93 million, net of a tax benefit of $60 million, in 1996. Cash and Cash Equivalents The Corporation considers all investment securities with a maturity of three months or less when acquired to be cash equivalents. All cash and temporary investments are placed with high credit quality financial institutions, and the amount of credit exposure to any one financial institution is limited. Program Rights Costs incurred in connection with the production of, or the purchase of, rights to programs to be broadcast within one year are classified as current assets while costs of those programs to be broadcast after one year are considered noncurrent. Program costs are amortized as the respective programs are broadcast. Program rights are carried at the lower of unamortized cost or estimated net realizable value. Property and Equipment Property and equipment assets are recorded at cost and depreciated over their estimated useful lives. Depreciation is generally computed on the straight-line method based on useful lives of 27.5 to 60 years for buildings, 20 years for land improvements, and three to 12 years for equipment. Leasehold improvements are amortized over the shorter of the useful life or the term of the lease. Expenditures for additions and improvements are capitalized, and costs for repairs and maintenance are charged to operations as incurred. The Corporation limits capitalization of newly acquired assets to those assets with cost generally in excess of $1,500. Intangible Assets Identifiable intangible assets primarily include Federal Communications Commission (FCC) licenses, which are limited as to availability and have historically appreciated in value with the passage of time, and cable license agreements. Identifiable intangible assets and goodwill are amortized using the straight-line method over their estimated lives but not in excess of 40 years. Subsequent to the acquisition of an intangible or other long-lived asset, the Corporation evaluates whether later events and circumstances indicate the remaining estimated useful life of that asset may warrant revision or that the remaining carrying value of such an asset may not be recoverable. If definitive cash flows are not available for a specific intangible or other long-lived asset, the Corporation evaluates recoverability of the specific business to which the asset relates. When factors indicate that an intangible or other long-lived asset should be evaluated for possible impairment, the Corporation uses an estimate of the related asset's undiscounted future cash flows over the remaining life of that asset in measuring recoverability. If such an analysis indicates that impairment has in fact occurred, the Corporation writes down the book value of the intangible or other long-lived asset to its fair value. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, management reviews its estimates, including those related to litigation, environmental liabilities, program rights, contracts, pensions, and Discontinued Operations, based on currently available information. Changes in facts and circumstances may result in revised estimates. New Pronouncements In June 1997, SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information," were issued. SFAS 130 requires that an enterprise report by major component and as a single total the change in its net assets from nonowner CBS CORPORATION 31 32 sources during the period. SFAS 131 establishes annual and interim reporting standards for an enterprise's operating segments and related disclosures about its products, services, geographic areas, and major customers. Adoption of these statements will not impact the Corporation's consolidated financial position, results of operations, or cash flows, and any effect will be limited to the form and content of its disclosures. Both statements are effective for fiscal years beginning after December 15, 1997. At December 31, 1997, the Corporation adopted SFAS No. 128, "Earnings per Share," which establishes standards for computing and disclosing basic and diluted earnings per common share. Earnings per common share for 1996 and 1995 have been restated to reflect the adoption of SFAS 128. See note 15 to the financial statements. NOTE 3: ACQUISITIONS On September 30, 1997, the Corporation acquired Gaylord's two major cable networks: TNN and CMT. The acquisition included the domestic and international operations of TNN, the U.S. and Canadian operations of CMT, and approximately $50 million in working capital. The total purchase price of $1.55 billion was paid through the issuance of 59 million shares of the Corporation's common stock. The acquisition was accounted for under the purchase method. Based on preliminary estimates, which may be revised at a later date, the excess of the consideration paid over the estimated fair value of net assets acquired of approximately $1.2 billion was recorded as goodwill and is being amortized on a straight-line basis over 40 years. Prior to the acquisition, the Corporation provided certain services to TNN and CMT for which it received a commission. Additionally, the Corporation owned a 33% interest in CMT. On December 31, 1996, the Corporation acquired Infinity for $3.8 billion of equity and $.9 billion of debt. The acquisition, which was accounted for under the purchase method, resulted in an increase in the Corporation's shareholders' equity at year-end 1996 of $3.8 billion from the issuance of 183 million shares of common stock and the conversion of Infinity options into options to acquire approximately 22 million additional shares of the Corporation's common stock. The estimated fair values of assets acquired and liabilities assumed are summarized in the following table: FAIR VALUES OF ASSETS ACQUIRED AND LIABILITIES ASSUMED (in millions)
TNN AND CMT INFINITY AT SEPTEMBER 30, AT DECEMBER 31, 1997 1996 - ------------------------------------------------------------ Cash $ 8 $ -- Receivables 63 180 Program rights 22 -- Investments -- 107 Assets held for sale -- 70 Property and equipment 49 39 Identifiable intangible assets: FCC licenses -- 996 Cable license agreements 506 -- Other -- 277 Goodwill 1,177 3,630 Other assets 4 31 Liabilities for talent, program rights, and similar contracts (8) -- Debt -- (149) Deferred income taxes (200) (328) Other liabilities (71) (146) - ------------------------------------------------------------ Total purchase price $1,550 $4,707 - ------------------------------------------------------------
The following unaudited pro forma information combines the consolidated results of operations of the Corporation with those of TNN and CMT and Infinity as if these acquisitions had occurred at the beginning of 1996. The pro forma results give effect to certain purchase accounting adjustments, including additional depreciation expense resulting from a step-up in the basis of fixed assets, additional amortization expense from goodwill and other identifiable intangible assets, increased interest expense from acquisition debt, related income tax effects, and the issuance of additional shares in connection with the acquisitions. PRO FORMA RESULTS (unaudited, in millions except per-share amounts)
YEAR ENDED DECEMBER 31, 1997 1996 - ------------------------------------------------------------- Revenues $5,566 $5,137 Interest expense (386) (482) Loss from Continuing Operations (129) (242) Loss per common share-- Continuing Operations (.23) (.45) - -------------------------------------------------------------
This pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the operating results that actually would have occurred had the TNN and CMT and Infinity acquisitions been consummated on January 1, 1996. In addition, these results are not intended to be a projection of future CBS CORPORATION 32 33 results and do not reflect any synergies that might be achieved from combined operations. NOTE 4: PENSIONS The Corporation has a number of defined benefit pension plans covering substantially all employees. Most plan benefits are based on either years of service and compensation levels at the time of retirement or a formula based on career earnings. Pension benefits are paid primarily from trusts funded by the Corporation and employee contributions. The Corporation funds its qualified U.S. pension plans at amounts equal to or greater than the minimum funding requirements of the Employee Retirement Income Security Act of 1974, as amended. Substantially all plan assets are invested in equity and fixed income securities. The Corporation also participates in various multi-employer, union-administered defined benefit plans that cover certain broadcast employees. Pension expense related to these multi-employer plans for 1997 and 1996 was $11 million and $10 million, respectively, and was not material for 1995. The components of net periodic pension cost follow: NET PERIODIC PENSION COST (in millions)
YEAR ENDED DECEMBER 31, 1997 1996 1995 - ------------------------------------------------------------- Service cost $ 62 $ 70 $ 53 Interest cost on projected benefit obligation 384 371 391 Amortization of unrecognized net transition obligation 27 25 35 Amortization of unrecognized prior service benefit (10) (7) (11) Amortization of unrecognized net loss 83 108 68 - ------------------------------------------------------------- 546 567 536 Return on plan assets: Actual return on plan assets (636) (437) (584) Deferred gain 290 90 245 - ------------------------------------------------------------- Recognized return on plan assets (346) (347) (339) - ------------------------------------------------------------- Net periodic pension cost $ 200 $ 220 $ 197 - -------------------------------------------------------------
Of the net periodic pension cost shown in the preceding table, $83 million, $121 million, and $172 million are included in the results of operations of Discontinued Operations for 1997, 1996, and 1995, respectively. The assumptions used to develop the net periodic pension cost and the present value of benefit obligations are shown in the following table: SIGNIFICANT PENSION PLAN ASSUMPTIONS
1997 1996 1995 - --------------------------------------------------------------------- Discount rate: Periodic pension cost 7.75% 6.75% 8.5% Pension benefit obligation 7.25 7.75 6.75 Compensation increase rate 4.0 4.0 4.0 Long-term rate of return on plan assets 9.5 9.5 9.75 - ---------------------------------------------------------------------
Based on the requirements of SFAS No. 87, "Employers' Accounting for Pensions," the Corporation adjusts the discount rate to reflect current and expected-to-be- available interest rates on high quality fixed income investments at the end of each year. The table on the following page sets forth the funded status of the defined benefit plans and amounts recognized in the Corporation's balance sheet at December 31, 1997 and 1996: CBS CORPORATION 33 34 FUNDED STATUS--PENSION PLANS (in millions)
1997 1996 ----------------------------- ----------------------------- ASSETS ACCUMULATED ASSETS ACCUMULATED EXCEED BENEFITS EXCEED BENEFITS ACCUMULATED EXCEED ACCUMULATED EXCEED AT DECEMBER 31, BENEFITS ASSETS BENEFITS ASSETS - ------------------------------------------------------------------------------------------------------------------------------ Actuarial present value of benefit obligation: Vested $ (830) $(3,836) $(693) $(3,875) Nonvested (22) (268) (47) (265) - ------------------------------------------------------------------------------------------------------------------------------ Accumulated benefit obligation (852) (4,104) (740) (4,140) Effect of projected future compensation levels (132) (188) (116) (198) - ------------------------------------------------------------------------------------------------------------------------------ Projected benefit obligation for service rendered to date (984) (4,292) (856) (4,338) Plan assets at fair value 1,023 2,991 879 3,051 - ------------------------------------------------------------------------------------------------------------------------------ Projected benefit obligation in excess of plan assets 39 (1,301) 23 (1,287) Unrecognized net loss (gain) 30 1,355 (1) 1,402 Prior service cost (benefit) not yet recognized in net periodic pension cost (63) (72) 9 (86) Unrecognized net transition obligation (asset) (6) 94 (11) 128 - ------------------------------------------------------------------------------------------------------------------------------ Prepaid pension cost -- 76 20 157 Minimum pension liability -- (1,189) -- (1,246) - ------------------------------------------------------------------------------------------------------------------------------ Pension asset (liability) included in consolidated balance sheet $ -- $(1,113) $ 20 $(1,089) - ------------------------------------------------------------------------------------------------------------------------------
The Corporation sponsors various non-qualified supplemental pension plans that provide additional benefits to certain employees. For financial reporting purposes, these plans are treated as non-funded pension plans. The unfunded accumulated benefit obligation under these plans included in the preceding table at December 31, 1997 and 1996 is $307 million and $260 million, respectively. At December 31, 1997 and 1996, included in the balance sheet of Continuing and Discontinued Operations are the following pension assets and liabilities: BALANCE SHEET STATUS (in millions)
1997 ------------------------ NET PENSION INTANGIBLE AT DECEMBER 31, LIABILITY ASSET - ------------------------------------------------------------ Continuing Operations $(1,149) $22 Discontinued Operations 36 -- - ------------------------------------------------------------ Total $(1,113) $22 - ------------------------------------------------------------
1996 ------------------------ NET PENSION INTANGIBLE AT DECEMBER 31, LIABILITY ASSET - ------------------------------------------------------------ Continuing Operations $(1,061) $40 Discontinued Operations (8) -- - ------------------------------------------------------------ Total $(1,069) $40 - ------------------------------------------------------------
Included in plan assets at December 31, 1997 are 5,614,600 shares of the Corporation's common stock having a market value of $165 million. Dividends paid by the Corporation during 1997 on shares held by the pension fund totaled $1 million. During 1997 and 1996, respectively, the Corporation contributed $164 million and $250 million of cash to its pension plans. Pension plans are considered unfunded when the accumulated benefit obligation exceeds the fair value of plan assets. Accordingly, the Corporation has recorded a minimum pension liability and a charge to shareholders' equity, net of taxes, for its unfunded pension plans, as shown in the following table: EFFECT OF MINIMUM PENSION LIABILITY ON EQUITY (in millions)
AT DECEMBER 31, 1997 1996 - ------------------------------------------------------------- Unfunded pension obligation $(1,113) $(1,089) Less: Prepaid pension cost 76 157 - ------------------------------------------------------------- Minimum pension liability (1,189) (1,246) Add: Intangible pension asset 22 40 Add: Deferred tax effects 396 410 - ------------------------------------------------------------- Reduction of shareholders' equity $ (771) $ (796) - -------------------------------------------------------------
CBS CORPORATION 34 35 NOTE 5: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS, AND POSTEMPLOYMENT BENEFITS The Corporation has postretirement plans that provide defined medical, dental, and life insurance benefits for eligible retirees and dependents. The components of net periodic postretirement benefit cost follow: NET PERIODIC POSTRETIREMENT BENEFIT COST (in millions)
YEAR ENDED DECEMBER 31, 1997 1996 1995 - ------------------------------------------------------------- Service cost $ 11 $ 11 $ 13 Interest cost on accumulated postretirement benefit obligation 104 97 100 Amortization of unrecognized net loss (gain) 1 4 (4) Recognized return on plan assets (5) (5) (1) - ------------------------------------------------------------- Net periodic postretirement benefit cost $111 $107 $108 - -------------------------------------------------------------
Of the net periodic postretirement benefit cost shown in the preceding table, $42 million, $55 million, and $77 million are included in the results of operations of Discontinued Operations for 1997, 1996, and 1995, respectively. The assumptions used to develop the net periodic postretirement benefit cost and the present value of benefit obligations are shown in the following table: SIGNIFICANT POSTRETIREMENT BENEFIT PLAN ASSUMPTIONS
AT DECEMBER 31, 1997 1996 1995 - ----------------------------------------------------------- Discount rate 7.25% 7.75% 6.75% Health care cost trend rates 9.5* 10.0* 10.5* Compensation increase rate 4.0 4.0 4.0 Long-term rate of return on plan assets 7.0 7.0 7.0 - -----------------------------------------------------------
* At December 31, 1997, the rate was assumed to decrease ratably to 5.50% in 2005, decrease to 5.25% in 2006, and remain at that level thereafter. At December 31, 1996, the rate was assumed to decrease ratably to 6% in 2004, decrease to 5.75% in 2005, and remain at that level thereafter. At December 31, 1995, the rate was assumed to decrease ratably to 5% in 2006, decrease to 4.75% in 2007, and remain at that level thereafter. Net periodic postretirement benefit cost is determined using the assumptions as of the beginning of the year. The funded status is determined using the assumptions as of the end of the year. The funded status and amounts recognized in the Corporation's balance sheet at December 31, 1997 and 1996 were as follows: FUNDED STATUS--POSTRETIREMENT BENEFITS (in millions)
AT DECEMBER 31, 1997 1996 - -------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $(1,157) $(1,099) Fully eligible, active plan participants (53) (61) Other active plan participants (215) (245) - -------------------------------------------------------------- Total accumulated postretirement benefit obligation (1,425) (1,405) Unrecognized net loss 197 152 Unrecognized prior service benefit (36) (33) Plan assets at fair value 69 68 - -------------------------------------------------------------- Accrued postretirement benefit cost $(1,195) $(1,218) - --------------------------------------------------------------
The accrued postretirement benefit cost included in the net assets of Discontinued Operations at December 31, 1997 and 1996 was $35 million and $59 million, respectively. The funded assets consist primarily of interest-bearing securities. The effect of a 1% annual increase in the assumed health care cost trend rates would increase the accumulated postretirement benefit obligation by approximately $33 million and would increase net periodic postretirement benefit cost by approximately $3 million. The Corporation provides certain postemployment benefits to former or inactive employees and their dependents during the time period following employment but before retirement. At December 31, 1997 and 1996, the Corporation's liability for postemployment benefits totaled $66 million and $67 million, respectively. The portion of this liability included in the net assets of Discontinued Operations was $38 million and $40 million at December 31, 1997 and 1996, respectively. NOTE 6: INCOME TAXES Income tax expense (benefit) included in the consolidated financial statements follows: COMPONENTS OF CONSOLIDATED INCOME TAX EXPENSE (BENEFIT) (in millions)
YEAR ENDED DECEMBER 31, 1997 1996 1995 - ------------------------------------------------------------- Continuing Operations $ 73 $(71) $ 75 Discontinued Operations 667 573 (47) Extraordinary item -- (60) -- - ------------------------------------------------------------- Income tax expense $740 $442 $ 28 - -------------------------------------------------------------
The tax provision for Discontinued Operations includes tax expense of $779 million in 1997 and $868 million in CBS CORPORATION 35 36 1996 for the estimated gain on disposal of Discontinued Operations. The 1995 tax benefit includes $32 million associated with the estimated loss on disposal of Discontinued Operations. INCOME TAX EXPENSE (BENEFIT) FROM CONTINUING OPERATIONS (in millions)
YEAR ENDED DECEMBER 31, 1997 1996 1995 - ------------------------------------------------------------- Current: Federal $ 37 $(17) $132 State 19 (19) 27 Foreign 1 -- -- - ------------------------------------------------------------- Total current income tax expense (benefit) 57 (36) 159 - ------------------------------------------------------------- Deferred: Federal 14 (28) (69) State 2 (7) (15) - ------------------------------------------------------------- Total deferred income tax expense (benefit) 16 (35) (84) - ------------------------------------------------------------- Income tax expense (benefit) $ 73 $(71) $ 75 - -------------------------------------------------------------
CONSOLIDATED INCOME TAX EXPENSE (BENEFIT) (in millions)
YEAR ENDED DECEMBER 31, 1997 1996 1995 - ------------------------------------------------------------- Current: Federal $ 79 $ 88 $ 18 State 73 52 7 Foreign 46 27 27 - ------------------------------------------------------------- Total current income tax expense 198 167 52 - ------------------------------------------------------------- Deferred: Federal 553 269 (34) State (41) (2) (5) Foreign 30 8 15 - ------------------------------------------------------------- Total deferred income tax expense (benefit) 542 275 (24) - ------------------------------------------------------------- Income tax expense $740 $442 $ 28 - -------------------------------------------------------------
During 1997, 1996, and 1995, $14 million, $229 million, and ($138) million of deferred tax effects, respectively, were recorded in shareholders' equity as part of the minimum pension liability adjustment. See note 4 to the financial statements. The foreign portion of income or loss before income taxes and minority interest in income of consolidated subsidiaries included in the Corporation's results of operations for both Continuing and Discontinued Operations consisted of income of $476 million in 1997, $32 million in 1996, and $128 million in 1995. Such income consists of profits and losses generated from foreign operations, primarily of Discontinued Operations, that can be subject to both U.S. and foreign income taxes. Deferred income taxes result from temporary differences in the financial bases and tax bases of assets and liabilities. The types of differences that give rise to significant portions of deferred income tax liabilities or assets are shown in the following table: CONSOLIDATED DEFERRED INCOME TAXES BY SOURCE (in millions)
AT DECEMBER 31, 1997 1996 - ------------------------------------------------------------- Deferred tax assets: Provision for expenses and losses $ 1,204 $ 1,352 Long-term contracts in process 91 38 Minimum pension liabilities 382 360 Operating losses and credit carryforwards 316 796 Postretirement and postemployment benefits 442 450 Other 281 276 - ------------------------------------------------------------- Total deferred tax assets 2,716 3,272 Valuation allowance (137) (52) - ------------------------------------------------------------- Net deferred tax asset 2,579 3,220 - ------------------------------------------------------------- Deferred tax liabilities: Accelerated depreciation and amortization (1,176) (992) Leasing activities (572) (575) Other (170) (242) - ------------------------------------------------------------- Total deferred tax liabilities (1,918) (1,809) - ------------------------------------------------------------- Deferred income taxes, net asset $ 661 $ 1,411 - -------------------------------------------------------------
At December 31, 1997 and 1996, included in the balance sheet of Continuing Operations and net assets of Discontinued Operations are the following net deferred tax assets: BALANCE SHEET STATUS (in millions)
AT DECEMBER 31, 1997 1996 - ------------------------------------------------------------ Continuing Operations $170 $ 687 Discontinued Operations 491 724 - ------------------------------------------------------------ Deferred income taxes, net asset $661 $1,411 - ------------------------------------------------------------
The valuation allowance for deferred taxes reflects foreign tax credits and operating loss carryforwards of certain foreign subsidiaries not anticipated to be utilized as a result of divestitures of foreign subsidiaries principally related to Discontinued Operations. At December 31, 1997, there were alternative minimum tax credit carryforwards of $302 million that have no expiration date. At December 31, 1997, there were $30 million of net operating loss carryforwards attributable to foreign subsidiaries. Of this total, approximately $14 million has no expiration date. The remaining amount will expire not later than 2004. At December 31, 1997, there were $169 million of foreign tax credit carryforwards, $23 million of which will expire in 1999. The remaining amount will expire no later than 2003. CBS CORPORATION 36 37 INCOME TAX EXPENSE (BENEFIT) FROM CONTINUING OPERATIONS (in millions)
YEAR ENDED DECEMBER 31, 1997 1996 1995 - ----------------------------------------------------------- Federal income tax expense (benefit) at statutory rate $(21) $(102) $45 Increase (decrease) in tax resulting from: Amortization of goodwill 78 42 7 State income tax expense (benefit), net of federal effect 13 (17) 8 Lower tax rate on income of foreign sales corporations (5) (2) -- Gain on sale of stock of subsidiary and affiliate -- -- 12 Nondeductible expenses 3 4 1 Other differences, net 5 4 2 - ----------------------------------------------------------- Income tax expense (benefit) from Continuing Operations $ 73 $ (71) $75 - -----------------------------------------------------------
The federal income tax returns of the Corporation and its wholly owned subsidiaries are settled through the year ended December 31, 1989. The Corporation has reached an agreement with the Internal Revenue Service regarding certain issues for the years 1990 through 1992 and a tentative agreement for 1993. Management believes that adequate provisions for taxes have been made through December 31, 1997. NOTE 7: DISCONTINUED OPERATIONS In November 1996, the Corporation's Board of Directors conditionally approved a plan for a strategic restructuring whereby the Corporation would separate its media and industrial businesses. The Corporation planned to form a new company to be called WELCO, which, after modification of the plan, included all of the Corporation's then-remaining industrial businesses except for Thermo King. In September 1997, the Corporation reached a definitive agreement to sell Thermo King for cash proceeds of $2.56 billion. The sale was completed on October 31, 1997. In November 1997, the Corporation announced a definitive agreement to sell Power Generation, the largest component of WELCO, for cash proceeds of $1.525 billion. The sale of Power Generation is expected to be completed in mid-1998. The remaining industrial businesses, consisting primarily of Energy Systems and Government Operations, are expected to be divested in 1998. The assets, liabilities, and results of operations for Thermo King and WELCO are classified as Discontinued Operations except for certain liabilities expected to be retained by the Corporation. See note 12 to the financial statements. In connection with the disposal of Thermo King and WELCO, the Corporation recognized a combined net gain of $871 million in the fourth quarter of 1997. This net gain includes an after-tax adjustment of approximately $125 million for additional divestiture costs associated with prior disposal plans. The Corporation had previously adopted several other separate plans to dispose of major segments of its business. The following table summarizes each of the Corporation's segment disposal plans as well as the assets remaining at December 31, 1997.
MEASUREMENT DATE BUSINESS SEGMENT REMAINING ASSETS - ------------------------------------------------------------------------------------------------------------------- September 1997 WELCO All assets Thermo King None November 1996 CISCO Three miscellaneous operations March 1996 Environmental Services Three waste incineration plants December 1995 Knoll None Defense and Electronic Systems None July 1995 WCI Mortgage notes receivable and miscellaneous securities November 1992 Financial Services Leasing portfolio Distribution & Control (DCBU) None Westinghouse Electric Supply Company Miscellaneous securities (WESCO) - -------------------------------------------------------------------------------------------------------------------
Sales of Knoll and the defense and electronic systems business were completed in the first quarter of 1996 for combined cash proceeds of $3.6 billion plus assumption by the buyer of certain pension and postretirement benefit liabilities associated with the active employees of the business. A combined after-tax gain of $1.2 billion was recognized. Exit plans for the CISCO segment and the environmental services line of business, which were adopted later in 1996, reduced the after-tax gain by approximately $200 million. The majority of the businesses comprising these segments were divested in 1997 CBS CORPORATION 37 38 and 1996 although completion of the disposal of the remaining operations is expected in 1998. In connection with the July 1995 sale of WCI, the Corporation recognized a net loss of $76 million. The majority of the mortgage notes receivables remaining after the sale have been liquidated. Disposal of the miscellaneous securities and liquidation of the remaining notes are expected in 1998. Portfolio investments remaining from the Corporation's 1992 plan to exit the Financial Services business consist primarily of receivables related to the leasing portfolio. The leasing portfolio is expected to liquidate through 2015 in accordance with contractual terms and generally consists of direct financing and leveraged leases. At December 31, 1997 and 1996, 83% and 84% of the leases, respectively, related to aircraft while the remainder primarily related to cogeneration facilities. The assets and liabilities of Discontinued Operations have been separately classified on the balance sheet as net assets of Discontinued Operations. A summary of these assets and liabilities follows: NET ASSETS OF DISCONTINUED OPERATIONS (in millions)
AT DECEMBER 31, 1997 1996 - ------------------------------------------------------------- Assets: Cash and cash equivalents $ 59 $ 104 Customer receivables 537 867 Inventories 560 816 Costs and estimated earnings over billings on uncompleted contracts 437 677 Portfolio investments 791 845 Plant and equipment, net 681 945 Deferred income taxes (note 6) 491 724 Other assets 545 732 - ------------------------------------------------------------- Total assets--Discontinued Operations $4,101 $5,710 - ------------------------------------------------------------- Liabilities: Accounts payable 384 760 Billings over costs and estimated earnings on uncompleted contracts 377 335 Short-term debt 7 18 Current maturities of long-term debt 96 2 Long-term debt 440 419 Liability for estimated loss on disposal 989 829 Settlements and environmental liabilities (note 12) 625 757 Other liabilities 971 944 - ------------------------------------------------------------- Total liabilities--Discontinued Operations 3,889 4,064 - ------------------------------------------------------------- Net assets of Discontinued Operations $ 212 $1,646 - -------------------------------------------------------------
Certain of WELCO's environmental and litigation-related liabilities are expected to be assumed by buyers and are included in the net assets of Discontinued Operations. Those that are not expected to be assumed by other parties in the divestiture transactions have been separately presented as retained liabilities of discontinued businesses. See note 12 to the financial statements. PORTFOLIO INVESTMENTS Portfolio investments at December 31, 1997 and 1996, consisted of leasing receivables of $761 million and $800 million, respectively. Other portfolio investments totaled $30 million and $45 million, respectively. The following table presents the Corporation's net investment in leases: NET INVESTMENT IN LEASES (in millions)
AT DECEMBER 31, 1997 1996 - ------------------------------------------------------------ Rental payments receivable (net of principal and interest on nonrecourse loans) $ 689 $ 737 Estimated residual value of leased assets 366 366 Unearned and deferred income (294) (303) - ------------------------------------------------------------ Investment in leases (leasing receivables) 761 800 Deferred taxes and deferred investment tax credits arising from leases (572) (575) - ------------------------------------------------------------ Investment in leases, net $ 189 $ 225 - ------------------------------------------------------------
At December 31, 1997 and 1996, deferred investment tax credits totaled $20 million and $21 million, respectively. These deferred investment tax credits are amortized over the contractual terms of the respective leases. Contractual maturities for the Corporation's leasing rental payments receivable at December 31, 1997 are as follows: CONTRACTUAL MATURITIES FOR LEASING RENTAL PAYMENTS RECEIVABLE AT DECEMBER 31, 1997 (in millions)
YEAR OF MATURITY ---------------------------------------- AFTER TOTAL 1998 1999 2000 2001 2002 2002 - ----------------------------------------------- $689 $45 $43 $55 $61 $147 $338 - -----------------------------------------------
LONG-TERM DEBT At December 31, 1997, long-term debt, including current maturities, consisted of $382 million of allocated revolver borrowings under the Corporation's $5.5 billion credit facility (see note 10 to the financial statements) and $154 million of medium-term notes. At December 31, 1996, long-term debt consisted principally of $263 million of revolver borrowings and $156 million of medium-term notes. The weighted-average interest rate for 1997 was 8.9% for the medium-term notes. Scheduled maturities of long-term debt at December 31, 1997 are $96 million in 1998, $46 million in 1999, $10 million in 2000, with the CBS CORPORATION 38 39 remaining balance of $384 million due in 2001. None of this debt is expected to be assumed by buyers in divestiture transactions. Long-term debt of Discontinued Operations generally will be repaid using cash proceeds from the liquidation of the portfolio investments of Discontinued Operations. LIABILITY FOR ESTIMATED LOSS ON DISPOSAL The liability for estimated loss on disposal includes estimated losses and disposal costs associated with each divestiture transaction, including estimated results of operations through the expected closing date and other costs expected subsequent to the divestiture. Satisfaction of these liabilities is expected to occur over the next several years. Management believes that the liability for estimated loss on disposal at December 31, 1997 is adequate to cover divestiture or liquidation of the remaining assets and liabilities of Discontinued Operations. Cash requirements to satisfy non-debt obligations of Discontinued Operations as well as cash proceeds from the sale or liquidation of all other assets of Discontinued Operations will affect cash flows of Continuing Operations. RESULTS OF OPERATIONS In accordance with APB 30, the consolidated financial statements reflect the operating results of Discontinued Operations separately from Continuing Operations. Interest expense on debt of Continuing Operations totaling $42 million, $60 million, and $96 million for 1997, 1996, and 1995, respectively, was allocated to Discontinued Operations based on the ratio of the net assets of Discontinued Operations to the sum of total consolidated net assets plus consolidated debt. Summarized in the following table are the operating results of Discontinued Operations: OPERATING RESULTS OF DISCONTINUED OPERATIONS (in millions)
NET INCOME OPERATING SALES OF (LOSS) BEFORE RESULTS AFTER PRODUCTS OR MEASUREMENT MEASUREMENT SERVICES DATE DATE - --------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1997 WELCO $ 3,102 $ (292) $ (55) Thermo King 862 101 17 CISCO 204 -- (8) Environmental Services 89 -- (13) Financial Services 12 -- (29) - --------------------------------------------------------------------- Total $ 4,269 $ (191) $ (88) - --------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1996 WELCO $ 3,467 $ (694) $ -- Thermo King 996 142 -- CISCO 337 (46) (24) Environmental Services 237 (11) (57) Defense and Electronic Systems 262 -- (19) Knoll 90 -- (63) Financial Services 26 -- (16) - --------------------------------------------------------------------- Total $ 5,415 $ (609) $(179) - --------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1995 WELCO $ 3,435 $ (229) $ -- Thermo King 1,039 138 -- CISCO 361 7 -- Environmental Services 299 (32) -- Defense and Electronic Systems 2,549 106 -- Knoll 621 14 -- WCI 108 15 -- Financial Services 31 -- (52) - --------------------------------------------------------------------- Total $ 8,443 $ 19 $ (52) - ---------------------------------------------------------------------
All operating results after the measurement date are charged to the liability for estimated loss on disposal. Operating cash flows from Discontinued Operations are presented separately from Continuing Operations in the consolidated financial statements. Total operating cash flows from Discontinued Operations consist of the following: CBS CORPORATION 39 40 CASH FLOWS FROM OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS (in millions)
YEAR ENDED DECEMBER 31, 1997 1996 1995 - ------------------------------------------------------------ WELCO $(466) $ (77) $ 84 Thermo King 135 166 197 Knoll and Defense and Electronic Systems (17) (328) 306 Environmental Services and CISCO (59) (76) (6) Financial Services (30) 3 (81) WCI -- -- 18 - ------------------------------------------------------------ Cash provided (used) by operating activities $(437) $(312) $ 518 - ------------------------------------------------------------
The cash flows presented in the preceding table include cash flows from the operations of the businesses as well as payments for disposition-related costs. NOTE 8: PROPERTY AND EQUIPMENT PROPERTY AND EQUIPMENT (in millions)
AT DECEMBER 31, 1997 1996 - ------------------------------------------------------------- Land and buildings $ 642 $ 613 Equipment 802 730 Construction in progress 37 12 - ------------------------------------------------------------- Property and equipment, at cost 1,481 1,355 Accumulated depreciation (415) (338) - ------------------------------------------------------------- Property and equipment, net $1,066 $1,017 - -------------------------------------------------------------
For the years ended December 31, 1997, 1996, and 1995, depreciation expense totaled $120 million, $105 million, and $32 million, respectively. Of these amounts, $33 million, $29 million, and $9 million, respectively, were included in operating expenses and $87 million, $76 million, and $23 million, respectively, were included in marketing, administration, and general expenses. NOTE 9: OTHER INTANGIBLE AND NONCURRENT ASSETS OTHER INTANGIBLE AND NONCURRENT ASSETS (in millions)
AT DECEMBER 31, 1997 1996 - ------------------------------------------------------------- Deferred income taxes (note 6) $ -- $ 310 Cable license agreements 491 -- Other intangible assets 384 400 Intangible pension asset (note 4) 22 40 Deferred charges 48 39 Joint ventures and other affiliates 122 142 Recoverable costs of discontinued businesses (note 12) 208 235 Noncurrent receivables 145 91 Program rights 135 142 Other 55 168 - ------------------------------------------------------------- Other intangible and noncurrent assets $1,610 $1,567 - -------------------------------------------------------------
Cable license agreements and other intangible assets are shown in the preceding table net of accumulated amortization of $70 million at December 31, 1997 and $33 million at December 31, 1996. Joint ventures and other affiliates include investments in companies over which the Corporation exercises significant influence but does not control. FCC licenses and goodwill are shown on the balance sheet net of accumulated amortization. At December 31, 1997 and 1996 accumulated amortization for FCC licenses is $105 million and $51 million and for goodwill is $435 million and $201 million, respectively. NOTE 10: DEBT SHORT-TERM DEBT (in millions)
- ------------------------------------------------------------------- 1997 -------------------------------------------- AT DECEMBER 31 DURING THE YEAR ------------------- ---------------------- COMPOSITE AVG. OUT- WEIGHTED BALANCE RATE STANDING AVG. RATE - ------------------------------------------------------------------- Credit facility $-- --% $362 6.0% Short-term foreign bank loans 89 4.7 76 5.4 Other -- -- 19 5.9 - ------------------------------------------------------------------- Total short-term debt $89 - -------------------------------------------------------------------
1996 -------------------------------------------- AT DECEMBER 31 DURING THE YEAR ------------------- ---------------------- COMPOSITE AVG. OUT- WEIGHTED BALANCE RATE STANDING AVG. RATE - ------------------------------------------------------------------- Credit facility $295 7.6% $264 6.5% Short-term foreign bank loans 58 3.4 35 4.5 Other 131 7.4 72 6.3 - ------------------------------------------------------------------- Total short-term debt $484 - -------------------------------------------------------------------
Average outstanding borrowings were determined based on daily amounts outstanding for the credit facilities and on monthly balances outstanding for short-term foreign bank loans. CBS CORPORATION 40 41 LONG-TERM DEBT (in millions)
AT DECEMBER 31, 1997 1996 - ------------------------------------------------------------- Revolver $1,083 $2,787 8 3/8% notes due 2002 348 348 7 7/8% debentures due 2023 325 325 6 7/8% notes due 2003 275 275 8 5/8% debentures due 2012 273 273 8 7/8% notes due 2001 250 250 8 7/8% notes due 2014 150 150 7 5/8% notes due 2002 150 150 10 3/8% notes due 2002 -- 149 7 3/4% notes due 1999 125 125 7 1/8% notes due 2023 97 97 8 7/8% debentures due 2022 92 92 Medium-term notes due through 2001 76 78 Other 54 52 - ------------------------------------------------------------- 3,298 5,151 Current maturities (62) (4) - ------------------------------------------------------------- Long-term debt $3,236 $5,147 - -------------------------------------------------------------
In March 1997, the Corporation redeemed the $149 million of 10 3/8% notes, which were issued by Infinity prior to the acquisition. The Corporation obtained a $5.5 billion credit facility in August 1996 that provides for short-term money market loans and revolver borrowings. Borrowing rates under the facility are determined at the time of each borrowing and are based generally on a floating rate index, the London Interbank Offer Rate (LIBOR), plus a margin based on the Corporation's senior unsecured debt rating and leverage. The cost of the facility includes commitment fees, which are based on the unutilized facility and vary with the Corporation's debt ratings. For financial reporting purposes, revolver borrowings are classified as long term. At December 31, 1997 and 1996, $382 million and $263 million, respectively, of revolver borrowings were included in the net assets of Discontinued Operations. See note 7 to the financial statements. There are no compensating balance requirements under the facility. The 8 7/8% debentures due 2022 may be redeemed after June 1, 2002 at specified redemption prices. The 8 7/8% notes due 2014 are redeemable at 100% of principal plus accrued interest at the election of the holder on June 14, 1999 or June 14, 2004. The Corporation may redeem the notes only if the total outstanding principal is $10 million or less. Except for these debentures and notes and the revolver borrowings, the remaining long-term debt outstanding at December 31, 1997 may not be redeemed prior to maturity. At December 31, 1997, medium-term notes had interest rates ranging from 8.7% to 9.4%, with an average interest rate of 9.0%. During 1998, $58 million will become due under the medium-term notes. The scheduled maturities of long-term debt outstanding at December 31, 1997 for each of the next five years are as follows: SCHEDULED MATURITIES OF LONG-TERM DEBT (in millions)
YEAR OF MATURITY ---------------------------------- AT DECEMBER 31, 1997 1998 1999 2000 2001 2002 - ------------------------------------------------------------ Long-term debt $62 $313 $1 $1,353 $500 - ------------------------------------------------------------
NOTE 11: OTHER CURRENT AND NONCURRENT LIABILITIES OTHER CURRENT LIABILITIES (in millions)
AT DECEMBER 31, 1997 1996 - ------------------------------------------------------------ Accrued employee compensation $119 $ 127 Income taxes payable 30 163 Accrued restructuring costs 28 64 Accrued interest and insurance 54 75 Accrued liabilities 309 578 Retained liabilities of discontinued businesses (note 12) 191 120 Other 137 253 - ------------------------------------------------------------ Total other current liabilities $868 $1,380 - ------------------------------------------------------------
OTHER NONCURRENT LIABILITIES (in millions)
AT DECEMBER 31, 1997 1996 - ------------------------------------------------------------- Postretirement benefits (note 5) $1,160 $1,159 Postemployment benefits (note 5) 28 27 Deferred income taxes (note 6) 224 -- Accrued restructuring costs 13 53 Liabilities for talent and program rights 68 52 Accrued liabilities 201 379 Retained liabilities of discontinued businesses (note 12) 767 806 Other 235 252 - ------------------------------------------------------------- Total other noncurrent liabilities $2,696 $2,728 - -------------------------------------------------------------
NOTE 12: CONTINGENT LIABILITIES Certain of the environmental and litigation-related liabilities associated with the industrial businesses are not expected to be assumed by other parties in the pending divestiture transactions and, therefore, would be retained by the Corporation. These liabilities include environmental obligations that are not related to active properties of operating businesses, accrued product liability claims for divested businesses, liabilities associated with asbestos claims, and general litigation claims not involving active businesses. Accrued liabilities associated with these matters, which have been separately presented as retained liabilities of discontinued businesses, totaled $958 million at December 31, 1997, including amounts CBS CORPORATION 41 42 related to previously discontinued businesses of CBS Inc. Of this amount, $767 million is classified as noncurrent. A separate asset of $244 million was recorded for estimated amounts recoverable from third parties, of which $208 million is classified as noncurrent. LEGAL MATTERS Steam Generators The Corporation has been defending various lawsuits brought by utilities claiming a substantial amount of damages in connection with alleged tube degradation in steam generators sold by Energy Systems as components of nuclear steam supply systems. Since 1993, settlement agreements have been entered resolving ten litigation claims. These agreements generally require the Corporation to provide certain products and services at prices discounted at varying rates. Two cases were resolved in favor of the Corporation after trial or arbitration. One steam generator lawsuit remains. The Corporation is also a party to five tolling agreements with utilities or utility plant owners' groups that have asserted steam generator claims. The tolling agreements delay initiation of any litigation for various specified periods of time and permit the parties time to engage in discussions. Accrued liabilities for previous and potential settlement agreements that provide for costs in excess of discounted prices are included in Discontinued Operations. Securities Class Actions--Financial Services The Corporation has been defending derivative and class action lawsuits alleging federal securities law and common law violations arising out of purported misstatements or omissions contained in the Corporation's public filings concerning the financial condition of the Corporation and certain of its former subsidiaries in connection with charges to earnings of $975 million in 1990 and $1,680 million in 1991 and a public offering of the Corporation's common stock in 1991. The court dismissed both the derivative claim and the class action claims in their entirety. These dismissals were appealed. In July 1996, the United States Court of Appeals for the Third Circuit (the Circuit Court) affirmed the court's dismissal of the derivative claim. The Circuit Court also affirmed in part and reversed in part the dismissal of the class action claims. Those class action claims that were not dismissed by the Circuit Court have been remanded to the lower court for further proceedings. Asbestos The Corporation is a defendant in numerous lawsuits claiming various asbestos-related personal injuries, which allegedly occurred from use or inclusion of asbestos in certain of the Corporation's products supplied by its industrial businesses, generally in the pre-1970 time period. Typically, these lawsuits are brought against multiple defendants. The Corporation was neither a manufacturer nor a producer of asbestos and is oftentimes dismissed from these lawsuits on the basis that the Corporation has no relationship to the products in question or the claimant was not exposed to the Corporation's product. At December 31, 1997, the Corporation had approximately 115,700 claims outstanding against it. In court actions that have been resolved, the Corporation has prevailed in the majority of the asbestos claims and has resolved others through settlement. Furthermore, the Corporation has brought suit against certain of its insurance carriers with respect to these asbestos claims. Under the terms of a settlement agreement resulting from this suit, carriers that have agreed to the settlement are reimbursing the Corporation for a substantial portion of its current costs and settlements associated with asbestos claims. The Corporation has recorded a liability for asbestos-related matters that are deemed probable and can be reasonably estimated, and has separately recorded an asset equal to the amount of such estimated liabilities that will be recovered pursuant to agreements with insurance carriers. The Corporation cannot reasonably estimate costs for unasserted asbestos claims. General Litigation is inherently uncertain and always difficult to predict. Substantial damages are sought in the steam generator claims, the securities class action, and certain groupings of asbestos claims, and, although management believes a significant adverse judgment is unlikely, any such judgment could have a material adverse effect on the Corporation's results of operations for a quarter or a year. However, based on its understanding and evaluation of the relevant facts and circumstances, management believes that the Corporation has meritorious defenses to the litigation described previously, and that the Corporation has adequately provided for costs arising from potential settlement of these matters when in the best interest of the Corporation. Management believes that the litigation should not have a material adverse effect on the financial condition of the Corporation. ENVIRONMENTAL MATTERS Compliance with federal, state, and local laws and regulations relating to the discharge of pollutants into the environment, the disposal of hazardous wastes, and other related activities affecting the environment have had and will continue to have an impact on the Corporation. It is difficult to estimate the timing and ultimate costs to be incurred in the future due to uncertainties about the status of laws, regulations, and technology; the adequacy of information available for CBS CORPORATION 42 43 individual sites; the extended time periods over which site remediation occurs; and the identification of new sites. The Corporation has, however, recognized an estimated liability, measured in current dollars, for those sites where it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The Corporation recognizes changes in estimates as new remediation requirements are defined or as more information becomes available. With regard to remedial actions under federal and state Superfund laws, the Corporation has been named a potentially responsible party (PRP) at numerous sites located throughout the country. At many of these sites, the Corporation is either not a responsible party or its site involvement is very limited or de minimis. However, the Corporation may have varying degrees of cleanup responsibilities at approximately 90 sites. The Corporation believes that any liability incurred for cleanup at these sites will be satisfied over a number of years, and in many cases, the costs will be shared with other responsible parties. These sites include certain sites for which the Corporation, as part of an agreement for sale, has retained obligations for remediation of environmental contamination and for other Comprehensive Environmental Response Compensation and Liability Act (CERCLA) issues. Based on the costs associated with the most probable alternative remediation strategy for the previously mentioned sites, the Corporation has an accrued liability of $402 million at December 31, 1997. Depending on the remediation alternatives ultimately selected, the costs related to these sites could differ from the amounts currently accrued. The accrued liability includes $284 million for site investigation and remediation, and $118 million for post-closure and monitoring activities. Management anticipates that the majority of expenditures for site investigation and remediation will occur during the next five to ten years. Expenditures for post-closure and monitoring activities will be made during periods of up to 30 years. In addition, included in Discontinued Operations are environmental liabilities directly related to active sites that are expected to be assumed by buyers in divestiture transactions. Other The Corporation is involved with several administrative actions alleging violations of federal, state, or local environmental regulations. For these matters, the Corporation has estimated its remaining reasonably possible costs and determined them to be immaterial. Management believes, based on its best estimate, that the Corporation has adequately provided for its present environmental obligations and that complying with existing government regulations will not materially impact the Corporation's financial position, liquidity, or results of operations. NOTE 13: LEASES AND OTHER COMMITMENTS Leases The Corporation has commitments under operating and capital leases for certain facilities and equipment. Rental expense for Continuing Operations in 1997, 1996, and 1995 was $64 million, $51 million, and $15 million, respectively. These amounts include immaterial amounts for contingent rentals and sublease income. Additionally, the Corporation's outdoor advertising business has franchise rights entitling it to display advertising on such media as buses, taxis, trains, bus shelters, terminals, billboards, and phone kiosks. Under most of these franchise agreements, the franchiser is entitled to receive the greater of a percentage of the relevant advertising revenues, net of advertising agency fees, or a specified guaranteed minimum annual payment. Franchise payments totaled $192 million in 1997. MINIMUM RENTAL PAYMENTS (in millions)
GUARANTEED LEASES MINIMUM ------------------- FRANCHISE AT DECEMBER 31, 1997 OPERATING CAPITAL PAYMENTS - ------------------------------------------------------------- 1998 $ 56 $ 7 $153 1999 44 7 157 2000 40 6 126 2001 33 6 87 2002 31 6 41 Thereafter 88 17 4 - ------------------------------------------------------------- Minimum rental payments $292 49 $568 - ------------------------------------------------------------- Interest and executory costs (6) - ------------------------------------------------------------- Present value of minimum rental payments $43 - -------------------------------------------------------------
CBS CORPORATION 43 44 Other Commitments The Corporation routinely enters into commitments to purchase the rights to broadcast programs, including feature films and sports events. These contracts permit the broadcast of such properties for various periods. At December 31, 1997, the Corporation was committed to make payments under such broadcasting contracts, along with commitments for talent contracts, of $3,502 million. At December 31, 1997, aggregate payments related to these commitments during the next five years and thereafter are as follows: OTHER COMMITMENTS (in millions)
AGGREGATE AT DECEMBER 31, 1997 PAYMENTS - ------------------------------------------------------------ 1998 $1,095 1999 813 2000 631 2001 473 2002 397 Thereafter 93 - ------------------------------------------------------------ Total other commitments $3,502 - ------------------------------------------------------------
In addition to the amounts in the preceding table are commitments related to an eight-year agreement reached in January 1998, approximating $4 billion, for rights to broadcast certain National Football League games. NOTE 14: SHAREHOLDERS' EQUITY In connection with the TNN and CMT acquisition on September 30, 1997, the Corporation issued 59 million shares of common stock resulting in an increase in shareholders' equity of $1.55 billion. On May 30, 1997, the Corporation redeemed all outstanding shares of its Series C Conversion Preferred Stock (Series C Preferred) and, in connection with the redemption, issued 32 million shares of common stock. All accrued and unpaid dividends on the redeemed shares of Series C Preferred were paid on May 30, 1997. On December 31, 1996, the Corporation issued 183 million shares of common stock for the acquisition of Infinity resulting in an increase in shareholders' equity of $3.8 billion. On September 1, 1995, the Corporation's Series B Conversion Preferred Stock (Series B Preferred), outstanding since 1992, mandatorily converted into 33 million shares of common stock. COMMON SHARES (shares in thousands)
IN ISSUED TREASURY OUTSTANDING - ------------------------------------------------------------ Balance at January 1, 1995 393,080 36,288 356,792 Shares issued for dividend reinvestment plan -- (450) 450 Shares issued for employee plans -- (5,886) 5,886 Shares issued for conversion of Series B Preferred 32,890 -- 32,890 - ------------------------------------------------------------ Balance at December 31, 1995 425,970 29,952 396,018 - ------------------------------------------------------------ Shares issued for dividend reinvestment plan -- (1,071) 1,071 Shares issued for employee plans -- (6,254) 6,254 Shares issued for Infinity acquisition 183,002 -- 183,002 - ------------------------------------------------------------ Balance at December 31, 1996 608,972 22,627 586,345 - ------------------------------------------------------------ Shares used for dividend reinvestment plan 384 (29) 413 Shares issued for employee plans 17,245 (925) 18,170 Shares issued for TNN and CMT acquisition 59,058 -- 59,058 Shares issued for conversion of Series C Preferred 31,859 -- 31,859 - ------------------------------------------------------------ Balance at December 31, 1997 717,518 21,673 695,845 - ------------------------------------------------------------
Of the common stock held in treasury at December 31, 1997, 1996, and 1995, 18 million, 22 million, and 21 million shares, respectively, were held by the Corporation's rabbi trusts for the payment of benefits under executive benefit plans. On December 29, 1995, the Board of Directors adopted a shareholder rights plan providing for the distribution of one right for each share of common stock outstanding on January 9, 1996 or issued thereafter until the occurrence of certain events. The rights become exercisable only in the event, with certain exceptions, that an acquiring party accumulates 15% or more of the Corporation's voting stock or a party announces an offer to acquire 30% or more of the voting stock. The rights have an exercise price of $64 per share and expire on January 9, 2006. The Board of Directors has adopted a resolution affirming its intention to redeem the rights in January 2001 (if still outstanding). Upon the occurrence of certain events, holders of the rights will be entitled to purchase either CBS Corporation preferred shares or shares in an acquiring entity at half of market value. The Corporation is entitled to redeem the rights at a value of $.01 per right at any time until the tenth day following the acquisition of a 15% position in its voting stock. CBS CORPORATION 44 45 NOTE 15: EARNINGS (LOSS) PER COMMON SHARE--CONTINUING OPERATIONS At December 31, 1997, the Corporation adopted SFAS 128, which establishes standards for computing and disclosing basic and diluted earnings per common share. The following is the computation of basic and diluted earnings per common share in accordance with the new standard: COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE--CONTINUING OPERATIONS (in millions except per-share amounts)
YEAR ENDED DECEMBER 31, 1997 1996 1995 - -------------------------------------------------------------- Income (loss) from Continuing Operations $ (131) $ (221) $ 47 Less: Preferred stock dividends (23) (47) (81) - -------------------------------------------------------------- Loss applicable to common stock $ (154) $ (268) $ (34) Average shares outstanding 629 401 370 Basic and diluted loss per common share $ (.24) $ (.67) $ (.09) - --------------------------------------------------------------
Options to purchase shares of common stock as well as shares of common stock issuable under deferred compensation arrangements and preferred stock were not included in the computation of diluted earnings per common share because their inclusion would result in a smaller loss per common share. During 1997, 1996, and 1995, common shares issuable under deferred compensation arrangements approximated 6 million. See note 16 to the financial statements for additional information on stock options. NOTE 16: STOCK-BASED COMPENSATION PLANS At December 31, 1997, the Corporation had several stock-based compensation plans that provide for the granting of stock options, restricted stock, and other performance awards to employees or directors of the Corporation. At December 31, 1997 and 1996, shares authorized for awards under these plans totaled 49.5 million and 37.4 million, respectively. Of these amounts, 8.1 million and 7.0 million, respectively, remained available for award. Generally, stock option awards are granted for terms of 10 years or less and become exercisable in whole or in part after the commencement of the second year of the term. In addition to the stock options shown in the following table, the Corporation granted 9,449 and 49,174 shares of restricted stock to employees and directors in 1997 and 1996, respectively. These shares had a weighted-average fair value at date of grant of $18.52 and $18.41, respectively, with a weighted-average vesting period of one year for the 1997 grants and two years for the 1996 grants. In connection with the acquisitions of TNN and CMT, and Infinity, the Corporation assumed options outstanding under the Gaylord and Infinity plans as of the date of the acquisition. The then-outstanding options were converted to options to acquire the Corporation's common stock and are included in the following table as awards assumed. Exercise prices for awards assumed in the 1997 TNN and CMT acquisition, which generally have ten-year terms and become exercisable ratably in years two through five, range from $9.45 to $25.41. Exercise prices for awards assumed in the 1996 Infinity acquisition, which generally have ten-year terms and become exercisable ratably over a five-year period, range from $.0002 to $19.66. Of the options granted by the Corporation in 1995, 2.4 million were performance stock options. The vesting of these options was contingent on attainment of specific performance targets. All of these options terminated in 1996 or 1997 because the performance targets were not met. CBS CORPORATION 45 46 STOCK OPTION INFORMATION (shares in thousands)
1997 1996 1995 ---------------------- ---------------------- ------------------------ WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE - -------------------------------------------------------------------------------------------------------------------------- Balance at January 1 57,816 $13.15 28,384 $17.41 20,504 $18.66 Options granted 12,917 19.30 10,990 19.09 8,945 14.17 Options exercised (8,106) 14.62 (1,728) 13.22 (481) 11.75 Options forfeited (1,945) 10.69 (1,750) 15.93 (584) 16.15 Options expired (397) 30.70 (306) 27.41 -- -- Awards assumed 124 17.06 22,226 5.18 -- -- - -------------------------------------------------------------------------------------------------------------------------- Balance at December 31 60,409 $14.05 57,816 $13.15 28,384 $17.41 - -------------------------------------------------------------------------------------------------------------------------- Exercisable at December 31 45,267 $18.87 41,251 $12.07 18,456 $18.92 - --------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 ---------------------- ---------------------- ------------------------ WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE FAIR EXERCISE FAIR EXERCISE FAIR EXERCISE VALUE PRICE VALUE PRICE VALUE PRICE - -------------------------------------------------------------------------------------------------------------------------- Options granted: Exercise price equaled grant date stock price $7.92 $19.30 $7.41 $18.86 $5.95 $14.31 Exercise price exceeded grant date stock price 6.51 23.46 5.92 20.74 4.81 18.67 - --------------------------------------------------------------------------------------------------------------------------
STOCK OPTIONS OUTSTANDING AT DECEMBER 31, 1997 (shares in thousands)
WEIGHTED- OPTIONS AVERAGE WEIGHTED- OUTSTANDING WEIGHTED- REMAINING EXERCISABLE AVERAGE RANGE OF AT AVERAGE CONTRACTUAL AT EXERCISE EXERCISE DECEMBER 31, EXERCISE LIFE DECEMBER 31, PRICE OF PRICES 1997 PRICE IN YEARS 1997 EXERCISABLE - ------------------------------------------------------------------------------------------- $.0002 - 4.99 11,797 $ 0.73 2.2 11,797 $ 0.73 5 - 9.99 5,572 7.04 6.5 4,219 7.06 10 - 14.99 7,606 13.35 7.2 6,299 13.27 15 - 19.99 27,645 17.83 7.8 17,115 17.38 20 - 29.99 6,980 25.39 5.1 5,028 26.60 30 - 36.53 809 36.45 2.4 809 36.45 - ------------------------------------------------------------------------------------------- TOTAL 60,409 45,267 - -------------------------------------------------------------------------------------------
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1997, 1996, and 1995, respectively: risk-free interest rates of 6.4%, 6.1%, and 7.2%; expected dividend yields of 1.0%, 1.1%, and 1.4%; expected volatility of 30%, 30%, and 31%; and expected lives of 7.3 years, 7.4 years, and 7.3 years. The Corporation accounts for its stock-based compensation plans under APB 25. For stock options granted, the option price is not less than the market value of shares on the grant date; therefore, no compensation cost has been recognized for stock options granted. Had compensation cost for these plans been determined under the provisions of SFAS 123, the Corporation's net income and earnings per share would have been reduced to the following pro forma amounts: CBS CORPORATION 46 47 RESULTS OF OPERATIONS
1997 1996 1995 ----------------- ----------------- ----------------- AS PRO AS PRO AS PRO YEAR ENDED DECEMBER 31, REPORTED FORMA REPORTED FORMA REPORTED FORMA - ------------------------------------------------------------------------------------------------------------------------- Net income (loss) (in millions) $549 $487 $95 $57 $(10) $(29) Basic and diluted earnings (loss) per common share .84 .74 .12 .02 (.25) (.30) - -------------------------------------------------------------------------------------------------------------------------
NOTE 17: RESTRUCTURING In recent years, the Corporation has restructured its corporate headquarters and certain aspects of its businesses in an effort to reduce its cost structure and remain competitive in its markets. Restructuring activities primarily involve the separation of employees, the termination of leases, and similar actions. Costs for restructuring activities are limited to incremental costs that directly result from the restructuring activities and provide no future benefit to the Corporation. Restructuring costs, totaling $15 million in 1997, $57 million in 1996, and $25 million in 1995, are included in marketing, administration, and general expenses. Except for costs totaling $32 million in 1996, these costs essentially were for the separation of employees. The 1996 plan also included asset write-downs of $15 million and lease termination and other facility closure costs of $17 million. Generally, separated employees receive benefits under certain plans, including layoff income benefits, permanent job separation benefits, retraining, and/or outplacement assistance. The amount included for these benefits in the restructuring charge represents the incremental cost of such benefits over those amounts previously accrued under SFAS No. 112, "Employers' Accounting for Postemployment Benefits." The 1997 plan involves the separation of 118 employees at the former Pittsburgh headquarters related to the transfer of the Corporation's overhead functions to New York. Implementation of the plan began in January 1998 and generally is expected to be completed in early 1999. Of the employee separations in the 1996 and 1995 plans, the majority were completed at December 31, 1997. Employee separation costs generally are paid over a period of up to two years following the separation. In connection with the acquisition of CBS Inc., the Corporation developed a restructuring plan to integrate the operations of CBS Inc. with those of the Corporation and eliminate duplicate facilities and functions. The cost of this plan, which approximated $100 million, was recorded in connection with the purchase. In addition, the costs for integration activities for the acquiring company are included in the 1996 costs described previously. The following is a reconciliation of the restructuring liability for Continuing Operations: RECONCILIATION OF RESTRUCTURING LIABILITY (in millions) - ------------------------------------------------------------- Balance at January 1, 1995 $ 11 Provision for restructuring 25 CBS Inc. acquisition plan 100 Cash expenditures (19) - ------------------------------------------------------------- Balance at December 31, 1995 117 Provision for restructuring 57 Cash expenditures (50) Noncash charges (7) - ------------------------------------------------------------- Balance at December 31, 1996 117 Provision for restructuring 15 Cash expenditures (83) Noncash charges (8) - ------------------------------------------------------------- Balance at December 31, 1997 $ 41 - -------------------------------------------------------------
NOTE 18: OTHER INCOME (EXPENSE), NET OTHER INCOME (EXPENSE), NET (in millions)
YEAR ENDED DECEMBER 31, 1997 1996 1995 - ---------------------------------------------------------- Interest income $11 $33 $ 13 Gain on disposition of assets 39 13 121 Operating results--non- consolidated affiliates 9 10 15 Other 19 (1) 3 - ---------------------------------------------------------- Other income (expense), net $78 $55 $152 - ----------------------------------------------------------
The gain on disposition of assets includes gains of $24 million in 1997 and $12 million in 1996 from sales of equity investments. The gain on disposition of other assets for 1995 includes a gain of $115 million from the sale of the Corporation's 62% interest in MICROS Systems, Inc. CBS CORPORATION 47 48 NOTE 19: SEGMENT INFORMATION The Corporation's continuing businesses operate primarily in the United States in the principal business areas of radio and television broadcasting and broadcast and cable network programming and distribution. The Corporation's Continuing Operations are aligned into the following four segments: Radio, Television, Network, and Cable. The Radio and Television Groups own and operate 76 radio stations and 14 television broadcasting stations. The pending acquisition of American Radio, which is expected to close in the second quarter of 1998, will add approximately 100 radio stations, subject to any required divestitures. In addition, the Radio Group participates in the outdoor advertising business through its subsidiary, TDI Worldwide, Inc. The Corporation operates the CBS Television Network, which provides entertainment, sports, and news programming for approximately 200 affiliates throughout the country. The Corporation also provides programming, distribution, and network services primarily to the cable television industry. The Cable Group owns two country music entertainment networks, TNN and CMT, which were acquired in 1997; a 24-hour, Spanish-language news service, TeleNoticias; a new cable channel, Eye on People; and two regional sports networks. The Corporation's Discontinued Operations generally consist of the industrial businesses which have been divested or are expected to be divested in 1998. WELCO, the largest component of Discontinued Operations, consists of Power Generation, Energy Systems, and Government Operations. Certain segment data for Discontinued Operations are provided in note 7 to the financial statements. REVENUES AND OPERATING PROFIT (LOSS) BY SEGMENT (in millions)
REVENUES OPERATING PROFIT (LOSS) ------------------------ ------------------------ YEAR ENDED DECEMBER 31, 1997 1996 1995 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------- Radio $1,475 $ 554 $ 216 $ 390 $ 161 $ 55 Television 836 809 405 325 295 149 Network 2,816 2,617 252 (107) (9) (18) Cable 302 191 143 10 40 40 Corporate and other (66) (28) 58 (226) (319) (29) Residual costs of discontinued businesses -- -- -- (143) (114) (37) - ---------------------------------------------------------------------------------------------------------------------- Total $5,363 $4,143 $1,074 $ 249 $ 54 $ 160 - ----------------------------------------------------------------------------------------------------------------------
Corporate and other consists of: (i) corporate overhead costs, (ii) amortization of goodwill arising from the November 1995 acquisition of CBS Inc., which approximates $120 million per year, and (iii) special charges relating to restructuring and other matters, which totaled $15 million in 1997, $85 million in 1996, and $25 million in 1995. Residual costs of discontinued businesses primarily represent pension and postretirement benefit costs associated with inactive and retired employees of previously divested businesses. OTHER SEGMENT FINANCIAL INFORMATION (in millions)
DEPRECIATION AND IDENTIFIABLE ASSETS AMORTIZATION CAPITAL EXPENDITURES AT OR FOR THE YEAR ENDED --------------------------- ----------------------- ----------------------- DECEMBER 31, 1997 1996 1995 1997 1996 1995 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------- Radio $ 6,258 $ 6,397 $ 903 $176 $ 36 $ 16 $ 15 $ 6 $ 9 Television 1,216 1,204 1,235 46 45 18 33 27 11 Network 1,694 1,434 1,383 64 63 5 51 34 1 Cable 1,958 156 118 35 8 6 17 9 9 Corporate and other 5,377 6,215 6,752 124 127 12 5 17 2 - --------------------------------------------------------------------------------------------------------------------------- Total $16,503 $15,406 $10,391 $445 $279 $57 $121 $93 $32 - ---------------------------------------------------------------------------------------------------------------------------
Corporate and other assets in the preceding table are not identifiable to operating segments and principally include cash and cash equivalents, deferred income taxes, property and equipment associated with corporate headquarters, goodwill arising from the acquisition of CBS Inc., and certain noncurrent receivables. The increase in identifiable assets reflects the acquisitions of TNN and CMT in 1997 and Infinity in 1996. CBS CORPORATION 48 49 NOTE 20: FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value of financial instruments is determined by the Corporation using the best available market information and appropriate valuation methodologies. However, considerable judgment is necessary in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented are not necessarily indicative of the amounts that the Corporation could realize in a current market exchange or the value that ultimately will be realized by the Corporation upon maturity or disposition. Additionally, because of the variety of valuation techniques permitted under SFAS No. 107, "Disclosures about Fair Values of Financial Instruments," comparability of fair values among entities may not be meaningful. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value amounts. FAIR VALUE OF FINANCIAL INSTRUMENTS (in millions)
1997 1996 -------------------------------- -------------------------------- ESTIMATED ESTIMATED CARRYING FAIR CONTRACT CARRYING FAIR CONTRACT AT DECEMBER 31, AMOUNT VALUE AMOUNT AMOUNT VALUE AMOUNT - --------------------------------------------------------------------------------------------------------------------------------- ASSETS: Cash and cash equivalents $ 8 $ 8 $ -- $ 129 $ 129 $ -- Investments in marketable securities 36 36 -- 48 47 -- Noncurrent customer and other receivables 145 145 -- 91 91 -- LIABILITIES: Short-term debt 89 89 -- 484 484 -- Current maturities of long-term debt 62 62 -- 4 4 -- Long-term debt 3,236 3,305 -- 5,147 5,145 -- OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS: Interest rate swap agreements: Unrealized losses -- (5) -- -- (7) -- Foreign currency exchange contracts: Unrealized losses -- (1) -- -- (1) -- Letters of credit -- -- 133 -- -- 131 - ---------------------------------------------------------------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair value of financial instruments for which it was practicable to estimate that value. Cash and Cash Equivalents The carrying amount for cash and cash equivalents approximates fair value. Investments in Marketable Securities The fair value of investments in marketable securities is based on quoted market prices. Noncurrent Customer and Other Receivables The fair value of noncurrent customer and other receivables is estimated by discounting the expected future cash flows at interest rates commensurate with the creditworthiness of the customer or other third party. Short-Term Debt The carrying amount of the Corporation's borrowings under credit facilities and other arrangements approximates fair value. Long-Term Debt The fair value of long-term debt is estimated using quoted market prices or discounted cash flow methods based on the Corporation's current borrowing rates for similar types of borrowing arrangements with comparable terms and maturities. Interest Rate and Foreign Currency Exchange Contracts The fair value of interest rate and foreign exchange contracts is based on quoted market prices to terminate the contracts. CBS CORPORATION 49 50 QUARTERLY FINANCIAL INFORMATION (unaudited, in millions except per-share amounts)
1997 QUARTER ENDED 1996 QUARTER ENDED ----------------------------------------------- ----------------------------------------------- DEC. 31 SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31 - --------------------------------------------------------------------------------------------------------------------------------- Revenues $1,471 $1,283 $1,283 $1,326 $1,016 $910 $1,100 $1,117 Gross margin 539 511 506 324 286 328 453 290 Depreciation and amortization (128) (107) (105) (105) (69) (68) (75) (67) Residual costs of discontinued businesses (37) (35) (36) (35) (30) (30) (30) (24) Marketing, administration, and general expenses (278) (266) (261) (238) (238) (190) (211) (271) Operating profit (loss) 96 103 104 (54) (51) 40 137 (72) Other income (expense), net 17 4 16 41 20 22 7 6 Income (loss) from Continuing Operations (10) (19) (11) (91) (63) (26) 19 (151) Income (loss) from Discontinued Operations(a) 871 (143) 12 (60) 29 28 (108) 460 Extraordinary item -- -- -- -- -- (30) -- (63) Net income (loss) 861 (162) 1 (151) (34) (28) (89) 246 - --------------------------------------------------------------------------------------------------------------------------------- Basic and diluted earnings (loss) per common share: Continuing Operations (.01) (.03) (.04) (.18) (.18) (.09) .02 (.41) Discontinued Operations 1.25 (.23) .02 (.10) .07 .07 (.27) 1.16 Extraordinary item -- -- -- -- -- (.08) -- (.16) Basic and diluted earnings (loss) per common share 1.24 (.26) (.02) (.28) (.11) (.10) (.25) .59 - --------------------------------------------------------------------------------------------------------------------------------- Dividends per common share .05 .05 .05 .05 .05 .05 .05 .05 New York Stock Exchange market price per share: High 32 1/16 27 15/16 23 13/16 20 3/8 21 1/8 19 20 1/8 21 Low 23 3/8 22 3/4 16 16 3/4 17 15 3/8 17 3/8 16 5/8 - ---------------------------------------------------------------------------------------------------------------------------------
(a) Includes net gains of $871 million in the fourth quarter of 1997 and $1,018 million in the first quarter of 1996 from disposals of business segments. CBS CORPORATION 50 51 FIVE-YEAR SUMMARY OF SELECTED FINANCIAL AND STATISTICAL DATA (unaudited, dollars in millions except per-share amounts)
1997 1996 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------------------- Revenues $ 5,363 $ 4,143 $ 1,074 $ 744 $ 684 Operating profit 249 54 160 151 46 Other income (expense), net 78 55 152 (131) 35 Interest expense (386) (401) (184) (26) (55) Income (loss) from Continuing Operations before income taxes and minority interest (59) (292) 128 (6) 26 Income tax (expense) benefit (73) 71 (75) 1 43 Income (loss) from Continuing Operations (131) (221) 47 (10) 63 Income (loss) from Discontinued Operations 680 409 (57) 58 (388) Extraordinary item -- (93) -- -- -- Cumulative effect of change in accounting principle -- -- -- -- (4) Net income (loss) 549 95 (10) 48 (329) - --------------------------------------------------------------------------------------------------------------------------------- Basic and diluted earnings (loss) per common share: Continuing Operations $ (.24) $ (.67) $ (.09) $ (.27) $ .04 Discontinued Operations 1.08 1.02 (.16) .16 (1.11) Extraordinary item -- (.23) -- -- -- Cumulative effect of change in accounting principle -- -- -- -- (.01) Basic and diluted earnings (loss) per common share .84 .12 (.25) (.11) (1.08) Dividends per common share .20 .20 .20 .20 .40 - --------------------------------------------------------------------------------------------------------------------------------- Total assets: Continuing Operations $16,503 $15,406 $10,391 $ 2,524 $ 4,051 Discontinued Operations 4,101 5,710 8,157 9,273 10,458 Total assets 20,604 21,116 18,548 11,797 14,509 Long-term debt: Continuing Operations 3,236 5,147 7,222 1,865 1,868 Discontinued Operations 440 419 161 589 664 Total debt: Continuing Operations 3,387 5,635 7,840 2,471 2,467 Discontinued Operations 543 439 528 1,266 3,883 Shareholders' equity 8,080 5,731 1,453 1,789 1,078 - --------------------------------------------------------------------------------------------------------------------------------- Average common and common equivalent shares outstanding (if dilutive) 629,205,801 400,512,154 369,612,697 354,580,674 349,425,391 Market price range per share $32 1/16--16 $21 1/8--15 3/8 $17 7/8--12 1/8 $15 1/4--10 7/8 $17 1/8--12 3/4 Market price at year end 29 7/16 19 7/8 16 3/8 12 1/4 14 1/8 Common shareholders at year end 122,548 127,802 125,962 125,376 125,806 Average number of employees: Continuing Operations 13,581 9,353 3,819 2,588 2,872 Discontinued Operations 37,863 49,922 73,994 81,811 100,191 - ---------------------------------------------------------------------------------------------------------------------------------
Previously reported financial information has been restated to reflect the reclassification of certain businesses as Discontinued Operations. CBS CORPORATION 51 52 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Part of the information concerning executive officers required by this item is set forth in Part I pursuant to General Instruction G to Form 10-K and part is incorporated herein by reference to "Security Ownership" in the Proxy Statement. The information as to directors is incorporated herein by reference to "Election of Directors" in the Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION. The information required by this item is incorporated herein by reference to "Director Compensation" and "Executive Compensation" in the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item is incorporated herein by reference to "Security Ownership" in the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this item is incorporated herein by reference to "Transactions Involving Directors and Executive Officers" in the Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (A)(1) FINANCIAL STATEMENTS The financial statements required by this item are listed under Part II, Item 8, which list is incorporated herein by reference. (A)(2) FINANCIAL STATEMENT SCHEDULES The following financial statement schedule for CBS Corporation and the Reports of Independent Auditors and Accountants thereon are included in Part IV of this report:
PAGES ----- Reports of Independent Auditors and Accountants on Financial Statement Schedule 55-56 For the three years ended December 31, 1997: Schedule II--Valuation and Qualifying Accounts 57
Other schedules are omitted because they are not applicable or because the required information is included in the financial statements or notes thereto. (A)(3) EXHIBITS (3) Articles of Incorporation and Bylaws (a) Amendment to the Articles of Incorporation. (b) The Restated Articles of the Corporation, as amended to December 11, 1997. (c) The Bylaws of the Corporation, as amended to December 1, 1997. (4) Rights of Security Holders (a) There are no instruments with respect to long-term debt of the Corporation that involve securities authorized thereunder exceeding 10% of the total assets of the Corporation and its subsidiaries on a consolidated basis. The Corporation agrees to provide to the Securities and Exchange Commission, upon request, a copy of instruments defining the rights of holders of long-term debt of the Corporation and its subsidiaries. (b) Rights Agreement is incorporated herein by reference to Exhibit 1 to Form 8-A filed with the Securities and Exchange Commission on January 9, 1996.
CBS CORPORATION 52 53 (10) Material Contracts (a*) The Annual Performance Plan, as amended to November 1, 1996, is incorporated herein by reference to Exhibit 10(a) to Form 10-Q for the quarter ended September 30, 1996. (b*) The 1993 Long-Term Incentive Plan, as amended to January 28, 1998. (c*) The 1984 Long-Term Incentive Plan, as amended to November 1, 1996, is incorporated herein by reference to Exhibit 10(c) to Form 10-Q for the quarter ended September 30, 1996. (d*) The Westinghouse Executive Pension Plan, as amended to December 1, 1997. (e*) The Deferred Compensation and Stock Plan for Directors, as amended to January 1, 1998. (f*) The Director's Charitable Giving Program, as amended to April 30, 1996, is incorporated herein by reference to Exhibit 10(g) to Form 10-Q for the quarter ended June 30, 1996. (g*) The 1991 Long-Term Incentive Plan, as amended to January 28, 1998. (h*) Advisory Director's Plan Termination Fee Deferral Terms and Conditions, dated April 30, 1996, is incorporated herein by reference to Exhibit 10(i) to Form 10-Q for the quarter ended June 30, 1996. (i*) Employment Agreement between the Corporation and Michael H. Jordan is hereby incorporated by reference to Exhibit 10 to the Corporation's Form 8-K, dated September 1, 1993. (j*) Employment Agreement between the Corporation and Fredric G. Reynolds is incorporated herein by reference to Exhibit 10(j) to Form 10-K for the year ended December 31, 1994. (k) $5.5 billion Credit Agreement among the Corporation, the Lenders parties thereto, Nationsbank, N.A. and The Toronto-Dominion Bank as Syndication Agents, The Chase Manhattan Bank as Documentation Agent, and Morgan Guaranty Trust Company of New York as Administrative Agent, dated August 29, 1996, is incorporated herein by reference to Exhibit 10(l) to Form 10-Q for the quarter ended September 30, 1996. (l*) CBS Supplemental Executive Retirement Plan, as amended to November 15, 1995, is incorporated herein by reference to Exhibit 10(n) to Form 10-K for the year ended December 31, 1996. (m*) CBS Bonus Supplemental Executive Retirement Plan, as amended to November 15, 1995, is incorporated herein by reference to Exhibit 10(o) to Form 10-K for the year ended December 31, 1996. (n) First Amendment, dated as of January 29, 1997 to the Credit Agreement, dated as of August 29, 1996, among the Corporation, the Lenders parties thereto, Nationsbank, N.A. and The Toronto-Dominion Bank as Syndication Agents, The Chase Manhattan Bank as Documentation Agent, and Morgan Guaranty Trust Company of New York as Administrative Agent, is hereby incorporated by reference to Exhibit 10(p) to Form 10-Q for the quarter ended March 31, 1997. (o) Second Amendment, dated as of March 21, 1997, to the Credit Agreement, dated as of August 29, 1996, as amended by the First Amendment thereto dated as of January 29, 1997, among the Corporation, the Subsidiary Borrowers parties thereto, the Lenders parties thereto, Nationsbank, N.A. and The Toronto-Dominion Bank as Syndication Agents, The Chase Manhattan Bank as Documentation Agent, and Morgan Guaranty Trust Company of New York as Administrative Agent, is hereby incorporated by reference to Exhibit 10(q) to Form 10-Q for the quarter ended March 31, 1997. (p) Amended and Restated Agreement and Plan of Merger, dated as of December 18, 1997, by and among American Radio Systems Corporation, the Corporation, and R Acquisition Corp, is incorporated herein by reference to the Corporation's Form 8-K dated January 7, 1998. (q) First Amendment, dated December 19, 1997, to the Amended and Restated Agreement and Plan of Merger, dated as of December 18, 1997, by and among American Radio Systems Corporation, the Corporation, and R Acquisition Corp, is incorporated herein by reference to the Corporation's Form 8-K dated January 7, 1998. (r*) Employment Agreement between the Corporation and Mel Karmazin, made as of June 20, 1996 and effective as of December 31, 1996, is hereby incorporated by reference to Exhibit 10(s) to Form 10-Q for the quarter ended March 31, 1997. (s*) Amended and restated Infinity Broadcasting Corporation Stock Option Plan is incorporated herein by reference to Exhibit 4.4 to the Corporation's Registration Statement No. 333-13219 on Post-Effective Amendment No. 1 on Form S-8 to Form S-4 filed with the Securities and Exchange Commission on January 2, 1997.
CBS CORPORATION 53 54 (t*) The WCK Acquisition Corp. Stock Option Plan is incorporated herein by reference to Exhibit 4.5 to the Corporation's Registration Statement No. 333-13219 on Post-Effective Amendment No. 1 on Form S-8 to Form S-4 filed with the Securities and Exchange Commission on January 2, 1997. (u*) Infinity Broadcasting Corporation Warrant Certificate No. 3 to Mel Karmazin is incorporated herein by reference to Exhibit 4.6 to the Corporation's Registration Statement No. 333-13219 on Post-Effective Amendment No. 1 on Form S-8 to Form S-4 filed with the Securities and Exchange Commission on January 2, 1997. (v*) Employment Agreement between a subsidiary of the Corporation, CBS Broadcasting, Inc. (formerly CBS Inc.) and Leslie Moonves entered into as of May 17, 1995 and amended as of January 20, 1998. (w) Asset Purchase Agreement between the Corporation and Siemens Power Generation Corporation, a subsidiary of Siemens A.G., dated as of November 14, 1997. (x*) Employment Agreement between CBS Broadcasting, Inc. (formerly CBS Inc.) and Peter Lund, dated as of November 28, 1995, is hereby incorporated by reference to Exhibit 10(l) to Form 10-Q for the quarter ended March 31, 1996. (12) (a) Computation of Ratio of Earnings to Fixed Charges (12) (b) Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends (21) Subsidiaries of the Registrant (23) (a) Consent of Independent Auditors (23) (b) Consent of Independent Accountants (24) Power of Attorney and Extract of Resolutions of Board of Directors (27) Financial Data Schedule
* Identifies management contract or compensatory plan or arrangement. (B) REPORTS ON FORM 8-K A Current Report on Form 8-K (Items 5 and 7) filed October 2, 1997 regarding a press release announcing the completion of the merger of a CBS subsidiary with Gaylord Entertainment Company. A Current Report on Form 8-K (Items 5 and 7) filed October 10, 1997 regarding a press release announcing the receipt of a favorable tax ruling for the separation of the Corporation's industrial businesses and discussing certain of the Corporation's operating industrial businesses. A Current Report on Form 8-K (Items 5 and 7) filed November 7, 1997 regarding a press release announcing the sale of Thermo King. A Current Report on Form 8-K (Items 5 and 7) filed November 14, 1997 regarding third quarter 1997 earnings. A Current Report on Form 8-K (Items 5 and 7) filed November 14, 1997 regarding a press release announcing the sale of the Corporation's Power Generation business unit and a modification to the Corporation's previously announced separation plan. A Current Report on Form 8-K (Items 5) filed December 1, 1997 regarding the name change of the Corporation, effective December 1, 1997. A Current Report on Form 8-K (Items 5 and 7) filed December 8, 1997 regarding a press release announcing the election of two new directors, effective at a future date. A Current Report on Form 8-K (Items 5 and 7) filed December 11, 1997 regarding restated financial results. CBS CORPORATION 54 55 REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF CBS CORPORATION Under date of January 28, 1998, we reported on the consolidated balance sheets of CBS Corporation and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, cash flows, and shareholders' equity, for the years then ended, which are included in the 1997 Annual Report on Form 10-K. In connection with our audits of the aforementioned consolidated financial statements, we have also audited the related December 31, 1997 and 1996 financial statement schedule included in the 1997 Annual Report on Form 10-K. The financial statement schedule is the responsibility of the Corporation's management. Our responsibility is to express an opinion on the financial statement schedule based on our audits. In our opinion, the December 31, 1997 and 1996 financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG PEAT MARWICK LLP KPMG Peat Marwick LLP Pittsburgh, Pennsylvania January 28, 1998 CBS CORPORATION 55 56 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF CBS CORPORATION Our audit of the consolidated financial statements referred to in our report dated February 12, 1996 except for the restatements discussed in notes 1 and 7, for which the dates are March 31, 1996, November 13, 1996, and September 30, 1997, appearing on page 25 of this Form 10-K of CBS Corporation (which report and consolidated financial statements are included in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ Price Waterhouse LLP Price Waterhouse LLP Pittsburgh, Pennsylvania February 12, 1996, except for the restatements discussed in notes 1 and 7, for which the dates are March 31, 1996, November 13, 1996, and September 30, 1997. CBS CORPORATION 56 57 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
AT DECEMBER 31, ------------------------------ (in millions) 1997 1996 1995 - -------------------------------------------------------------------------------------------- CUSTOMER RECEIVABLES FROM CONTINUING OPERATIONS--ALLOWANCE FOR DOUBTFUL ACCOUNTS: Balance at beginning of year $ 27 $ 20 $ 6 Charged to costs and expenses 12 8 2 Increase resulting from business acquisitions 7 7 13 Write-offs, net of recoveries (11) (8) (1) - -------------------------------------------------------------------------------------------- Balance at end of year $ 35 $ 27 $ 20 - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- DEFERRED INCOME TAXES--VALUATION ALLOWANCE: Balance at beginning of year $ 52 $ 98 $101 Charged to costs and expenses 85(a) 3 -- Decrease resulting from business divestitures -- (49) (3) - -------------------------------------------------------------------------------------------- Balance at end of year $137 $ 52 $ 98 - --------------------------------------------------------------------------------------------
(a) Relates to foreign tax credit carryforwards not expected to be realized. CBS CORPORATION 57 58 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 24th day of March, 1998. CBS CORPORATION By: /s/ CAROL V. SAVAGE ----------------------------------- Carol V. Savage Vice President and Chief Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. SIGNATURE AND TITLE Frank C. Carlucci, Director Robert E. Cawthorn, Director George H. Conrades, Director Martin C. Dickinson, Director William H. Gray III, Director Michael H. Jordan, Chairman and Chief Executive Officer (principal executive officer) and Director Mel Karmazin, Chairman and Chief Executive Officer, CBS Station Group, and Director Jan Leschly, Director Dr. David K.P. Li, Director David T. McLaughlin, Director Richard R. Pivirotto, Director Fredric G. Reynolds, Executive Vice President and Chief Financial Officer (principal financial officer) Carol V. Savage, Vice President and Chief Accounting Officer (principal accounting officer) Raymond W. Smith, Director Dr. Paula Stern, Director Robert D. Walter, Director By: /s/ CAROL V. SAVAGE ---------------------------------- Carol V. Savage Attorney-In-Fact March 24, 1998 Original powers of attorney authorizing Carol V. Savage and certain others, individually, to sign this report on behalf of the listed directors and officers of the Corporation and a certified copy of resolutions of the Board of Directors of the Corporation authorizing Carol V. Savage and certain others to sign on behalf of the Corporation have been filed with the Securities and Exchange Commission and are included as Exhibit 24 to this report. CBS CORPORATION 58
EX-3.A 2 CBS CORPORATION 1 EXHIBIT 3(a) EXHIBIT A RESOLVED, that Article FIRST of the Restated Articles of Incorporation of the Company is hereby amended and restated in its entirety to read as follows: The name of the corporation (hereinafter called the "Company") is CBS Corporation. EX-3.B 3 CBS CORPORATION 1 EXHIBIT 3(b) CBS CORPORATION RESTATED ARTICLES OF INCORPORATION (As amended through December 11, 1997) FIRST: The name of the corporation (hereinafter called the "Company") is CBS CORPORATION. SECOND: The location and post office address of the current registered office of the Company in the Commonwealth of Pennsylvania is Westinghouse Building, Gateway Center, Pittsburgh, Allegheny County, Pennsylvania 15222. THIRD: The Company is subject to the Act of the General Assembly of the Commonwealth of Pennsylvania, known as the "Business Corporation Law," approved May 5, 1933, and any act amendatory thereof, supplementary thereto or substituted therefor, and the purposes for which the Company is organized are: (1) To develop, build, manufacture, process and otherwise produce, to purchase, lease, exchange and otherwise acquire, and to hold, own, use, operate, repair, sell, lease, assign, distribute and otherwise deal in and dispose of structures, machinery, equipment, apparatus, appliances, devices, products, materials, articles, processes and systems for any application or purpose, whether for use for industrial, utility, transportation, broadcasting, communication, home, defense, consumer or other purposes or applications, or combinations thereof, whatsoever, including but not limited to the following: for the generation, conversion, transmission, utilization, storage -1- 2 and control of any form of energy whatsoever (including but not limited to electrical, mechanical, chemical, atomic, nuclear, steam, thermal, mineral, gas, water and solar); for the handling, conditioning, heating, cooling, treatment, application or use of air and other gases, liquids and solids; for aerial, nautical, terrestrial, spatial or celestial operations, applications or navigation; for radio, television and all other forms of transmission, reception or communication; and for incorporation into or use in, on or about any establishment, building or structure of any kind or nature whatsoever; and any and all related engines, turbines, motors, parts, tools, accessories and improvements thereof and supplies or materials pertaining or incidental to any of the above structures, machinery, equipment, apparatus, appliances, devices, products, materials, articles, processes and systems, of any kind or nature whatsoever. (2) To develop, build, manufacture, process and otherwise produce, to purchase, lease, exchange and otherwise acquire, and to hold, own, use, operate, repair, sell, lease, assign, distribute and otherwise deal in and dispose of structures, machinery, equipment, apparatus, appliances, devices, products, materials, articles, processes, systems, goods, wares and merchandise of every kind, nature and description, and to engage in any industrial, manufacturing, mining, mercantile, broadcasting, trading or other lawful business of any kind or character whatsoever. (3) To conduct and carry on research work in, and to engage in any activity pertaining or incidental to, any scientific, technical or other field or fields, and to render services of a scientific, technical or other nature to any person, association, firm, corporation, country, state, municipality or other governmental division or subdivision. (4) To purchase, lease, exchange and otherwise acquire all, or any part of, or any interest in, the properties, assets, business and goodwill of any one or more persons, associations, firms or corporations; to pay for the same in cash, property or its -2- 3 own or other securities; to hold, own, use, operate, reorganize and otherwise manage such properties, assets, business and goodwill; to sell, lease, assign, distribute, liquidate and otherwise deal in and dispose of the whole or any part thereof; and in connection therewith, to assume or guarantee performance of any liabilities, obligations or contracts of such persons, associations, firms or corporations. (5) To develop, apply for, register, take licenses in respect of, purchase, lease, exchange and otherwise acquire, and to hold, own, use, operate, sell, lease, assign, grant licenses in respect of, manufacture under, exercise and otherwise deal in and dispose of any and all inventions, devices, formulae, technical or business information, including trade secrets, know-how, processes, improvements and modifications thereof, letters patent and all rights connected therewith or appertaining thereto, copyrights, trademarks, trade names, trade symbols and other indications of origin and ownership, franchises, licenses, concessions or other rights granted by or recognized under the laws of any country, state, municipality or other governmental division or subdivision. (6) To purchase, exchange and otherwise acquire, and to hold, own, sell, assign, transfer, reissue, cancel and otherwise deal in and dispose of its own shares and securities, to such extent and in such manner and upon such terms as it may determine; provided that the Company shall not use its funds or property for the purchase of its own shares when such purchase shall be prohibited by law; and provided that shares of its capital stock which belong to the Company shall not be voted directly or indirectly. (7) To enter into, make, perform and carry out contracts and agreements of every kind and description which may be necessary, appropriate, convenient or advisable in carrying out the purposes of the Company, with any person, association, firm, corporation, country, state, municipality or other governmental division or subdivision. -3- 4 (8) To carry out any of or all the foregoing purposes as principal or agent and alone or with associates; and to execute from time to time such general or special powers of attorney to such person or persons as it may determine, granting to such person or persons such powers as it may deem proper, and to revoke such powers of attorney as and when it may desire; and to conduct its business in any and all of its branches at one or more offices in the Commonwealth of Pennsylvania and elsewhere. (9) To do everything necessary, suitable, convenient or proper for, or in connection with, or incident to, the accomplishment of any of the purposes herein enumerated, or which shall at any time appear conducive to or expedient for the accomplishment of any of such purposes, not inconsistent with the laws of the Commonwealth of Pennsylvania. Except as otherwise expressly provided in this Article THIRD, none of the purposes set forth above in this Article THIRD shall be in any way limited or restricted by reference to, or inference from, any other of the purposes therein set forth, and each of said purposes shall be regarded as a separate and independent purpose. The purposes set forth above shall be construed as powers as well as purposes; but the enumeration herein of certain powers is not intended to be exclusive of, or a waiver of, but shall be in addition to, the powers, rights or privileges granted or conferred by said "Business Corporation Law" and any other laws of the Commonwealth of Pennsylvania applicable to the Company that may now or hereafter be in force. Without limiting the generality of the foregoing, the Company shall have and may exercise the general powers which are now or may hereafter be enumerated in Section 302 of said "Business Corporation Law," or any act amendatory thereof, supplemental thereto or substituted therefor, to the same extent as if such powers were set forth in full herein. -4- 5 Except as otherwise provided by law or these Restated Articles of Incorporation or the By-laws, the powers of the Company shall be exercised by its Board of Directors. Nothing herein contained shall authorize or be construed as intended to authorize the Company to carry on any business or exercise any powers in any commonwealth, state, territory, or country which a business corporation organized under the laws of such commonwealth, state, territory or country could not carry on or exercise, except to the extent permitted or authorized by the laws of such commonwealth, state, territory or country; and notwithstanding any provision herein, the Company shall not be deemed to have the power to carry on or exercise within the Commonwealth of Pennsylvania any business whatsoever the carrying on or exercising of which would prevent the Company from being classified as a business corporation under said "Business Corporation Law," or any act amendatory thereof, supplemental thereto or substituted therefor. FOURTH: The term of existence of Company shall be perpetual. FIFTH: A. The total number of shares of all classes of stock which the Company shall have authority to issue is 1,125,000,000 consisting of: (1) 25,000,000 shares of Preferred Stock, par value $1.00 per share ("Preferred Stock"), and (2) 1,100,000,000 shares of Common Stock, par value $1.00 per share ("Common Stock"). B. The Board of Directors is hereby expressly authorized to provide, out of the unissued shares of Preferred Stock, for series of Preferred Stock. Before any share of any such series is issued, the Board shall fix, and hereby is expressly empowered to fix, the following provisions of the shares thereof: -5- 6 (1) the terms of such series, the number of shares to constitute such series and the stated value thereof if different from the par value thereof; (2) whether the shares of such series shall have voting rights in addition to any voting rights provided by law and, if so, the terms of such voting rights, which may be general or limited; (3) the dividends, if any, payable on such series, whether any such dividends shall be cumulative and, if so, from what dates, the conditions and dates upon which such dividends shall be payable, the preference or relation which such dividends shall bear to the dividends payable on any shares of stock of any other class or any other series of Preferred Stock; (4) whether the shares of such series shall be subject to redemption at the election of the Company or the holders of such series and, if so, the times, prices and other conditions of such redemption; (5) the amount or amounts payable upon shares of such series upon, and the rights of the holders of such series in the event of, voluntary or involuntary liquidation, dissolution or winding up, or upon any distribution of the assets of the Company; (6) whether the shares of such series shall be subject to the operation of a retirement or sinking fund and, if so, the extent to and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the shares of such series for retirement or other corporate purposes and the terms and provisions relative to the operation thereof; (7) whether the shares of such series shall be convertible into, or exchangeable for, shares of stock of any other class or any other series of Preferred Stock or any other securities and, if so, the price or prices or the rate or rates of conversion or exchange -6- 7 and the method, if any, of adjusting the same, and any other terms and conditions of conversion or exchange; (8) the limitations and restrictions, if any, to be effective while any shares of such series are outstanding upon the payment of dividends or the making of other distributions on, or upon the purchase, redemption or other acquisition by the Company of, the Common Stock or shares of stock of any other class or any other series of Preferred Stock; (9) the conditions or restrictions, if any, upon the creation of indebtedness of the Company or upon the issue of any additional stock, including additional shares of any other series of Preferred Stock or of any other class of stock; and (10) any other powers, preferences and relative, participating, optional and other special rights, and any qualifications, limitations and restrictions thereof. C. The powers, preferences and relative, participating, optional and other special rights of each series of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series of Preferred Stock at any time outstanding. All shares of any one series of Preferred Stock shall be identical in all respects with all other shares of such series, except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall be cumulative. D. Subject to the provisions of this Article FIFTH and actions taken by the Board of Directors pursuant to this Article FIFTH: (1) such dividends (whether in cash, stock or otherwise) as may be determined by the Board of Directors may be declared and paid on the Common Stock from time to time in accordance with the laws of the Commonwealth of Pennsylvania; and the holders -7- 8 of the Preferred Stock shall not be entitled to participate in any such dividends whether payable in cash, stock or otherwise; (2) voting power shall be exclusively vested in the Common Stock; (3) dividends upon shares of any class of the Company shall be payable only out of assets legally available for the payment of such dividends, and the rights of the holders of the Preferred Stock of all series and of the holders of the Common Stock in respect of dividends shall at all times be subject to the power of the Board of Directors, which is hereby expressly vested in said Board, from time to time to set aside such reserves and to make such other provisions, if any, as said Board shall deem to be necessary or advisable for working capital, for additions, improvements and betterments to plant and equipment, for expansion of the Company's business (including the acquisition of real and personal property for that purpose), for plans for maintaining employment at the plants of the Company and also for other plans for the benefit of employees generally, and for any other purposes of the Company whether or not similar to those herein mentioned; (4) holders of Preferred Stock and holders of Common Stock shall not have any preemptive, preferential or other right to subscribe for or purchase or acquire any shares of any class or any other securities of the Company, whether now or hereafter authorized, and whether or not convertible into, or evidencing or carrying the right to purchase, shares of any class or any other securities now or hereafter authorized, and whether the same shall be issued for cash, services or property, or by way of dividend or otherwise, other than such right, if any, as the Board of Directors in its discretion from time to time may determine. If the Board of Directors shall offer to the holders of the Preferred Stock or the holders of the Common Stock, or any of them, any such shares or other securities of the Company, such offer shall not in any way constitute a waiver or -8- 9 release of the right of the Board of Directors subsequently to dispose of other portions of said shares or securities without so offering the same to said holders; (5) the shares of Preferred Stock and the shares of Common Stock may be issued for such consideration and for such corporate purposes as the Board of Directors may from time to time determine; (6) subject to the provisions of the By-laws of the Company as from time to time amended, with respect to the closing of the transfer books or the fixing of a record date for the determination of shareholders entitled to vote, each holder of record of shares of any class of the Company shall be entitled to one vote, on each matter submitted to a vote at a meeting of shareholders and in respect of which shares of such class shall be entitled to be voted, for every share of such class standing in his name on the books of the Company; (7) in each election of directors no shareholder shall have any right to cumulate his votes and cast them for one candidate or distribute them among two or more candidates. E. 1. Designation and Amount. The shares of this series shall be designated as "Series A Participating Preferred Stock" (the "Series A Preferred Stock"). The par value of each share of Series A Preferred Stock shall be $1.00. The number of shares constituting the Series A Preferred Stock initially shall be 5,000,000; provided, however, that, if more than a total of 5,000,000 shares of Series A Preferred Stock shall be issuable upon the exercise of Rights (the "Rights") issued pursuant to the Rights Agreement, dated as of December 28, 1995, between the Company and First Chicago Trust Company of New York, as Rights Agent (as such agreement may be amended from time to time, the "Rights Agreement"), the Board of Directors of the Company, pursuant to Section 1914(c) and/or Section 1522(b) of -9- 10 the Pennsylvania Business Corporation Law of 1988, as amended (the "Pennsylvania BCL"), and in accordance with the provisions of Article FIFTH of the Restated Articles of Incorporation, shall adopt a resolution or resolutions increasing the previously determined total number of shares of Series A Preferred Stock authorized to be issued (to the extent that the Restated Articles of Incorporation then permit) to the largest number of whole shares (rounded up to the nearest whole number) issuable upon exercise of such Rights and directing that a statement or articles of amendment with respect to such increase in authorized shares for the Series A Preferred Stock be executed and filed with the Department of State of the Commonwealth of Pennsylvania. 2. Dividends and Distributions. (a) Subject to the provisions for adjustment hereinafter set forth, the holders of outstanding shares of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, (i) a cash dividend in an amount per share (rounded to the nearest cent) equal to 100 times the aggregate per share amount of each cash dividend declared or paid on the Common Stock, $1.00 par value per share, of the Company (the "Common Stock") and any other security ranking junior to the Series A Preferred Stock, and (ii) a preferential cash dividend (the "Preferential Dividends"), if any, in preference to the holders of Common Stock and any other security ranking junior to the Series A Preferred Stock, on the first day of March, June, September and December of each year (each a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, payable in an amount (except in the case of the first Quarterly Dividend Payment if the date of the first issuance of Series A Preferred Stock is a date other than a Quarterly Dividend Payment date, in which case such payment shall be a prorated amount of such amount) equal to $1.00 per share of Series A Preferred Stock less the per share amount of all cash dividends -10- 11 declared on the Series A Preferred Stock pursuant to clause (i) of this sentence since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In addition, in the event the Company shall, at any time after the issuance of any share or fraction of a share of Series A Preferred Stock, pay any dividend or make any distribution on the shares of Common Stock of the Company, whether by way of a dividend or a reclassification of stock, a recapitalization, reorganization or partial liquidation of the Company or otherwise, which is payable in cash or any debt security, debt instrument, real or personal property or any other property (other than (x) cash dividends subject to the immediately preceding sentence, (y) a distribution of shares of Common Stock or other capital stock of the Company or (z) a distribution of rights or warrants to acquire any such shares, including as such a right any debt security convertible into or exchangeable for any such shares, at a price less than the Fair Market Value (as hereinafter defined) of such shares on the date of issuance of such rights or warrants), then, and in each such event, the Company shall simultaneously pay on each then outstanding share of Series A Preferred Stock a distribution, in like kind, of 100 times such distribution paid on a share of Common Stock (subject to the provisions for adjustment hereinafter set forth). The dividends and distributions on the Series A Preferred Stock to which holders thereof are entitled pursuant to clause (i) of the first sentence of this paragraph and pursuant to the second sentence of this paragraph are hereinafter referred to as "Dividends" and the multiple of such cash and non-cash dividends and distributions on the Common Stock applicable to the determination of the Dividends, which shall be 100 initially but shall be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Dividend Multiple." In the event the Company shall at any time after January 9, 1996 declare or pay any dividend or make any distribution on Common Stock payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the -11- 12 outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the Dividend Multiple thereafter applicable to the determination of the amount of Dividends which holders of shares of Series A Preferred Stock shall be entitled to receive shall be the Dividend Multiple applicable immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (b) The Company shall declare each Dividend at the same time it declares any cash or non-cash dividend or distribution on the Common Stock in respect of which a Dividend is required to be paid. No cash or non-cash dividend or distribution on the Common Stock in respect of which a Dividend is required to be paid shall be paid or set aside for payment on the Common Stock unless a Dividend in respect of such dividend or distribution on the Common Stock shall be simultaneously paid, or set aside for payment, on the Series A Preferred Stock. (c) Preferential Dividends shall begin to accrue on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issuance of such shares of Series A Preferred Stock. Accrued but unpaid Preferential Dividends shall cumulate but shall not bear interest. (d) Any dividend payment made on shares of the Series A Preferred Stock shall first be credited against the earliest accrued but unpaid Preferential Dividend due with respect to shares of the Series A Preferred Stock. (e) All dividends paid with respect to shares of the Series A Preferred Stock pursuant to this paragraph 2 shall be paid pro rata on a share-by-share basis to the holders entitled thereto. (f) The holders of shares of Series A Preferred Stock shall not be entitled to receive any dividends or distributions except as provided herein. -12- 13 3. Voting Rights. The holders of record of outstanding shares of Series A Preferred Stock shall have the following voting rights: (a) Subject to the provisions for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the holders of the Common Stock. The number of votes which a holder of a share of Series A Preferred Stock is entitled to cast, as the same may be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Vote Multiple." In the event the Company shall at any time after January 9, 1996 declare or pay any dividend on Common Stock, payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the Vote Multiple thereafter applicable to the determination of the number of votes per share to which holders of shares of Series A Preferred Stock shall be entitled after such event shall be the Vote Multiple immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (b) Except as otherwise provided herein, in the Restated Articles of Incorporation, in the By-laws, or as otherwise provided by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of shareholders of the Company. (c) In the event that the Preferential Dividends payable to the holders of Series A Preferred Stock are in arrears and unpaid for the equivalent of six quarterly periods, the Board of Directors will be increased by two directors and the holders of Series A Preferred Stock, together with the holders of all other outstanding series of the Preferred -13- 14 Stock in respect of which such a default in payment of dividends as described hereinabove exists and is entitled to vote thereon, voting as a single class without regard to series, will be entitled to elect two directors of the expanded Board of Directors. Such entitlement shall continue until such time as all dividends in arrears on all of the Series A Preferred Stock at the time outstanding have been paid or declared and set aside for payment, whereupon such voting rights of the holders of the Series A Preferred Stock shall cease (and, unless holders of shares of other series of Preferred Stock shall still have the right to elect such directors, the respective terms of the two additional directors shall thereupon expire and the number of directors constituting the full board be decreased by two) subject to being again revived from time to time upon the reoccurrence of the conditions described in this paragraph (3)(c) as giving rise thereto. At any time when the rights of holders of Series A Preferred Stock to elect two additional directors shall have so vested, the Company shall, upon the written request of the holders of record of not less than 10% of the Series A Preferred Stock then outstanding (or 10% of all of the shares of Preferred Stock having the right to vote for such directors in case holders of shares of other series of Preferred Stock shall also have the right to elect directors in such circumstances), call a special meeting of holders of the Series A Preferred Stock (and other series of Preferred Stock, if applicable) for the election of directors. In the case of a written request, the special meeting shall be held within 60 days after the delivery of the request, upon the notice provided by law and in the By-laws of the Company; except that the Company shall not be required to call such a special meeting if the request is received less than 120 days before the date fixed for the next ensuing annual meeting of shareholders of the Company. Whenever the number of directors of the Company shall have been increased by two as provided in this paragraph (3)(c), the number as so increased may thereafter be -14- 15 further increased or decreased in such manner as may be permitted by the By-laws and without the vote of the holders of Series A Preferred Stock. No such action shall impair the right of the holders of Series A Preferred Stock to elect and to be represented by two directors as provided in this paragraph (3)(c). The two directors elected as provided in this paragraph (3)(c) shall serve until the next annual meeting of shareholders of the Company and until their respective successors shall be elected and qualified or the earlier expiration of their terms as provided in this paragraph (3)(c). No such director may be removed without the vote of holders of a majority of shares of Series A Preferred Stock (or holders of a majority of shares of Preferred Stock having the right to vote in the election of such director in case holders of shares of other series of Preferred Stock shall also have the right to elect such director). If, prior to the expiration of the term of any such director, a vacancy in the office of such director shall occur, such vacancy shall, until the expiration of such term, in each case be filled by the remaining director elected as provided in this paragraph (3)(c) or, if none remains in office, by vote of the holders of record of a majority of the outstanding shares of Series A Preferred Stock (or holders of a majority of shares of Preferred Stock who are then entitled to participate in the election of such directors in case holders of shares of other series of Preferred Stock shall also have the right to elect such director). (d) Except as otherwise required by the Articles of Incorporation or By-laws or set forth in this paragraph 3 or in paragraph 13 or as otherwise provided by law, holders of Series A Preferred Stock shall have no other special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for the taking of any corporate action. -15- 16 4. Certain Restrictions. (a) Whenever Preferential Dividends or Dividends are in arrears or the Company shall be in default of payment thereof, thereafter and until all accrued and unpaid Preferential Dividends and Dividends, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid or set irrevocably aside for payment in full, and in addition to any and all other rights which any holder of shares of Series A Preferred Stock may have in such circumstances, the Company shall not: (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration, any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity as to dividends with the Series A Preferred Stock, unless dividends are paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled if the full dividends accrued thereon were to be paid; (iii) except as permitted by subparagraph (iv) of this paragraph 4(a), redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Company ranking junior (both as to dividends and upon liquidation, dissolution or winding up) to the Series A Preferred Stock; or -16- 17 (iv) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock (either as to dividends or upon liquidation, dissolution or winding up), except as permitted by subparagraph (iii) of this paragraph 4(a) or in accordance with a purchase offer made to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (b) The Company shall not permit any Subsidiary (as hereinafter defined) of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under subparagraph (a) of this paragraph 4, purchase or otherwise acquire such shares at such time and in such manner. A "Subsidiary" of the Company shall mean any corporation or other entity of which securities or other ownership interests entitled to cast at least a majority of the votes that would be entitled to be cast in an election of the board of directors of such corporation or other entity or other persons performing similar functions are beneficially owned, directly or indirectly, by the Company or by any corporation or other entity that is otherwise controlled by the Company. (c) The Company shall not issue any shares of Series A Preferred Stock except upon exercise of Rights issued pursuant to the Rights Agreement, a copy of which is on file with the Secretary of the Company at its principal executive office and shall be made available to shareholders of record without charge upon written request therefor addressed to said Secretary. Notwithstanding the foregoing sentence, nothing contained in the provisions of this Article FIFTH (E) shall prohibit or restrict the Company from issuing for any purpose any series of Preferred Stock with rights and privileges similar to, different from, or greater than, those of -17- 18 the Series A Preferred Stock or, subject to the limitations set forth in paragraph 13, from creating other securities senior to, junior to or on a parity with the Series A Preferred Stock. 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares upon their retirement and cancellation shall become authorized but unissued shares of Preferred Stock, without designation as to series, and such shares may be redesignated and reissued as part of any series of the Preferred Stock. 6. Liquidation, Dissolution or Winding Up; Fair Value for Purposes of Pennsylvania Anti-Takeover Statute. (a) Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, no distribution shall be made (i) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless the holders of shares of Series A Preferred Stock outstanding shall have received out of the assets of the Company available for distribution to its shareholders after payment or provision for payment of any securities ranking senior to the Series A Preferred Stock, for each share of Series A Preferred Stock, subject to adjustment as hereinafter provided, (A) $100.00 plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment or, (B) if greater than the amount specified in clause (i)(A) of this sentence, an amount equal to 100 times the aggregate amount to be distributed per share to holders of Common Stock, as the same may be adjusted as hereinafter provided, and (ii) to the holders of stock ranking on a parity upon liquidation, dissolution or winding up with the Series A Preferred Stock, unless simultaneously therewith distributions are made ratably on the Series A Preferred Stock and all other shares of such parity stock in proportion to the total amounts to which the holders of shares of Series A Preferred Stock are entitled under clause -18- 19 (i)(A) of this sentence and to which the holders of such parity shares are entitled, in each case upon such liquidation, dissolution or winding up. The amount to which holders of Series A Preferred Stock may be entitled upon liquidation, dissolution or winding up of the Company pursuant to clause (i)(B) of the foregoing sentence is hereinafter referred to as the "Participating Liquidation Amount" and the multiple of the amount to be distributed to holders of shares of Common Stock upon the liquidation, dissolution or winding up of the Company applicable pursuant to said clause to the determination of the Participating Liquidation Amount, as said multiple may be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Liquidation Multiple." In the event the Company shall at any time after January 9, 1996 declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then, in each such case, the Liquidation Multiple thereafter applicable to the determination of the Participating Liquidation Amount to which holders of Series A Preferred Stock shall be entitled after such event shall be the Liquidation Multiple applicable immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Except as provided in this paragraph 6(a), holders of Series A Preferred Stock shall not be entitled to any distribution in the event of liquidation, dissolution or winding up of the Company. (b) For the purposes of this paragraph 6, none of the following shall be deemed to be a voluntary or involuntary liquidation, dissolution or winding up of the Company: (i) the voluntary sale, conveyance, lease, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Company; -19- 20 (ii) the consolidation or merger of the Company with or into one or more other corporations or other associations; (iii) the consolidation or merger of one or more corporations or other associations with or into the Company; (iv) the participation by the Company in a share exchange; (v) the division of the Company pursuant to sections 1951 through 1957 of the Pennsylvania BCL; (vi) the conversion of the Company pursuant to sections 1961 through 1966 of the Pennsylvania BCL; (c) Notwithstanding anything to the contrary in this Article FIFTH (E), in case any Controlling Person or Group (as defined from time to time in Section 2543 of the Pennsylvania BCL) shall be required to purchase any shares of Series A Preferred Stock pursuant to Sections 2541 through 2548 of the Pennsylvania BCL, as in effect from time to time, the amount that is determined to represent the "fair value" (as that term is used in such Section 2542 of the Pennsylvania BCL) of such shares shall be an amount per share equal to the Liquidation Multiple then in effect times the aggregate amount per share that such Controlling Person or Group is required to pay to purchase any share of Common Stock pursuant to such Sections 2541 through 2548 of the Pennsylvania BCL. 7. Certain Reclassifications and Other Events. (a) In the event that holders of shares of Common Stock of the Company receive after January 9, 1996 in respect of their shares of Common Stock any share of capital stock of the Company (other than any share of Common Stock of the Company), whether by way of reclassification, recapitalization, reorganization, dividend or other distribution or otherwise (a "Transaction"), then, and in each such event, the dividend rights, voting rights and rights upon the liquidation, dissolution or winding up of the Company of the shares of Series A Preferred -20- 21 Stock shall be adjusted so that after such event the holders of Series A Preferred Stock shall be entitled, in respect of each share of Series A Preferred Stock held, in addition to such rights in respect thereof to which such holder was entitled immediately prior to such adjustment, to (i) such additional dividends as equal the Dividend Multiple in effect immediately prior to such Transaction multiplied by the additional dividends which the holder of a share of Common Stock shall be entitled to receive by virtue of the receipt in the Transaction of such capital stock, (ii) such additional voting rights as equal the Vote Multiple in effect immediately prior to such Transaction multiplied by the additional voting rights to which the holder of a share of Common Stock shall be entitled by virtue of the receipt in the Transaction of such capital stock and (iii) such additional distributions upon liquidation, dissolution or winding up of the Company as equal the Liquidation Multiple in effect immediately prior to such Transaction multiplied by the additional amount which the holder of a share of Common Stock shall be entitled to receive upon liquidation, dissolution or winding up of the Company by virtue of the receipt in the Transaction of such capital stock, as the case may be, all as provided by the terms of such capital stock. (b) In the event that holders of shares of Common Stock of the Company receive after January 9, 1996 in respect of their shares of Common Stock any right or warrant to purchase Common Stock (including as such a right, for all purposes of this paragraph 7(b), any security convertible into or exchangeable for Common Stock) at a purchase price per share less than the Fair Market Value of a share of Common Stock on the date of issuance of such right or warrant, then and in each such event the dividend rights, voting rights and rights upon the liquidation, dissolution or winding up of the Company of the shares of Series A Preferred Stock shall each be adjusted so that after such event the Dividend Multiple, the Vote Multiple and the Liquidation Multiple shall each be the product of the Dividend Multiple, the Vote Multiple and the Liquidation Multiple, as the case may be, in effect immediately prior to such event multiplied by a -21- 22 fraction the numerator of which shall be the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the maximum number of shares of Common Stock which could be acquired upon exercise in full of all such rights or warrants and the denominator of which shall be the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the number of shares of Common Stock which could be purchased, at the Fair Market Value of the Common Stock at the time of such issuance, by the maximum aggregate consideration payable upon exercise in full of all such rights or warrants. (c) In the event that holders of shares of Common Stock of the Company receive after January 9, 1996 in respect of their shares of Common Stock any right or warrant to purchase capital stock of the Company (other than shares of Common Stock), including as such a right, for all purposes of this paragraph 7(c), any security convertible into or exchangeable for capital stock of the Company (other than Common Stock), at a purchase price per share less than the Fair Market Value of a share of such capital stock on the date of issuance of such right or warrant, then and in each such event the dividend rights, voting rights and rights upon liquidation, dissolution or winding up of the Company of the shares of Series A Preferred Stock shall each be adjusted so that after such event each holder of a share of Series A Preferred Stock shall be entitled, in respect of each share of Series A Preferred Stock held, in addition to such rights in respect thereof to which such holder was entitled immediately prior to such event, to receive (i) such additional dividends as equal the Dividend Multiple in effect immediately prior to such event multiplied, first, by the additional dividends to which the holder of a share of Common Stock shall be entitled upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise, and multiplied again by the Discount Fraction (as hereinafter defined), (ii) such additional voting rights as equal the Vote Multiple in effect immediately prior to such event multiplied, first, by the additional voting rights to which the -22- 23 holder of a share of Common Stock shall be entitled upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise, and multiplied again by the Discount Fraction and (iii) such additional distributions upon liquidation, dissolution or winding up of the Company as equal the Liquidation Multiple in effect immediately prior to such event multiplied, first, by the additional amount which the holder of a share of Common Stock shall be entitled to receive upon liquidation, dissolution or winding up of the Company upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise, and multiplied again by the Discount Fraction. For purposes of this paragraph, the "Discount Fraction" shall be a fraction the numerator of which shall be the difference between the Fair Market Value of a share of the capital stock subject to a right or warrant distributed to holders of shares of Common Stock of the Company as contemplated by this paragraph 7(c) immediately after the distribution thereof and the purchase price per share for such share of capital stock pursuant to such right or warrant and the denominator of which shall be the Fair Market Value of a share of such capital stock immediately after the distribution of such right or warrant. (d) For purposes of this Article FIFTH (E), the "Fair Market Value" of a share of capital stock of the Company (including a share of Common Stock) on any date shall be deemed to be the average of the daily closing price per share thereof over the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; provided, however, that in the event that such Fair Market Value of any such share of capital stock is determined during a period which includes any date that is within 30 Trading Days after (i) the ex-dividend date for a dividend or distribution on stock payable in shares of such stock or securities convertible into shares of such stock, or (ii) the effective date of any subdivision, split, combination, consolidation, reverse stock split or reclassification of such stock or division of the Company pursuant to Sections 1951 through 1957 of the Pennsylvania BCL, then, and in each -23- 24 such case, the Fair Market Value shall be appropriately adjusted by the Board of Directors of the Company to take into account ex-dividend or post-effective date trading. The closing price for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way (in either case, as reported in the applicable transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange), or, if the shares are not listed or admitted to trading on the New York Stock Exchange, as reported in the applicable transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares are listed or admitted to trading or, if the shares are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by The Nasdaq Stock Market or such other system then in use, or if on any such date the shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the shares selected by the Board of Directors of the Company. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the shares are listed or admitted to trading is open for the transaction of business or, if the shares are not listed or admitted to trading on any national securities exchange, on which the New York Stock Exchange or such other national securities exchange as may be selected by the Board of Directors of the Company is open. If the shares are not publicly held or not so listed or traded on any day within the period of 30 Trading Days applicable to the determination of Fair Market Value thereof as aforesaid, "Fair Market Value" shall mean the fair market value thereof per share as determined in good faith by the Board of Directors of the Company. In either case referred to in the foregoing sentence, the determination of Fair Market Value shall be described in a statement filed with the Secretary of the Company. -24- 25 8. Consolidation, Merger, etc. In case the Company shall enter into any consolidation, merger, division, share exchange, combination, sale of all or substantially all of the Company's assets, or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each outstanding share of Series A Preferred Stock shall at the same time be similarly exchanged for or changed into the aggregate amount of stock, securities, cash and/or other property (payable in like kind), as the case may be, for which or into which each share of Common Stock is changed or exchanged multiplied by the highest of the Vote Multiple, the Dividend Multiple or the Liquidation Multiple in effect immediately prior to such event; provided, however, no fractional share or scrip representing fractional shares of any other stock or securities shall be issued. Instead of any fractional interest in a share of such other stock or securities which would otherwise be deliverable pursuant to this paragraph 8, the Company will pay to the holder thereof an amount in cash (computed to the nearest cent) equal to the same fraction of the Fair Market Value of a share of such other stock or security. 9. Effective Time of Adjustments. (a) Adjustments to the Series A Preferred Stock required by the provisions hereof shall be effective as of the time at which the event requiring such adjustments occurs. (b) The Company shall give prompt written notice to each holder of a share of outstanding Series A Preferred Stock of the effect of any adjustment to the voting rights, dividend rights or rights upon liquidation, dissolution or winding up of the Company of such shares required by the provisions hereof. Notwithstanding the foregoing sentence, the failure of the Company to give such notice shall not affect the validity of or the force or effect of or the requirement for such adjustment. 10. No Redemption. The shares of Series A Preferred Stock shall not be redeemable at the option of the Company or any holder thereof. Notwithstanding the foregoing -25- 26 sentence of this paragraph, the Company may acquire shares of Series A Preferred Stock in any other manner permitted by law, the provisions hereof and the Restated Articles of Incorporation. 11. Ranking. The Series A Preferred Stock shall rank senior to the Common Stock and, unless otherwise provided in a Statement with Respect to Shares or an amendment to the Restated Articles of Incorporation relating to the determination of a subsequent series of preferred stock of the Company, the Series A Preferred Stock shall rank junior to all other series of the Company's preferred stock as to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up. 12. Limitations. Except as may otherwise be required by law, the shares of Series A Preferred Stock shall not have any powers, preferences or relative, participating, optional or other special rights other than those specifically set forth in this Article FIFTH (E) (as such may be amended from time to time) or otherwise in the Restated Articles of Incorporation. 13. Amendment. So long as any shares of the Series A Preferred Stock are outstanding, the Company shall not amend this Article FIFTH (E) or the Restated Articles of Incorporation in any manner which would alter or change the rights, preferences or limitations of the Series A Preferred Stock so as to affect such rights, preferences or limitations in any material respect prejudicial to the holders of the Series A Preferred Stock without, in addition to any other vote of shareholders required by law, the affirmative vote of the holders of two-thirds or more of the outstanding shares of Series A Preferred Stock, voting together as a single class; provided, however, that the creation of another series of the Preferred Stock ranking senior to or on a parity with the Series A Preferred Stock as to the payment of dividends or the distribution of assets or liquidation, dissolution or winding up shall not be deemed to be prejudicial to the holders of the Series A Preferred Stock for the purposes of this paragraph 13. -26- 27 SIXTH:A. A higher than majority shareholder vote for certain Business Combinations (as defined below) shall be required as follows: (1) In addition to any affirmative vote required by law or these Restated Articles of Incorporation or the terms of any series of Preferred Stock or any other securities of the Company and except as otherwise expressly provided in Section B. of this Article SIXTH: (a) any merger or consolidation of the Company or any Subsidiary with (i) any Interested Stockholder or with (ii) any other corporation (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate or Associate of an Interested Stockholder; (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions whether or not related) to an Interested Stockholder (or an Affiliate or Associate of an Interested Stockholder) of any assets of the Company or of a Subsidiary having an aggregate Fair Market Value of $10,000,000 or more; (c) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions whether or not related) to or with the Company or a Subsidiary of any assets of an Interested Stockholder (or an Affiliate or Associate of an Interested Stockholder) having an aggregate Fair Market Value of $10,000,000 or more; (d) the issuance or sale by the Company or any Subsidiary (in one transaction or a series of transactions whether or not related) of any securities of the Company or of any Subsidiary to any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder in exchange for cash, securities or other consideration (or a combination thereof) having an aggregate Fair Market Value of -27- 28 $10,000,000 or more except an issuance of securities upon conversion of convertible securities of the Company or of a Subsidiary which were not acquired by such Interested Stockholder (or such Affiliate or Associate) from the Company or a Subsidiary; (e) the adoption of any plan or proposal for the liquidation or dissolution of the Company proposed by or on behalf of any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder; or (f) any reclassification of securities (including any reverse stock split), or recapitalization of the Company, or any merger or consolidation of the Company with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity securities or securities convertible into equity securities of the Company or any Subsidiary which is directly or indirectly owned by any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder; shall require the affirmative vote of (i) the holders of at least eighty percent (80%) of the combined voting power of the then outstanding shares of capital stock of the Company entitled to vote generally in an annual election of directors (the "Voting Stock") and (ii) the holders of at least a majority of the combined voting power of the then outstanding Voting Stock held by Disinterested Stockholders, in each case voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law, by any other provisions of these Restated Articles of Incorporation or by the terms of any series of Preferred Stock or any other securities of the Company; -28- 29 (2) The term "Business Combination" as used in this Article SIXTH shall mean any transaction which is referred to in any one or more of clauses (a) through (f) of paragraph (1) of Section A. of this Article SIXTH. B. The provisions of Section A. of this Article SIXTH shall not be applicable to any Business Combination, and such Business Combination shall require only such affirmative vote (if any) as is required by law, any other provision of these Restated Articles of Incorporation or the terms of any class or series of capital stock of the Company entitled to a preference over the Common Stock as to dividends or upon liquidation, or the terms of any other securities of the Company, if all of the conditions specified in either of the following paragraphs (1) or (2) are met: (1) The Business Combination shall have been approved by a majority of the Disinterested Directors or (2) All the following six conditions shall have been met - (a) The transaction constituting the Business Combination shall provide for a consideration to be received by holders of Common Stock in exchange for their Common Stock, and the aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the highest of the following: (i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid in order to acquire any shares of Common Stock beneficially owned by the Interested Stockholder which were acquired (x) within the two-year period -29- 30 immediately prior to the first public announcement of the proposed Business Combination (the "Announcement Date") or (y) in the transaction in which it became an Interested Stockholder, whichever is higher; (ii) the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (the "Determination Date"), whichever is higher; and (iii) (if applicable) the price per share equal to the Fair Market Value per share of Common Stock determined pursuant to clause (ii) immediately preceding, multiplied by the ratio of (x) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid in order to acquire any shares of Common Stock beneficially owned by the Interested Stockholder which were acquired within the two-year period immediately prior to the Announcement Date to (y) the Fair Market Value per share of Common Stock on the first day in such two-year period on which the Interested Stockholder beneficially owned any shares of Common Stock, whether or not such Stockholder was an Interested Stockholder on that day. (b) If the transaction constituting the Business Combination shall provide for a consideration to be received by holders of any class of outstanding Voting Stock other than Common Stock, the aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of shares of such Voting Stock shall be at least equal to the highest of the following (it being intended -30- 31 that the requirements of this clause (2)(b) shall be required to be met with respect to every class of outstanding Voting Stock other than Institutional Voting Stock, whether or not the Interested Stockholder beneficially owns any shares of a particular class of Voting Stock): (i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid in order to acquire any shares of such class of Voting Stock beneficially owned by the Interested Stockholder which were acquired (x) within the two-year period immediately prior to the Announcement Date or (y) in the transaction in which it became an Interested Stockholder, whichever is higher; (ii) (if applicable) the highest preferential amount per share to which the holders of shares of such class of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company; (iii) the Fair Market Value per share of such class of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher; and (iv) (if applicable) the price per share equal to the Fair Market Value per share of such class of Voting Stock determined pursuant to clause (iii) immediately preceding, multiplied by the ratio of (x) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid in order to acquire any shares of such class of Voting Stock beneficially owned by the Interested Stockholder which were acquired within the two-year period immediately prior to the -31- 32 Announcement Date to (y) the Fair Market Value per share of such class of Voting Stock on the first day in such two-year period on which the Interested Stockholder beneficially owned any shares of such class of Voting Stock, whether or not such Stockholder was an Interested Stockholder on that day. (c) The consideration to be received by holders of a particular class of Voting Stock (including Common Stock) shall be in cash or in the same form as was previously paid in order to acquire shares of such class of Voting Stock which are beneficially owned by the Interested Stockholder and, if the Interested Stockholder beneficially owns shares of any class of Voting Stock which were acquired with varying forms of consideration, the form of consideration to be received by holders of such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock beneficially owned by it. The prices determined in accordance with clauses (a) and (b) of paragraph (2) of this Section B. shall be subject to an appropriate adjustment in the event of any stock dividend, stock split, subdivision, combination of shares or similar event. (d) After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination: (i) except as approved by a majority of the Disinterested Directors, there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on any outstanding Preferred Stock or other capital stock entitled to a preference over the Common Stock as to dividends or upon liquidation; -32- 33 (ii) except as approved by a majority of the Disinterested Directors, there shall have been (x) no reduction in the annual amount of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock) and (y) no failure to increase the annual amount of dividends as necessary to prevent any such reduction in the event of any reclassification (including any reverse stock split), recapitalization, reorganization or similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock; (iii) such Interested Stockholder shall not have become the beneficial owner of any additional shares of Voting Stock except as part of the transaction in which it became an Interested Stockholder; and (iv) there shall have always been at least three Disinterested Directors on the Board of Directors. (e) After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Company, whether in anticipation of or in connection with such Business Combination or otherwise. (f) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to shareholders at least 30 days prior to the consummation of such Business Combination (whether or not -33- 34 such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). C. For the purposes of this Article SIXTH: (1) A "person" shall mean any individual, a partnership, a corporation, an association, a trust or other entity. (2) "Interested Stockholder" at any particular time shall mean any person (other than the Company or any Subsidiary) who or which: (a) is at such time the beneficial owner, directly or indirectly, of five percent (5%) or more of the voting power of the Voting Stock; (b) is an Affiliate of the Company and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of five percent (5%) or more of the voting power of the Voting Stock; or (c) is at such time an assignee of or has otherwise succeeded to the beneficial ownership of any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Stockholder (as defined in C.(2)(a) and (b) above), if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (3) "Disinterested Stockholder" shall mean a shareholder of the Company who is not an Interested Stockholder or an Affiliate or an Associate of an Interested Stockholder. (4) A person shall be a "beneficial owner" of any shares of Voting Stock: -34- 35 (a) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; (b) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether or not such right is exercisable immediately) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding; or (c) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. (5) For the purpose of determining whether a person is an Interested Stockholder pursuant to paragraph (2) of this Section C., the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned by an Interested Stockholder through application of paragraph (4) of this Section C. but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise. (6) "Affiliate" or "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 31, 1984 (the term "registrant" in such Rule 12b-2 meaning in this case the Company). (7) "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Company; provided, -35- 36 however, that for the purposes of the definition of Interested Stockholder set forth in paragraph (2) of this Section C. the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Company. (8) "Disinterested Director" means any member of the Board of Directors who is unaffiliated with, and not a representative or nominee of, an Interested Stockholder and (a) was a member of the Board prior to the time that the Interested Stockholder became an Interested Stockholder, or (b) recommended to succeed a Disinterested Director by a majority of the Disinterested Directors then on the Board. (9) "Fair Market Value" means: (a) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotation System or any other system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by a majority of the Disinterested Directors in good faith; and (b) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by a majority of the Disinterested Directors in good faith. -36- 37 (10) In the event of any Business Combination in which the Company survives, the phrase "consideration other than cash to be received" as used in paragraph (2) of Section B. of this Article SIXTH shall include the shares of Common Stock and the shares of any other class of outstanding Voting Stock retained by the holders of such shares. (11) The term "class" of Voting Stock shall be deemed to refer to a series of Voting Stock where more than one series of Voting Stock is outstanding within a class of Voting Stock. (12) "Institutional Voting Stock" shall mean any class of Voting Stock which was issued to and continues to be held solely by one or more insurance companies, pension funds, commercial banks, savings banks or similar financial institutions or institutional investors. D. A majority of the Disinterested Directors of the Company shall have the power and duty to determine for the purposes of this Article SIXTH, on the basis of information known to them after reasonable inquiry, (1) whether a person is an Interested Stockholder, (2) the number of shares of Voting Stock beneficially owned by any person, (3) whether a person is an Affiliate or Associate of another, (4) whether the requirements of Section B. of this Article SIXTH have been met with respect to any Business Combination, (5) whether a class of Voting Stock is Institutional Voting Stock and (6) whether the assets which are subject to any Business Combination have, or the consideration to be received for the issuance or transfer of securities by this Company or any subsidiary in any Business Combination has, an aggregate Fair Market Value of $10,000,000 or more. Any such determination made in good faith shall be binding and conclusive on all parties. -37- 38 E. Nothing contained in this Article SIXTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. F. In addition to any requirements of law and any other provisions of these Restated Articles of Incorporation or the terms of any class or series of capital stock of the Company entitled to a preference over the Common Stock as to dividends or upon liquidation, or the terms of any other securities of the Company (and notwithstanding the fact that a lesser percentage may be specified by law, these Restated Articles of Incorporation or any such terms), the affirmative vote of (1) the holders of eighty percent (80%) or more of the combined voting power of the Voting Stock, voting together as a single class, and (2) a majority of the combined voting power of the Voting Stock held by the Disinterested Stockholders, voting together as a single class, shall be required to amend, alter or repeal, or adopt any provision inconsistent with, this Article SIXTH. SEVENTH: A. Except as otherwise fixed by or pursuant to the terms of any class or series of capital stock of the Company entitled to a preference over the Common Stock as to dividends or upon liquidation, the number, qualification, terms of office, manner of election, time and place of meeting, compensation, powers and duties of the directors shall be fixed from time to time by or pursuant to the By-laws. B. If the By-laws so provide, the members of the Board (other than those who may be elected by the holders of any class or series of capital stock having a preference over the Common Stock as to dividends or upon liquidation pursuant to the terms of these Restated Articles of Incorporation or of such class or series of stock) shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in -38- 39 number as possible, having such terms and being elected in such manner as shall be specified in the By-laws. EIGHTH: In furtherance and not in limitation of the powers conferred upon it by law, the Board of Directors is expressly authorized to: (1) adopt any By-laws a majority of the entire Board of Directors may deem necessary or desirable for the efficient conduct of the affairs of the Company, including, but not limited to, provisions governing the conduct of, and the matters which may properly be brought before, meetings of the shareholders and provisions specifying the manner and extent to which prior notice shall be given of the submission of proposals to be considered at any such meeting or of nominations for the election of directors to be held at any such meeting; and (2) repeal, alter or amend the By-laws by the vote of a majority of the entire Board of Directors. NINTH: In addition to any requirements of law and any other provisions of these Restated Articles of Incorporation or the terms of any series of Preferred Stock or any other securities of the Company (and notwithstanding the fact that a lesser percentage may be specified by law, these Restated Articles of Incorporation or any such terms), the affirmative vote of the holders of eighty percent (80%) or more of the combined voting power of the then outstanding shares of capital stock of the Company entitled to vote generally in an annual election (the "Voting Stock"), voting together as a single class, shall be required to: (1) remove a director without cause (For purposes of this Article (NINTH) "cause" shall mean the willful and continuous failure of a director to substantially perform such director's duties to the Company, other than any such failure resulting from incapacity -39- 40 due to physical or mental illness, or the willful engaging by a director in gross misconduct materially and demonstrably injurious to the Company); (2) adopt, amend, alter or repeal any provision of the By-laws, except that By-law XVI may be amended or altered by a majority vote of the Voting Stock if the majority of the entire Board of Directors has first recommended the amendment or alteration for approval by the shareholders; (3) amend, alter or repeal or adopt any provision inconsistent with, Articles SEVENTH or EIGHTH or this Article NINTH; and (4) amend, alter or repeal or adopt any provisions inconsistent with any provision, other than Articles SIXTH, SEVENTH or EIGHTH or this Article NINTH, contained in these Restated Articles of Incorporation, unless otherwise first recommended and approved by a majority of the entire Board of Directors or, if there is an Interested Stockholder (as defined in Article SIXTH), by a majority of the Disinterested Directors (as defined in Article SIXTH), in which cases a majority vote of the Voting Stock is required to amend, alter or repeal such other provisions of these Restated Articles of Incorporation. TENTH: To the fullest extent that the law of the Commonwealth of Pennsylvania, as it exists on January 27, 1987, or as it may thereafter be amended, permits the elimination of the liability of directors, no director of the corporation shall be liable for monetary damages for any action taken, or any failure to take any action. This Article TENTH shall not apply to any breach of performance of duty or any failure of performance of duty by any director occurring prior to January 27, 1987. No amendment to or repeal of this Article TENTH shall apply to or have any effect on the liability or alleged liability of any director of the Company for or with -40- 41 respect to any act or failure to act on the part of such director occurring prior to such amendment or repeal. ELEVENTH: The Company may, to the fullest extent permitted by applicable law as then in effect, indemnify any person who is or was a director, officer, employee or agent of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, any employee benefit plan) and may take such steps as may be deemed appropriate by the Company, including purchasing and maintaining insurance, entering in to contracts (including, without limitation, contracts of indemnification between the Company and its directors and officers), creating a trust fund, granting security interests or using other means (including, without limitation, a letter of credit) to insure the payment of such amount as may be necessary to effect such indemnification. This Article shall apply to any action taken, or any failure to take any action, on or after January 27, 1987. -41- EX-3.C 4 CBS CORPORATION 1 EXHIBIT 3(c) BY-LAWS OF CBS CORPORATION ------- AS AMENDED TO DECEMBER 1, 1997 ------- 2 BY-LAWS OF CBS CORPORATION --------- ARTICLE I MEETINGS OF SHAREHOLDERS The annual meeting of the shareholders of the Company shall be held on such date and at such hour as the Board of Directors may designate and on any subsequent day or days to which such meeting may be adjourned, for the purpose of electing directors and for the transaction of such other business as may lawfully come before the meeting. If for any reason the annual meeting shall not have been held on the day designated by the Board or on the day specified above, the Board of Directors shall cause the annual meeting to be called and held as soon thereafter as may be convenient. Special meetings of the shareholders of the Company may be called by the Board of Directors or by the Chairman to be held on such date as the Board or the Chairman shall determine. At an annual meeting of the shareholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (i) specified in the notice of the meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise brought before the meeting by or at the direction of the Board of Directors or (iii) brought before the meeting by a shareholder in accordance with the procedure set forth below. For business to be properly brought before an annual meeting by a shareholder, the shareholder must be entitled by Pennsylvania law to present such -1- 3 business and must have given written notice of such business, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Company not later than 90 days in advance of such meeting; provided, however, that if such annual meeting of shareholders is held on a date other than the last Wednesday of April, such written notice must be given within ten days after the first public disclosure, which may include any public filing by the Company with the Securities and Exchange Commission, of the date of the annual meeting. Any such notice shall set forth as to each matter the shareholder proposes to bring before the annual meeting: (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, and in the event that such business includes a proposal to amend the By-laws of the Company, the language of the proposed amendment; (b) the name and address of the shareholder proposing such business; (c) a representation that the shareholder is a holder of record of stock of the Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business; and (d) any material interest of any shareholder in such business. No business shall be conducted at an annual meeting except in accordance with this paragraph, and the chairman of any annual meeting of shareholders may refuse to permit any business to be brought before such annual meeting without compliance with the foregoing procedures. Subject to the rights of the holders of any class or series of stock having a preference over the Common Stock of the Company as to dividends or upon liquidation, nominations for the election of directors may be made by the Board of Directors or by any shareholder entitled to vote for the election of directors. Any shareholder entitled to vote for the election of directors may nominate at a meeting persons for election as directors -2- 4 only if written notice of such shareholder's intent to make such nomination is given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Company not later than: (i) with respect to an election to be held at an annual meeting of shareholders, 90 days in advance of such meeting (provided that if such annual meeting of shareholders is held on a date other than the last Wednesday of April, such written notice must be given within ten days after the first public disclosure, which may include any public filing by the Company with the Securities and Exchange Commission, of the date of the annual meeting); and (ii) with respect to an election to be held at a special meeting of shareholders for the election of directors, the close of business on the seventh day following the date on which notice of such meeting is first given to shareholders. Each such notice shall set forth: (a) the name and address of the shareholder who intends to make the nomination and of each person to be nominated; (b) a representation that the shareholder is a holder of record of stock of the Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice as directors; (c) a description of all arrangements or understandings between the shareholder and each proposed nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; (d) such other information regarding each nominee proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission were such nominee to be nominated by the Board of Directors; and (e) the consent of each proposed nominee to serve as a director of the Company if so elected. The chairman of any meeting of shareholders to elect directors may refuse to permit the -3- 5 nomination of any person to be made without compliance with the foregoing procedure. Every meeting of the shareholders, annual or special, shall be held at such place within or without the Commonwealth of Pennsylvania as the Board of Directors may designate or, in the absence of such designation, at the registered office of the Company in the Commonwealth of Pennsylvania. Written notice of every meeting of the shareholders shall be given by, or at the direction of, the person authorized to call the meeting, to each shareholder of record entitled to vote at the meeting, at the shareholder's address appearing on the books of the Company. The notice of every meeting of the shareholders shall specify the place, day and hour of the meeting and, in the case of a special meeting, the matter or matters to be acted upon at such meeting. Only the matter or matters specified in the notice of a special meeting shall be acted upon thereat. All notices of meetings of the shareholders shall be provided in accordance with Pennsylvania law. The notice of every meeting of the shareholders may be accompanied by a form of proxy approved by the Board of Directors in favor of such person or persons as the Board of Directors may select. Except as otherwise provided by law or by the Restated Articles of the Company, as from time to time amended (hereinafter called the Articles of the Company), or by these By-laws, the presence in person or by proxy of shareholders entitled to cast at least a majority of the votes that all shareholders are entitled to cast on a particular matter shall constitute a quorum at the meeting of shareholders, and all questions shall be decided by a majority of the votes cast, in person or by proxy, at a duly organized meeting by the holders of shares entitled to vote thereon. The shareholders present at any duly -4- 6 organized meeting may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Any meeting of the shareholders may be adjourned from time to time, without notice other than by announcement at the meeting at which such adjournment is taken, and at any such adjourned meeting at which a quorum shall be present any action may be taken that could have been taken at the meeting originally called; provided, that any meeting at which directors are to be elected shall be adjourned only from day to day, or for such longer periods, not exceeding fifteen days each, as the holders of a majority of the shares present in person or by proxy shall direct, until such directors have been elected. If a meeting cannot be organized because of lack of a quorum, those present may, except as otherwise provided by law, adjourn the meeting to such time and place as they may determine, but in the case of any meeting called for the election of directors those who attend the second of such adjourned meetings, although less than a quorum, shall nevertheless constitute a quorum for the purpose of electing directors. At each meeting, each shareholder entitled to vote may vote in person or by proxy executed in writing by the shareholder or by his or her duly authorized attorney-in-fact and filed with the Secretary of the Company. Except as otherwise provided by law or the Articles of the Company or these By-laws, each holder of record of shares of any class of the Company shall be entitled to one vote, on each matter submitted to a vote at a meeting of the shareholders, and in respect of which shares of such class shall be entitled to be voted, for every share of such class standing in his or her name on the books of the Company. -5- 7 ARTICLE II BOARD OF DIRECTORS - COMMITTEES - THEIR POWERS AND DUTIES The business, affairs and property of the Company shall be managed and controlled by a Board of Directors, which, except as otherwise provided by law or the Articles of the Company, shall exercise all the powers of the Company. The number, qualifications, manner of election, time and place of meeting, compensation and powers and duties of the directors of the Company shall be fixed from time to time by or pursuant to these By-laws. Nominees for election to the Board of Directors who qualify as Independent Directors on the date of their nomination shall be such that the majority of all directors holding office immediately after such nomination, assuming the election of such nominees, shall be Independent Directors. The number of directors which shall constitute the Board of Directors shall be fixed from time to time by a vote of a majority of the Board of Directors, provided, however, that the number of directors of the Company shall be not less than three nor more than twenty-four. The shareholders shall, at each annual meeting, elect directors, each of whom shall serve until the annual meeting of shareholders next following his or her election and until his successor is elected and shall qualify; provided, however, that directors with terms expiring at the annual meetings of shareholders to be held in 1994 and 1995 shall serve until the expiration of their respective terms. Each election of directors by the shareholders shall be conducted by one or three judges of election appointed by the Board of Directors in advance of the meeting to act at that meeting and at any adjournment thereof. If any or all of such appointees shall fail to appear or fail or refuse to act, the vacancy or vacancies shall be filled by the Board of -6- 8 Directors or the presiding officer of the meeting. No person who is a candidate for office to be filled at the meeting shall act as a judge. Except as the law may otherwise provide, the shareholders shall not remove any director from office without assigning any cause (as such term is defined in the Articles) prior to the expiration of the term of office unless holders of at least 80% of the shares of capital stock of the Company entitled to vote thereon, vote to remove the director from office. In case of any vacancy in the Board of Directors through death, resignation, disqualification, removal, increase in the number of directors or other cause, the remaining directors, though less than a quorum, by affirmative vote of a majority thereof or by a sole remaining director, may fill such vacancy to serve for the balance of the unexpired term and until his or her successor shall have been elected and qualified; provided, however, that any director elected to fill a vacancy for a director having a term expiring at the annual meeting of shareholders to be held in 1994 or 1995 shall serve only until the annual election of shareholders next following his or her election. There shall be a Compensation Committee, an Audit Review Committee, a Committee on Environment and Health, and a Nominating and Governance Committee. The Compensation Committee may determine to retain an independent compensation consultant to assist it in carrying out its duties. Each of these committees shall consist of not less than two members of the Board of Directors, at least two of whom, on the date of their appointment to the committee, are Independent Directors. All members of the Compensation Committee and the Nominating and Governance Committee must, on the date of their appointment to said committee, be Independent Directors. With respect to -7- 9 each such committee, the Board of Directors shall, by one or more resolutions adopted by a majority of the whole Board, determine the duties and responsibilities, determine the number of members, appoint the members and the committee chair and fill each vacancy occurring in the membership. The Board of Directors may from time to time appoint such further standing or special committees as it may deem in the best interest of the Company, but no such committee shall have any powers, except such as are expressly conferred upon it by the Board. Each committee referred to in this Article II shall act only as a committee and the individual members shall have no power as such. Each director shall be entitled to receive from the Company such annual and other fees and compensation as the Board of Directors shall from time to time determine and to be reimbursed for his reasonable expenses in connection with attendance at meetings. Nothing herein contained shall preclude any director from serving the Company or its subsidiaries in any other capacity and receiving compensation therefor. For purposes of this Article II, the term "Independent Director" shall mean a director who: (a) is not and has not been employed by the Company or a subsidiary in an executive capacity within the five years immediately prior to the annual meeting at which he or she will be voted upon; (b) is not an employee or five percent or more owner of an entity that is a regular advisor or consultant to the Company or its subsidiaries; (c) is not an employee or five percent or more owner of a significant customer or supplier of the Company or its subsidiaries; (d) does not have a personal services contract with the Company or its subsidiaries; (e) is not employed by a tax-exempt organization that receives significant contributions from the Company or its subsidiaries; and (f) is not a -8- 10 spouse, parent, sibling, child, parent-in-law, brother or sister-in-law or son or daughter-in-law of an officer of the Company. The Board of Directors shall have the exclusive right and power to interpret and apply the provisions of this Article II, including, without limitation, the adoption of written definitions of terms used in and guidelines for its application (any such definitions and guidelines shall be filed with the Secretary, and such definitions and guidelines as may prevail shall be made available to any shareholder upon written request). Any such definitions or guidelines and any other interpretation or application of the provisions of this Article II made in good faith shall be binding and conclusive. ARTICLE III CONTRIBUTIONS The Board of Directors shall have the power, at any time and from time to time, to make contributions and donations for the public welfare or for religious, charitable, scientific or educational purposes. ARTICLE IV ELECTION AND TERM OF CHAIRMAN OF THE BOARD AND OFFICERS The Board of Directors shall elect a Chairman of the Board, who may be designated an officer of the Company, a President or a Chief Executive Officer or both, such Vice Presidents as may from time to time be necessary or desirable, a Secretary and a Treasurer. There shall also be one or more assistant secretaries and treasurers and such other officers and assistant officers as the Board may deem appropriate. The Board of -9- 11 Directors shall elect all officers, except assistant officers. The term of office for all officers shall be until the organization meeting of the Board of Directors following the next annual meeting of shareholders and until their respective successors are elected or appointed and shall qualify, or until their earlier death, resignation or removal. The Chairman of the Board or any officer may be removed from office, either with or without cause, at any time by the affirmative vote of the majority of the members of the Board then in office. A vacancy in any office arising from any cause may be filled for the unexpired term by the Board. ARTICLE V MEETINGS OF DIRECTORS Regular meetings of the Board of Directors shall be held without notice at such place or places either within or without the Commonwealth of Pennsylvania, at such hour and on such day as may be fixed by resolution of the Board of Directors. The Board of Directors shall meet for organization at its first regular meeting after the annual meeting of shareholders or at a special meeting of the Board of Directors called after the annual meeting of shareholders and prior to said first regular meeting. If no special meeting of the Board of Directors for organization shall be called, all provisions of these By-laws in respect of notice of special meetings of the Board of Directors shall apply to the first regular meeting of the Board of Directors held after the annual meeting of shareholders. -10- 12 Special meetings of the Board of Directors shall be held, whenever called by the Chairman or by four directors or by resolution adopted by the Board of Directors, at such place or places either within or without the Commonwealth of Pennsylvania as may be stated in the notice of the meeting. Notice of the time and place of all special meetings of the Board of Directors, and notice of any change in the time or place of holding the regular meetings of the Board of Directors, shall be given to each director in person, by telephone, or by sending a copy thereof by first class or express mail, postage prepaid, or by telegram (with messenger service specified), telex or TWX (with answerback received) or courier service, charges prepaid, or by facsimile transmission, or by any type of electronic communication to the address (or to the telephone, telex, TWX, fax or other number or address) supplied by the director to the Corporation for the purpose of notice at least one day before the day of the meeting; provided, however, that notice of any meeting need not be given to any director if waived by such director in writing, whether before or after the time stated therein, or if such director shall be present at the beginning of such meeting and does not object to the transaction of business because the meeting was not lawfully called or convened. If the notice is sent by mail, telegraph or courier service, it shall be deemed to have been given to the director when deposited in the United States mail or with a telegraph office or courier service for delivery to the director or, in the case of telex, TWX, fax or other electronic communication, it shall be deemed to have been given to the director when dispatched. In the absence of any resolution of the Board of Directors or any committee governing rules of procedure to the contrary, notice of meetings of any committee referred -11- 13 to or provided for in these By-laws shall follow the same procedures as those set forth in these By-laws for meetings of the Board of Directors. Except as otherwise provided in these By-laws, a majority of the directors in office shall constitute a quorum of the Board competent to transact business; but a lesser number may adjourn from day to day until a quorum is present. Except as otherwise provided in these By-laws, all questions shall be decided by a vote of a majority of the directors present. All or any number less than all of the directors may participate in a meeting of the Board of Directors or of a committee of the Board of Directors by conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Each committee referred to or provided for in these By-laws shall have authority, except as may otherwise be required by law or by resolution of the Board of Directors, to fix its own rules of procedure and to meet where and as provided by such rules. The presence at any meeting of any such committee of a majority of the members, including alternate members thereof, shall be necessary to constitute a quorum for the transaction of business and in every case the affirmative vote of a majority of such members present at any meeting shall be necessary for the adoption of any resolution of such committee. In the absence or disqualification of any member of such committee or committees, the member or members thereof, including alternate members, present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another director to act at the meeting in the place of any such absent or disqualified member. -12- 14 ARTICLE VI CHAIRMAN OF THE BOARD The Chairman of the Board shall preside at all meetings of the Board of Directors at which he or she is present and shall call meetings of the Board and Board committees when he or she deems them necessary. Unless otherwise precluded from doing so by these By-laws, the Chairman of the Board may be a member of the committees of the Board. He or she shall act as chairman at all meetings of the shareholders at which he or she is present unless he or she elects that the Chief Executive Officer shall so preside. The Chairman of the Board may be designated by the Board as an officer of the Company and may be elected by the Board as the Chief Executive Officer. The Chairman of the Board shall perform all duties as may be assigned to him or her by the Board of Directors. ARTICLE VII PRESIDENT; CHIEF EXECUTIVE OFFICER The President shall have such powers and duties as may, from time to time, be prescribed by the Board of Directors or the Chairman of the Board. Unless the Board of Directors shall otherwise direct, the President shall be the Chief Executive Officer of the Company. In the absence of the Chairman of the Board, the President or, if none, the Chief Executive Officer shall perform the duties and have the powers of the Chairman of the Board, as determined by the Board of Directors. The Chief Executive Officer shall have general charge of the affairs of the Company, subject to the control of the Board of Directors. He or she may appoint all officers and employees of the Company for whose election no other provision is made in these -13- 15 By-laws, and may discharge or remove any officer or employee, subject to action thereon by the Board of Directors as required by these By-laws. The Chief Executive Officer shall be the officer through whom the Board delegates authority to corporate management, and shall be responsible to see that all orders and resolutions of the Board are carried into effect by the proper officers or other persons. The Chief Executive Officer shall also perform all duties as may be assigned to him or her by the Board of Directors. ARTICLE VIII SECRETARY The Secretary shall attend meetings of the shareholders and the Board of Directors, shall keep minutes thereof in suitable books, and shall send out all notices of meetings as required by law or by these By-laws. He or she shall, in general, perform all duties incident to the office of the Secretary and perform such other duties as may be assigned to him or her by the Board, the Chairman of the Board or the President. ARTICLE IX TREASURER The Treasurer shall have custody of, and shall manage and invest, all moneys and securities of the Company, and shall have such powers and duties as generally pertain to the office of Treasurer. To the extent not invested, the Treasurer shall deposit all moneys in such banks or other places of deposit as the Board of Directors may from time to time designate or as may be designated by any officer or officers of the Company so authorized by resolution of the Board of Directors. Unless otherwise provided by the Board of Directors, all checks, -14- 16 drafts, notes and other orders for the payment of money from a disbursing account shall be signed by the Treasurer or such person or persons as may be designated by name by the Treasurer in writing. The Treasurer's signature and, if authorized by the Treasurer in writing, the signature of such person or persons as may be designated by the Treasurer as provided above, to a check, draft, note or other order for the payment of money from a disbursing account may be by facsimile or other means. Procedures for withdrawal of moneys from accounts other than disbursing accounts shall be established from time to time by the Treasurer. The Treasurer shall have such other powers and perform such other duties as may be assigned by the Board of Directors. The Chief Financial Officer of the Company shall have all of the powers granted to the Treasurer under these By-laws, including the power to sign any check, draft, note or other order for the payment of money from a disbursing account, including by facsimile signature or other means. ARTICLE X ASSISTANT SECRETARY, ASSISTANT TREASURER AND OTHER OFFICERS In the event of the absence or inability to serve of the Secretary, an assistant secretary shall perform all the duties of the Secretary; and in the event of the absence or inability to serve of the Treasurer, an assistant treasurer shall perform all the duties of the Treasurer. -15- 17 The powers and duties of other officers of the Company shall be such as may, from time to time, be prescribed by the Board of Directors, the Chairman of the Board, the President or the Chief Executive Officer. In case of the absence of any officer of the Company, or for any other reason that the Board of Directors may deem sufficient, the Board, or in the absence of action by the Board, the Chief Executive Officer, or in his or her absence, the President, or in his or her absence, the Chairman of the Board, may delegate for the time being the powers and duties of any officer to any other officer or to any director. ARTICLE XI CORPORATE SEAL The Company shall have a corporate seal, which shall contain within a circle the name of the Company, together with the following: "Incorporated 1872". ARTICLE XII CERTIFICATES OF STOCK The shares of stock of the Company shall be represented by certificates of stock, signed by the President or one of the Vice Presidents or other officer designated by the Board of Directors, countersigned by the Treasurer or an assistant treasurer and sealed with the corporate seal of the Company; and if such certificates of stock are signed or countersigned by a corporate transfer agent or a corporate registrar of this Company, such signature of the President, Vice President or other officer, such counter-signature of the -16- 18 Treasurer or assistant treasurer, and such seal, or any of them, may be executed in facsimile, engraved or printed. ARTICLE XIII TRANSFERS OF STOCK Transfers of shares of stock of the Company shall be made on the books of the Company by the holder of record thereof or his or her legal representative, acting by his or her attorney-in-fact duly authorized by written power of attorney filed with the Secretary of the Company, or with one of its transfer agents, and on surrender for cancellation of the certificate or certificates for such shares. Except as otherwise provided in these By-laws, the person in whose name shares of stock stand on the books of the Company shall be deemed the owner thereof for all purposes as regards the Company. The Company may have one or more transfer offices or agencies and/or registrars for the transfer and/or registration of shares of stock of the Company. The Board of Directors may fix in advance a time, which shall not be more than ninety days prior to the date of any meeting of shareholders, or the date for the payment of any dividend or distribution, or the date for the allotment of rights, or the date when any change or conversion or exchange of shares will be made or go into effect, as a record date, for the determination of the shareholders entitled to notice of, or to vote at, any such meeting, or entitled to receive payment of any such dividend or distribution, or to receive any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of shares; and in such case only shareholders of record at the time so fixed as a record date shall be entitled to notice of, or to vote at, such meeting or to vote at any adjournment thereof, or to receive payment of such dividend or distribution, -17- 19 or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of stock on the books of the Company after any such record date fixed as aforesaid. ARTICLE XIV RIGHTS Those rights having the terms provided under the Rights Agreement between CBS Corporation and First Chicago Trust Company of New York (the "Rights Agent") dated as of December 28, 1995, as it may be amended from time to time (the "Rights" and the "Rights Agreement") and issued to or Beneficially Owned by Acquiring Persons or their Affiliates or Associates (as such terms are defined in the Rights Agreement) shall, under certain circumstances as provided in the Rights Agreement, be null and void and may not be transferred to any person. ARTICLE XV FISCAL YEAR The fiscal year of the Company shall be the calendar year. ARTICLE XVI CERTAIN ISSUES OF STOCK The Company may from time to time issue shares of its stock and may create and issue (whether or not in connection with the issuance of any of its shares or other securities) option rights or securities having conversion or option rights entitling the holders thereof to purchase or acquire shares, option rights, securities having conversion or option -18- 20 rights, or obligations, of any class or series, or assets of the Company, or to purchase or acquire from the Company shares, option rights, securities having conversion or option rights, or obligations, of any class or series owned by the Company and issued by any other person. Such shares, rights or securities may be issued to directors, officers (including assistant officers) or employees of the Company or any of its subsidiaries or to such other persons as the Company may determine appropriate. ARTICLE XVII INDEMNIFICATION A. Indemnification Provisions Applicable to Proceedings Not Covered by Section B of this Article. Every person who is or was a director, officer or employee of the Company, or of any other corporation which he or she serves or served as such at the request of the Company, shall, in accordance with this Article XVII but not if prohibited by law, be indemnified by the Company as hereinafter provided against reasonable expense and any liability paid or incurred by him or her in connection with or resulting from any threatened or actual claim, action, suit or proceeding (whether brought by or in the right of the Company or such other corporation or otherwise), civil, criminal administrative or investigative, in which he or she may be involved, as a party or otherwise, by reason of his or her being or having been a director, officer or employee of the Company or such other corporation, whether or not he or she continues to be such at the time such expense or liability shall have been paid or incurred. As used in this Article XVII, the term "expense" shall mean counsel fees and disbursements and all other expenses (except any liability) relating to any such claim, -19- 21 action, suit or proceeding, and the term "liability" shall mean amounts of judgments, fines or penalties against, and amounts paid in settlement by, a director, officer or employee with respect to any such claim, action, suit or proceeding. Any person referred to in the first paragraph of this Article XVII who has been wholly successful, on the merits or otherwise, with respect to any claim, action, suit or proceeding of the character described in such first paragraph shall be reimbursed by the Company for his or her reasonable expense. Any other person claiming indemnification under the first paragraph of this Article XVII shall be reimbursed by the Company for his or her reasonable expense and for any liability (other than any amount paid to the Company) if a Referee shall deliver to the Company his or her written finding that such person acted, in good faith, in what he or she reasonably believed to be the best interests of the Company, and in addition with respect to any criminal action or proceeding, reasonably believed that his or her conduct was lawful. The termination of any claim, action, suit or proceeding by judgment, settlement (whether with or without court approval), adverse decision or conviction after trial or upon a plea of guilty or of nolo contendere, or its equivalent, shall not create a presumption that a director, officer or employee did not meet the foregoing standards of conduct. The person claiming indemnification shall at the request of the Referee appear before him or her and answer questions which the Referee deems relevant and shall be given ample opportunity to present to the Referee evidence upon which he or she relies for indemnification; and the Company shall, at the request of the Referee, make available to the Referee facts, opinions or other evidence in any way relevant for his or her finding which are within the possession or control of the Company. As used in this Article XVII, -20- 22 the term "Referee" shall mean independent legal counsel (who may be regular counsel of the Company), or other disinterested person or persons, selected to act as such hereunder by the Board of Directors of the Company, whether or not a disinterested quorum exists. Any expense incurred with respect to any claim, action, suit or proceeding of the character described in the first paragraph of this Article XVII may be advanced by the Company prior to the final disposition thereof upon receipt of an undertaking made by or on behalf of the recipient to repay such amount if it is ultimately determined that he or she is not indemnified under this Article XVII. The rights of indemnification provided in this Article XVII shall be in addition to any rights to which any such director, officer or employee may otherwise be entitled by contract or as a matter of law and, in the event of such person's death, such rights shall extend to his or her heirs and legal representatives. B. Indemnification Provisions Applicable to Proceedings Based on Acts or Omissions on or after January 27, 1987. SECTION 1. Right to Indemnification and Effect of Amendments. (a) Right to Indemnification. The Company, unless prohibited by applicable law, shall indemnify any person who is or was a director or officer of the Company and who is or was involved in any manner (including, without limitation, as a party or a witness) or is threatened to be made so involved in any threatened, pending or completed investigation, claim, action, suit or proceeding, whether civil, criminal, administrative or investigative (a Proceeding) (whether or not the indemnified liability arises or arose from any threatened, pending or completed Proceeding by or in the right of the Company) by reason of the fact -21- 23 that such person is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director or officer of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, any employee benefit plan) (a Covered Entity) against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such Proceeding; provided, however, that except as provided in Section 4(c) of this Article, the foregoing shall not apply to a director or officer of the Company with respect to a Proceeding that was commenced by such director or officer. Any director or officer of the Company entitled to indemnification as provided in this Section 1, is hereinafter called an "Indemnitee." Any right of an Indemnitee to indemnification shall be a contract right and shall include the right to receive, prior to the conclusion of any Proceeding, payment of any expenses incurred by the Indemnitee in connection with such Proceeding, consistent with the provisions of applicable law as then in effect and the other provisions of this Article. (b) Effect of Amendments. Neither the alteration, amendment or repeal of, nor the adoption of a provision inconsistent with, any provision of this Article (including, without limitation, this Section 1(b)) shall adversely affect the rights of any director or officer under this Article with respect to any Proceeding commenced or threatened, or any alleged act or omission, prior to such alteration, amendment, repeal or adoption of an inconsistent provision, without the written consent of such director or officer. SECTION 2. Insurance; Contracts and Funding. The Company may purchase and maintain insurance to protect itself and any indemnified person against any expenses, judgments, fines and amounts paid in settlement as specified in Section 1 or Section 5 of -22- 24 this Article or incurred by any indemnified person in connection with any Proceeding referred to in such Sections, to the fullest extent permitted by applicable law as then in effect. The Company may enter into contracts with any director, officer, employee or agent of the Company or of any Covered Entity in furtherance of the provisions of this Article and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to insure the payment of such amounts as may be necessary to effect indemnification as provided in this Article. SECTION 3. Indemnification and Not Exclusive Right. The right of indemnification provided in this Article shall not be exclusive of any other rights to which any indemnified person may otherwise be entitled, and the provisions of this Article shall inure to the benefit of the heirs and legal representatives of any indemnified person under this Article and shall be applicable to Proceedings arising from acts or omissions occurring on or after January 27, 1987. SECTION 4. Advancement of Expenses; Request for Indemnification; Remedies; Presumptions and Defenses. In furtherance, but not in limitation of the foregoing provisions, the following procedures, presumptions and remedies shall apply with respect to advancement of expenses and the right to indemnification under this Article: (a) Advancement of Expenses. All reasonable expenses incurred by or on behalf of the Indemnitee in connection with any Proceeding (including any Proceeding commenced by the Indemnitee under Section 4(c) but excluding any other Proceeding commenced by the Indemnitee) shall be advanced to the Indemnitee by the Company within 20 days after the receipt by the Company of a statement or statements from the Indemnitee requesting such advance or advances from time to time, whether prior to or -23- 25 after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the expenses incurred by the Indemnitee and, if required by law at the time of such advance, shall include or be accompanied by an undertaking by or on behalf of the Indemnitee to repay the amounts advanced if it should ultimately be determined that the Indemnitee is not entitled to be indemnified against such expenses pursuant to this Article. (b) Request for Indemnification. To obtain indemnification under this Article, an Indemnitee shall submit to the Secretary of the Company a written request, including such documentation and information as is reasonably available to the Indemnitee and reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification (the Supporting Documentation). (c) Remedies; Presumptions and Defenses. If (i) expenses are not advanced in full within 20 days after receipt by the Company of the statement or statements and the undertaking (if an undertaking is required by law, By-law, agreement or otherwise at the time of such advance) required by Section 4(a) of this Article, or (ii) indemnification is not paid in full within 60 days after receipt by the Company of the written request for indemnification and Supporting Documentation required by Section 4(b) of this Article, then the person claiming advancement of expenses or indemnification shall be entitled to seek judicial enforcement of the Company's obligation to pay such advancement of expenses or indemnification. It shall be a defense to any Proceeding seeking judicial enforcement of the Company's obligation to pay indemnification that the conduct of the person claiming indemnification was such that under Pennsylvania law the Company is prohibited from indemnifying such person for the amount claimed. The Company shall have the burden of proving such defense. Neither the failure of the Company (including its -24- 26 Board of Directors, independent legal counsel and its shareholders) to have made a determination prior to the commencement of such Proceeding that indemnification is proper in the circumstances, nor an actual determination by the Company (including its Board of Directors, independent legal counsel or its shareholders) that such indemnification is prohibited by law, shall be a defense to a Proceeding seeking enforcement of the provisions of this Article or create a presumption that such indemnification is prohibited by law. The only defense to any such Proceeding to receive payment of expenses in advance shall be failure to make an undertaking to reimburse, if such an undertaking is required by law, By-law, agreement or otherwise. Notwithstanding the foregoing, the Company may bring an action, in an appropriate court in the Commonwealth of Pennsylvania or any other court of competent jurisdiction, contesting the right of a person claiming advancement of expenses or indemnification to receive such advancement or indemnification hereunder because such advancement or indemnification is prohibited by law; provided, however, that in any such action the Company shall have the burden of proving that such advancement or indemnification is prohibited by law. The Company shall be precluded from asserting in any action or Proceeding commenced pursuant to this Section 4(c) that the procedure and presumptions of this Article are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Article. If the person claiming advancement of expenses or indemnification, pursuant to this Section 4(c), seeks to enforce his or her rights under, or to recover damages for breach of this Article, that person shall be entitled to recover from the Company, and shall be indemnified by the Company against, any expenses actually and reasonably incurred by such person if such person prevails in such Proceeding. If it shall be determined in such Proceeding that such person is entitled to receive part but not all of the indemnification or advancement of expenses sought, the expenses incurred by -25- 27 such person in connection with such Proceeding shall be prorated accordingly. SECTION 5. Indemnification of Employees and Agents. Notwithstanding any other provision or provisions of this Article, the Company, unless prohibited by applicable law, may indemnify any person other than a director or officer of the Company who is or was an employee or agent of the Company and who is or was involved in any manner (including, without limitation, as a party or a witness) or is threatened to be made so involved in any threatened, pending or completed Proceeding by reason of the fact that such person is or was a director, officer, employee or agent of a Covered Entity against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such Proceeding. The Company may also advance expenses incurred by such employee or agent in connection with any such Proceeding, consistent with the provisions of applicable law as then in effect. SECTION 6. Severability. If any provision or provisions of this Article shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Article (including, without limitation, all portions of any Section of this Article containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Article (including, without limitation, all portions of any Section of this -26- 28 Article containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. ARTICLE XVIII DIRECTOR LIABILITY To the fullest extent that the law of the Commonwealth of Pennsylvania, as it exists on January 27, 1987, or as it may thereafter be amended, permits the elimination of the liability of directors, no director of the Company shall be liable for monetary damages for any action taken, or any failure to take any action. This Article shall not apply to any breach of performance of duty or any failure of performance of duty by any director occurring prior to January 27, 1987. No amendment to or repeal of this Article shall apply to or have any effect on the liability or alleged liability of any director of the Company for or with respect to any act or failure to act on the part of such director occurring prior to such amendment or repeal. ARTICLE XIX PENNSYLVANIA OPT OUT A. "Subsections (e) through (g) of Section 1721, "Board of Directors," of Title 15 of the Pennsylvania Consolidated Statutes, or any successor subsections thereto, shall not be applicable to the Company. -27- 29 B. Subchapter G, "Control-Share Acquisitions," of Chapter 25, Title 15 of the Pennsylvania Consolidated Statutes, or any successor subchapter thereto, shall not be applicable to the Company. C. Subchapter H, "Disgorgement By Certain Controlling Shareholders Following Attempts to Acquire Control," of Chapter 25, Title 15 of the Pennsylvania Consolidated Statutes, or any successor subchapter thereto, shall not be applicable to the Company." ARTICLE XX AMENDMENTS The By-laws of the Company, regardless of whether adopted by the shareholders or by the Board of Directors, may be altered, amended or repealed by the Board of Directors, to the extent permitted by applicable law, or, subject to Article I hereof, by the shareholders. Such action at a meeting of the Board of Directors shall be taken by the affirmative vote of a majority of the members of the Board of Directors in office at the time; and such action by the shareholders shall be taken by the affirmative vote of the holders of 80% of the shares of capital stock of the Company entitled to vote thereon. These By-laws are subject to any requirements of law, any provisions of the Articles of the Company, as from time to time amended, and any terms of any series of preferred stock or any other securities of the Company. -28- 30 ARTICLE XXI CONFIDENTIALITY IN VOTING Shareholders shall be provided permanent confidentiality in all voting, except as necessary to meet applicable legal requirements. The Company shall engage the services of an independent third party to receive, inspect, count and tabulate proxies. A representative of the independent third party shall also act as a judge of election at the annual meeting of shareholders. -29- 31 TABLE OF CONTENTS ----------------- Page Article I Meetings of Shareholders............................1 Article II Board of Directors - Committees - Their Powers and Duties.............................6 Article III Contributions.......................................9 Article IV Election and Term of Chairman of the Board and Officers..............................9 Article V Meetings of Directors..............................10 Article VI Chairman of the Board..............................13 Article VII President; Chief Executive Officer.................13 Article VIII Secretary..........................................14 Article IX Treasurer..........................................14 Article X Assistant Secretary, Assistant Treasurer and Other Officers.................................15 Article XI Corporate Seal.....................................16 Article XII Certificates of Stock..............................16 Article XIII Transfers of Stock.................................17 Article XIV Rights.............................................18 Article XV Fiscal Year........................................18 Article XVI Certain Issues of Stock............................18 Article XVII Indemnification....................................19 Article XVIII Director Liability.................................27 Article XIX Pennsylvania Opt Out...............................27 Article XX Amendments.........................................28 Article XXI Confidentiality in Voting..........................29 EX-10.B 5 CBS CORPORATION 1 Exhibit 10(b) 1993 LONG-TERM INCENTIVE PLAN (as amended as of January 28, 1998) ARTICLE I GENERAL 1.1 Purpose The purposes of the 1993 Long-Term Incentive Plan ("Plan") for key personnel of CBS Corporation (formerly known as Westinghouse Electric Corporation) ("Corporation") and its Subsidiaries (the Corporation and its Subsidiaries severally and collectively referred to in the Plan as the "Company") are to foster and promote the long-term financial success of the Company and materially increase stockholder value by (i) attracting and retaining key personnel of outstanding ability, (ii) strengthening the Company's capability to develop, maintain and direct a competent management team, (iii) motivating key personnel, by means of performance-related incentives, to achieve long-range performance goals, (iv) providing incentive compensation opportunities competitive with those of other major companies and (v) enabling key personnel to participate in the long-term growth and financial success of the Company. 1.2 Administration (a) The Plan will be administered by a committee of the Board of Directors of the Corporation ("Committee") which will consist of two or more members. Each member will be a "non-employee director," as that term is defined by Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as such rule may be amended, or any successor rule, and an "outside director," as that term is defined by Section 162(m) of the Internal Revenue Code of 1986, as amended. The members will be appointed by the Board of Directors, and any vacancy on the Committee will be filled by the Board of Directors or in a manner authorized by the Board. The Committee will keep minutes of its meetings and of any action taken by it without a meeting. A majority of the Committee will constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present will be the acts of the Committee. Any action that may be taken at a meeting of the Committee may be taken without a meeting if a consent or consents in writing setting forth the action so taken is signed by all of the members of the Committee. The Committee will make appropriate reports to the Board of Directors concerning the operations of the Plan. (b) Subject to the limitations of the Plan, the Committee will have the sole and complete authority: (i) to select in accordance with Section 1.3 persons who will participate in the Plan ("Participant" or "Participants") (including the right to delegate authority to select as Participants persons who are not required to file reports with respect to securities of the Company pursuant to Section 16(a) of the Exchange Act ("Nonreporting Persons")); (ii) to make Awards and payments in such forms and amounts as it may determine (including the right to delegate authority to make -1- 2 Awards to Nonreporting Persons within limits approved from time to time by the Committee); (iii) to impose such limitations, restrictions and conditions upon such Awards as the Committee, or, with respect to Awards to Nonreporting Persons, the Committee's authorized delegates, deems appropriate; (iv) to interpret the Plan and the terms of any document relating to the Plan and to adopt, amend and rescind administrative guidelines and other rules and regulations relating to the Plan; (v) to amend or cancel an existing Award in whole or in part (including the right to delegate authority to amend or cancel an existing Award to a Nonreporting Person in whole or in part within limits approved from time to time by the Committee), except that the Committee and its authorized delegates may not, unless otherwise provided in the Plan, or unless the Participant affected thereby consents, take any action under this clause that would adversely affect the rights of such Participant with respect to the Award, and except that the Committee and its authorized delegates may not take any action to amend any outstanding Option under the Plan in order to decrease the Option Price under such Option or to cancel and replace any such Option with an Option with a lower Option Price unless such action is approved by the common stockholders of the Corporation; and (vi) to make all other determinations and to take all other actions necessary or advisable for the interpretation, implementation and administration of the Plan. The Committee's determinations on matters within its authority will be conclusive and binding upon the Company and all other persons. (c) The Committee will act with respect to the Plan on behalf of the Corporation and on behalf of any Subsidiary issuing stock under the Plan, subject to appropriate action by the board of directors of any such Subsidiary. All expenses associated with the Plan will be borne by the Corporation subject to such allocation to its Subsidiaries and operating units as it deems appropriate. 1.3 Selection for Participation Participants selected by the Committee (or its authorized delegates) must be Eligible Persons, as defined below, who are key employees and have the capacity to contribute to the success of the Company. "Eligible Persons" are persons who are salaried employees of the Company ("Employee" or "Employees"). In making this selection and in determining the form and amount of Awards, the Committee may give consideration to the functions and responsibilities of the Eligible Person, his or her past, present and potential contributions to the Company and other factors deemed relevant by the Committee. 1.4 Types of Awards under Plan Awards ("Awards") under the Plan may be in the form of any one or more of the following: (i) Incentive Stock Options ("ISOs") and Non-statutory Stock options ("NSOs") (Incentive Stock Options and Non-statutory Stock Options severally and collectively referred to in the Plan as "Options"), as described in Article II; (ii) Stock Appreciation Rights ("SARs") and Limited Stock Appreciation Rights ("Limited Rights"), as described in Article III; (iii) Performance Awards ("Performance Awards") as described in Article IV; and (iv) Restricted Stock ("Restricted Stock") as described in Article V. -2- 3 1.5 Shares Subject to the Plan Shares of stock issued under the Plan may be in whole or in part authorized and unissued or treasury shares of the Corporation's common stock, par value $1.00 ("Common Stock"), or "Formula Value Stock" as defined in Section 8.12(d) (Common Stock and Formula Value Stock severally and collectively referred to in the Plan as "Stock"). The maximum number of shares of Stock which may be issued for all purposes under the Plan will be 4,000,000 increased on January 1 of each calendar year from and including 1994 to and including 2003 by a number of shares equal to one percent (1%) of the number of shares of Stock outstanding on December 31 of the preceding year. The maximum number of such shares which may be issued pursuant to the exercise of ISOs will be 1,000,000 increased on January 1 of each calendar year from and including 1994 to and including 2003 by 1,000,000 shares. The maximum number of such shares subject to options to purchase Stock, SARs and Limited Rights under the Plan awarded to any one Participant in any one calendar year may not exceed 3,500,000 shares plus unused share amounts that could have been awarded to that Participant in previous calendar years. Except as otherwise provided below, any shares of Stock subject to an Option or other Award which is canceled or terminates without having been exercised will again be available for Awards under the Plan. Shares subject to an option canceled upon the exercise of an SAR will not again be available for Awards under the Plan except to the extent the SAR is settled in cash. To the extent that an Award is settled in cash, shares of Stock subject to that Award will again be available for Awards. Shares of Stock tendered by a Participant or withheld by the Company to pay the exercise price of an Option or to satisfy the tax withholding obligations of the exercise or vesting of an Award will be available again for Awards under the Plan, but only to Nonreporting Persons. Shares of Restricted Stock forfeited to the Company in accordance with the Plan and the terms of the particular Award will be available again for Awards under the Plan unless the Participant has received the benefits of ownership (within the applicable interpretation under Rule 16b-3 under the Exchange Act), in which case such shares may only be available for Awards to Nonreporting Persons. No fractional shares will be issued, and the Committee will determine the manner in which fractional share value will be treated. ARTICLE II STOCK OPTIONS 2.1 Award of Stock Options The Committee may, from time to time, subject to the provisions of the Plan and such other terms and conditions as the Committee may prescribe, award to any Participant ISOs -3- 4 and NSOs to purchase Stock. The Committee may provide with respect to any option to purchase Stock that, if the Participant, while an Eligible Person, exercises the option in whole or in part using already-owned Stock, the Participant will, subject to this Section 2.1 and such other terms and conditions as may be imposed by the Committee, receive an additional option ("Reload Option"). The Reload Option will be to purchase, at Fair Market Value as of the date the original option was exercised, a number of shares of Stock equal to the number of whole shares used by the Participant to exercise the original option. The Reload Option will be exercisable only between the date of its grant and the date of expiration of the original option. A Reload Option will be subject to such additional terms and conditions as the Committee may approve, which terms may provide that the Committee may cancel the Participant's right to receive the Reload Option and that the Reload Option will be granted only if the Committee has not canceled such right prior to the exercise of the original option. Such terms may also provide that, upon the exercise by a Participant of a Reload Option while an Eligible Person, an additional Reload Option will be granted with respect to the number of whole shares used to exercise the first Reload Option. 2.2 Stock Option Agreements The award of an option will be evidenced by a signed written agreement ("Stock Option Agreement") containing such terms and conditions as the Committee may from time to time determine. 2.3 Option Price The purchase price of Stock under each Option ("Option Price") will not be less than the Fair Market Value of such Stock on the date the Option is awarded. 2.4 Exercise and Term of Options (a) Except as otherwise provided in the Plan, Options will become exercisable at such time or times as the Committee may specify. The Committee may at any time and from time to time accelerate the time at which all or any part of the Option may be exercised. (b) The Committee will establish procedures governing the exercise of options and will require that notice of exercise be given. Stock purchased on exercise of an option must be paid for as follows: (1) in cash or by check (acceptable to the Company in accordance with guidelines established for this purpose), bank draft or money order payable to the order of the Company or (2) if so provided by the Committee (not later than the time of grant, in the case of an ISO) (i) through the delivery of shares of Stock which are then outstanding and which have a Fair Market Value on the date of exercise equal to the exercise price, (ii) by delivery of an unconditional and irrevocable undertaking by a broker to deliver promptly to the Company -4- 5 sufficient funds to pay the exercise price, or (iii) by any combination of the permissible forms of payment. 2.5 Termination of Eligibility In the event the Participant is no longer an Eligible Person and ceased to be such as a result of termination of service to the Company with the consent of the Committee or as a result of his or her death, retirement or disability, each of his or her outstanding Options (whether held by the Participant or, if the Option is an NSO that has been transferred to a Permissible Transferee (as defined in Section 8.12) in accordance with Section 8.1, by that Permissible Transferee) will be exercisable by the Participant (or his or her legal representative or designated beneficiary) or Permissible Transferee, as the case may be, to the extent that such Option was then exercisable, at any time prior to an expiration date established by the Committee at the time of award, but in no event after such expiration date. If the Participant ceases to be an Eligible Person for any other reason, all of the Participant's then outstanding Options (whether held by the Participant or, if the Option is an NSO that has been transferred to a Permissible Transferee in accordance with Section 8.1, by that Permissible Transferee) will terminate immediately. ARTICLE III STOCK APPRECIATION RIGHTS AND LIMITED RIGHTS 3.1 Award of Stock Appreciation Right (a) An SAR is an Award entitling the recipient on exercise to receive an amount, in cash or Stock or a combination thereof (such form to be determined by the Committee), determined in whole or in part by reference to appreciation in Stock value. (b) In general, an SAR entitles the Participant to receive, with respect to each share of Stock as to which the SAR is exercised, the excess of the share's Fair Market Value on the date of exercise over its Fair Market Value on the date the SAR was granted. (c) SARs may be granted in tandem with options granted under the Plan ("Tandem SARS") or independently of Options ("Independent SARs"). An SAR granted in tandem with an NSO may be granted either at or after the time the option is granted. An SAR granted in tandem with an ISO may be granted only at the time the option is granted. (d) SARs awarded under the Plan will be evidenced by either a Stock Option Agreement (when SARs are granted in tandem with an Option) or a separate agreement between the Company and the Participant. (e) Except as otherwise provided herein, a Tandem SAR will be exercisable only at the same time and to the same extent and subject to the same conditions as the option related thereto is exercisable, and the Committee may prescribe additional conditions and limitations on -5- 6 the exercise of the SAR. The exercise of a Tandem SAR will cancel the related Option. Tandem SARs may be exercised only when the Fair Market Value of Stock to which it relates exceeds the Option Price. (f) Except as otherwise provided herein, an Independent SAR will become exercisable at such time or times, and on such conditions, as the Committee may specify, and the Committee may at any time accelerate the time at which all or any part of the SAR may be exercised. The Committee may provide, under such terms and conditions as it may deem appropriate, for the automatic grant of additional SARs upon the full or partial exercise of an Independent SAR. Any exercise of an Independent SAR must be in writing, signed by the proper person and delivered or mailed to the Company, accompanied by any other documents required by the Committee. (g) Except as otherwise provided herein, all SARs will automatically be exercised on the last trading day prior to the expiration date established by the Committee at the time of the award for the SAR, or, in the case of a Tandem SAR, for the related Option, so long as exercise on such date will result in a payment to the Participant. (h) Unless otherwise provided by the Committee, no SAR will become exercisable or will be automatically exercised for six months following the date on which it was granted or the effective date of the Plan, whichever is later. (i) At the time of award of an SAR, the Committee may limit the amount of the payment that may be made to a Participant upon the exercise of the SAR. The Committee may further determine that, if the amount to be received by a Participant in any year is limited pursuant to this provision, payment of all or a portion of the amount that is unpaid as a result of the limitation may be made to the Participant at a subsequent time. No such limitation will require a Participant to return to the Company any amount theretofore received by him or her upon the exercise of an SAR. (j) Payment of the amount to which a Participant is entitled upon the exercise of an SAR will be made in cash, Stock, or partly in cash and partly in Stock, as the Committee may determine. To the extent that payment is made in Stock, the shares will be valued at their Fair Market Value on the date of exercise of the SAR. (k) Each SAR will expire on a date determined by the Committee or earlier upon the occurrence of the first of the following: (i) in the case of a Tandem SAR, termination of the related option, (ii) expiration of a period of six months after the Participant's ceasing to be an Eligible Person as a result of termination of service to the Company with the consent of the Committee or as a result of his or her death, retirement or disability, or (iii) the Participant -6- 7 ceasing to be an Eligible Person for any other reason. 3.2 Limited Rights (a) The Committee may award Limited Rights pursuant to the provisions of this Section 3.2 to the holder of an Option to purchase Common Stock granted under the Plan (a "Related Option") with respect to all or a portion of the shares subject to the Related Option. A Limited Right may be exercised only during the period beginning on the first day following a Change in Control, as defined in Section 7.2 of the Plan, and ending on the thirtieth day following such date. Each Limited Right will be exercisable only to the same extent that the Related Option is exercisable, and in no event after the termination of the Related Option. In no event may a Limited Right be exercised during the first six months after the date of grant of the Limited Right or the effective date of the Plan, whichever is later. Limited Rights will be exercisable only when the Fair Market Value (determined as of the date of exercise of the Limited Rights) of each share of Common Stock with respect to which the Limited Rights are to be exercised exceeds the Option Price per share of Common Stock subject to the Related option. (b) Upon the exercise of Limited Rights, the Related Option will be considered to have been exercised to the extent of the number of shares of Common Stock with respect to which such Limited Rights are exercised. Upon the exercise or termination of the Related Option, the Limited Rights with respect to such Related Option will be considered to have been exercised or terminated to the extent of the number of shares of Common Stock with respect to which the Related Option was so exercised or terminated. (c) The effective date of the grant of a Limited Right will be the date on which the Committee approves the grant of such Limited Right. Each grantee of a Limited Right will be notified promptly of the grant of the Limited Right in such manner as the Committee prescribes. (d) Upon the exercise of Limited Rights, the holder thereof will receive in cash an amount equal to the product computed by multiplying (i) the excess of (a) the higher of (x) the Minimum Price Per Share (as hereinafter defined), or (y) the highest reported closing sales price of a share of Common Stock on the New York Stock Exchange at any time during the period beginning on the sixtieth day prior to the date on which such Limited Rights are exercised and ending on the date on which such Limited Rights are exercised, over (b) the Option Price per share of Common Stock subject to the Related Option, by (ii) the number of shares of Common Stock with respect to which such Limited Rights are being exercised. (e) For purposes of this Section 3.2, the term "Minimum Price Per Share" will mean the highest gross price (before brokerage commissions and soliciting dealers' fees) paid or to be paid for a share of Common Stock (whether by way of exchange, conversion, distribution upon liquidation or otherwise) in any Change in Control which is in effect at any time during the period beginning on the sixtieth day prior to the date on which such Limited Rights are exercised and ending on the date on which such Limited Rights are exercised. For purposes of this definition, if the consideration paid or to be paid in any such Change in Control will consist, in -7- 8 whole or in part, of consideration other than cash, the Board will take such action, as in its judgement it deems appropriate, to establish the cash value of such consideration. ARTICLE IV PERFORMANCE AWARDS 4.1 Nature of Performance Awards A Performance Award provides for the recipient to receive an amount in cash or Stock or a combination thereof (such form to be determined by the Committee) following the attainment of Performance Goals. Performance Goals may be related to personal performance, corporate performance (including corporate stock performance), departmental performance or any other category of performance deemed by the Committee to be important to the success of the Company. The Committee will determine the Performance Goals, the period or periods during which performance is to be measured and all other terms and conditions applicable to the Award. Regardless of the degree to which Performance Goals are attained, a Performance Award will be paid only when, if and to the extent that the Committee determines to make such payment. 4.2 Other Awards Subject to Performance Condition The Committee may, at the time any Award described in this Plan is granted, impose the condition (in addition to any conditions specified or authorized in the Plan) that Performance Goals be met prior to the Participant's realization of any payment or benefit under the Award. ARTICLE V RESTRICTED STOCK 5.1 Award of Restricted Stock The Committee may award to any Participant shares of Stock subject to this Article V and such other terms and conditions as the Committee may prescribe, such Stock referred to herein as "Restricted Stock." Each certificate for Restricted Stock will be registered in the name of the Participant and deposited by him or her, together with a stock power endorsed in blank, with the Corporation. 5.2 Restricted Stock Agreement Shares of Restricted Stock awarded under the Plan will be evidenced by a signed written agreement containing such terms and conditions as the Committee may determine. -8- 9 5.3 Restriction Period At the time of award, there will be established for each Participant a "Restriction Period" of such length as the Committee determines. The Restriction Period may be waived by the Committee. Shares of Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered, except as hereinafter provided, during the Restriction Period. Subject to such restriction on transfer, the Participant as owner of such shares of Restricted Stock will have the rights of the holder of such Restricted Stock, except that the Committee may provide at the time of the Award that any dividends or other distributions paid on such Stock during the Restriction Period will be accumulated and held by the Company and will be subject to forfeiture under Section 5.4. Upon the expiration or waiver by the Committee of the Restriction Period, the Corporation will redeliver to the Participant (or his or her legal representative or designated beneficiary) the shares deposited pursuant to Section 5.1. 5.4 Termination of Eligibility In the event the Participant is no longer an Eligible Person and ceased to be such as a result of termination of service to the Company with the consent of the Committee, or as a result of his or her death, retirement or disability, the restrictions imposed under this Article V will lapse with respect to such number of shares theretofore awarded to him or her as may be determined by the Committee. All other shares of Restricted Stock theretofore awarded to him or her which are still subject to restrictions, along with any dividends or other distributions thereon that have been accumulated and held by the Company, will be forfeited, and the Corporation will have the right to complete the blank stock power. In the event the Participant ceases to be an Eligible Person for any other reason, all shares of Restricted Stock theretofore awarded to him or her which are still subject to restrictions, along with any dividend or other distributions thereon that have been accumulated and held by the Company, will be forfeited, and the Corporation will have the right to complete the blank stock power. ARTICLE VI DEFERRAL OF PAYMENTS 6.1 Deferral of Amounts If the Committee makes a determination to designate Awards or, from time to time, groups or types of Awards, eligible for deferral hereunder, a Participant may, subject to such terms and conditions and within such limits as the Committee may from time to time establish, elect to defer the receipt of amounts due to him or her under the Plan. Amounts so deferred are referred to herein as "Deferred Amounts." The Committee may also permit amounts now or -9- 10 hereafter deferred or available for deferral under any present or future incentive compensation program or deferral arrangement of the Company to be deemed Deferred Amounts and to become subject to the provisions of this Article. Awards which are so deferred will be deemed to have been awarded in cash and the cash deferred as Deferred Amounts. The period between the date on which the Participant's Deferred Amount would have been payable absent deferral and the final payment of such Deferred Amount will be referred to herein as the "Deferral Period." 6.2 Investment During Deferral Period Unless otherwise determined by the Committee, and subject to such changes as the Committee may determine, the Deferred Amount will be treated during the Deferral Period as if it were invested in putative convertible debentures with a fixed interest rate, compounded annually, for the entire Deferral Period. For purposes of determining the value of the Deferred Amount at the time of payment, each putative debenture will be deemed to be convertible into Common Stock at a conversion rate computed by reference to the Fair Market Value of the Common Stock on the last trading day prior to the regular January meeting of the Board of Directors on or preceding the date of deferral. Payment of Deferred Amounts may be made in cash, Stock, or partly in cash and partly in Stock, in the Committee's sole discretion. 6.3 Participant Reports Annually, each Participant who has a Deferred Amount will receive a report setting forth all of his or her then Deferred Amounts and the yield thereon to date. 6.4 Payment of Deferred Amounts Payment of Deferred Amounts will be made at such time or times, and may be in cash, Stock, or partly in cash and partly in Stock, as the Committee from time to time determines. The limitations respecting the issuance of Stock or other limitations on aggregate awards payable contained in the Annual Performance Plan of the Corporation, Article XVI of the by-laws of the Corporation, the 1974 Stock Option Plan, the 1979 Stock Option and Long-Term Incentive Plan, the 1984 Long-Term Incentive Plan, the Plan and in any plan hereafter adopted by the stockholders will be limitations applicable to the payment of any Deferred Amounts under this Article VI. 6.5 Alternative Valuation Election Unless otherwise determined by the Committee, a Participant may, at a time established by the Committee, but prior to such Participant's ceasing to be an Eligible Person, elect to establish the ultimate payable value of each Deferred Amount by reference to the Fair Market Value of the Common Stock as of the day on which an alternate valuation election is received by the corporation in accordance with procedures established by the Committee. -10- 11 Notwithstanding the establishment of the ultimate payable value resulting from the alternate valuation election by the Participant, the yield will continue as though no such election had been made and will continue to be subject to the limitations set forth in Section 6.2, and Deferred Amounts and the yield thereon will be paid as otherwise provided in this Article. ARTICLE VII CHANGES IN CONTROL 7.1 Effect of Change in Control Notwithstanding any other provision of the Plan, upon the occurrence of a Change in Control, as defined in Section 7.2: (i) all Options and, subject to the exercise provisions of Section 3.2(a) of the Plan, Limited Rights, but not SARS, outstanding and unexercised on the date of the Change in Control will become immediately exercisable; (ii) all Performance Awards will be deemed to have been earned on such basis as the Committee may prescribe and then paid on such basis, at such time and in such form as the Committee may prescribe, or deferred in accordance with the elections of Participants; (iii) all Restricted Stock will be deemed to be earned and the Restriction Period will be deemed expired on such terms and conditions as the Committee may determine; and (iv) all amounts deferred under this Plan will be paid to a trustee or otherwise on such terms as the Committee may prescribe or permit. 7.2 Definition of Change in Control The term "Change in Control" means the occurrence of one or more of the following events: (a) there shall be consummated (i) any consolidation or merger of the Corporation in which the Corporation is not the continuing or surviving corporation or pursuant to which shares of the Common Stock would be converted into cash, securities or other property, other than a merger of the Corporation in which the holders of Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation, or (b) the stockholders of the Corporation shall approve any plan or proposal for the liquidation or dissolution of the Corporation, or (c) (i) any person (as such term is defined in Section 13(d) of the Exchange Act), corporation or other entity shall purchase any Common Stock of the Corporation (or securities convertible into Common Stock) for cash, securities or any other consideration pursuant to a tender offer or exchange offer, unless, prior to the making of such purchase of Common Stock (or securities convertible into Common Stock), the Board shall determine that the making of such purchase shall not constitute a Change in Control, or (ii) any person (as such term is defined in Section 13(d) of the Exchange Act), corporation or other entity (other than the Corporation or any benefit plan sponsored by the Corporation or any of its subsidiaries) shall be the "beneficial owner" (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing twenty percent -11- 12 or more of the combined voting power of the Corporation's then outstanding securities ordinarily (and apart from any rights accruing under special circumstances) having the right to vote in the election of directors (calculated as provided in Rule 13d-3(d) in the case of rights to acquire any such securities), unless, prior to such person so becoming such beneficial owner, the Board shall determine that such person so becoming such beneficial owner shall not constitute a Change in Control, or (d) at any time during any period of two consecutive years, individuals who at the beginning of such period constituted the entire Board shall cease for any reason to constitute at least a majority thereof, unless the election or nomination for election of each new director during such two-year period was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such two-year period. ARTICLE VIII GENERAL PROVISIONS 8.1 Non-Transferability No Option, Limited Right, SAR, Performance Award or share of Restricted Stock or Deferred Amount under the Plan will be transferable other than by will, by the applicable laws of descent and distribution, or by transfer to a properly designated beneficiary in the event of death; provided, however, that the Committee may, in its sole discretion, permit the transfer of an NSO Option (including any Tandem SARs or Limited Rights) by a Participant to a Permissible Transferee (as defined in Section 8.12) subject to such terms and conditions as the Committee may, from time to time, determine. All Awards and Deferred Amounts will be exercisable or received during the Participant's lifetime only by such Participant or his or her legal representative or, in the case of an NSO Option (including any Tandem SARs or Limited Rights) that has been transferred to a Permissible Transferee in accordance with this Section 8.1, by that Permissible Transferee. Any transfer contrary to this Section 8.1 will nullify the option, Limited Right, SAR, Performance Award or share of Restricted Stock, and any attempted transfer of a Deferred Amount contrary to this Section 8.1 will be void and of no effect. 8.2 Beneficiaries The Committee may establish or authorize the establishment of procedures not inconsistent with Section 8.1 under which a Participant may designate a beneficiary or beneficiaries to hold, exercise and/or receive amounts due under an Award or with respect to Deferred Amounts in the event of the Participant's death. 8.3 Adjustments Upon Changes in Stock If there is any change in the Stock of the Company, through merger, consolidation, reorganization, recapitalization, stock dividend, stock split, split up, dividend in kind or other change in the corporate structure or distribution to the stockholders, appropriate adjustments may be made by the Board of Directors of the Company (or if the Company is not the surviving -12- 13 corporation in any such transaction, the board of directors of the surviving corporation) in the aggregate number and kind of shares subject to the Plan, and the number and kind of shares and the price per share subject to outstanding Options or which may be issued under outstanding Performance Awards or Awards of Restricted Stock. Appropriate adjustments may also be made by the Board of Directors or the Committee in the terms of any Awards under the Plan to reflect such changes and to modify any other terms of outstanding Awards on an equitable basis, including modifications of performance targets and changes in the length of Performance Periods. 8.4 Conditions of Awards (a) The rights of a Participant with respect to any Award received under this Plan will be subject to the conditions that, until the Participant has fully received all payments, transfers and other benefits under the Award, he or she will (i) not engage, either directly or indirectly, in any manner or capacity as advisor, principal, agent, partner, officer, director, employee, member of any association or otherwise, in any business or activity which is at the time competitive with any business or activity conducted by the Company and (ii) be available, unless he or she has died, at reasonable times for consultations at the request of the Company's management with respect to phases of the business with which he or she is or was actively connected during his or her employment, but such consultations will not (except in the case of a Participant whose active service was outside the United States) be required to be performed at any place or places outside of the United States of America or during usual vacation periods or periods of illness or other incapacity. In the event that either of the above conditions is not fulfilled, the Participant will forfeit all rights to any unexercised option or SAR, or any Performance Award or Stock held which has not yet been determined by the Committee to be payable or unrestricted (and any unpaid amounts equivalent to dividends or other distributions or amounts equivalent to interest relating thereto) as of the date of the breach of condition. Any determination by the Board of Directors of the Corporation, which will act upon the recommendation of the Chief Executive Officer, that the Participant is, or has, engaged in a competitive business or activity as aforesaid or has not been available for consultations as aforesaid will be conclusive. (b) This Section 8.4 will not apply to Limited Rights. 8.5 Use of Proceeds All cash proceeds from the exercise of options will constitute general funds of the Company. 8.6 Tax Withholding The Company will withhold from any cash payment made pursuant to an Award an amount sufficient to satisfy all federal, state and local withholding tax requirements (the "withholding requirements"). -13- 14 In the case of an Award pursuant to which Stock may be delivered, the Committee will have the right to require that the Participant or other appropriate person remit to the Company an amount sufficient to satisfy the withholding requirements, or make other arrangements satisfactory to the Committee with regard to such requirements, prior to the delivery of any Stock. If and to the extent that such withholding is required, the Committee may permit the Participant or such other person to elect at such time and in such manner as the Committee provides to have the Company hold back from the shares to be delivered, or to deliver to the Company, Stock having a value calculated to satisfy the withholding requirement. In the alternative, the Committee may, at the time of grant of any such Award, require that the Company withhold from any shares to be delivered Stock with a value calculated to satisfy applicable tax withholding requirements. If at the time an ISO is exercised the Committee determines that the Company could be liable for withholding requirements with respect to a disposition of the Stock received upon exercise, the Committee may require as a condition of exercise that the person exercising the ISO agree (i) to inform the Company promptly of any disposition of Stock received upon exercise, and (ii) to give such security as the Committee deems adequate to meet the potential liability of the Company for the withholding requirements and to augment such security from time to time in any amount reasonably deemed necessary by the Committee to preserve the adequacy of such security. 8.7 Non-Uniform Determinations The Committee's determinations under the Plan, including without limitation, (i) the determination of the Participants to receive Awards, (ii) the form, amount, timing and payment of such Awards, (iii) the terms and provisions of such Awards and (iv) the agreements evidencing the same, need not be uniform and may be made by it selectively among Participants who receive, or who are eligible to receive, Awards under the Plan, whether or not such Participants are similarly situated. 8.8 Leaves of Absence; Transfers The Committee will be entitled to make such rules, regulations and determinations as it deems appropriate under the Plan in respect to any leave of absence from the Company granted to a Participant. Without limiting the generality of the foregoing, the Committee will be entitled to determine (i) whether or not any such leave of absence will be treated as if the Participant ceased to be an Employee and (ii) the impact, if any, of any such leave of absence on Awards under the Plan. In the event a Participant transfers within the Company, such Participant will not be deemed to have ceased to be an Employee for purposes of the Plan. -14- 15 8.9 General Restriction (a) Each Award under the Plan will be subject to the condition that, if at any time the Committee determines that (i) the listing, registration or qualification of shares of Stock upon any securities exchange or under any state or federal law, (ii) the consent or approval of any government or regulatory body or (iii) an agreement by the Participant with respect thereto, is necessary or desirable, then such Award will not be consummated in whole or in part unless such listing, registration, qualification, consent, approval or agreement has been effected or obtained free from any conditions not acceptable to the Committee. (b) Shares of Common Stock for use under the provisions of this Plan will not be issued until they have been duly listed, upon official notice of issuance, upon the New York Stock Exchange and such other exchanges, if any, as the Board of Directors of the Corporation determines, and a registration statement under the Securities Act of 1933 with respect to such shares has become, and is, effective. 8.10 Effective Date The Plan will be effective on the date on which it is approved by the common stockholders of the Corporation. Grants of Awards under the Plan may be made prior to that date (but not before the date on which the Plan is adopted by the Board of Directors), subject to such approval. No Award may be granted under the Plan after May 25, 2003, but Awards previously made may extend beyond that date and Reload Options and additional Reload Options provided for with respect to original options outstanding prior to that date may continue unless the Committee otherwise provides and subject to such additional terms and conditions as the Committee may provide except that all Reload Options issued after that date will be NSOs, and the provisions of Article VI of the Plan will survive and remain effective as to all present and future Deferred Amounts until such later date as the Committee or the Board of Directors may determine. The adoption of the Plan will not preclude the adoption by appropriate means of any other stock option or other incentive plan for employees. 8.11 Amendment, Suspension and Termination of Plan The Board of Directors may at any time or times amend the Plan for any purpose which may at the time be permitted by law, or may at any time suspend or terminate the Plan as to any further grants of Awards. -15- 16 8.12 Certain Definitions (a) Unless otherwise determined by the Committee, the terms "retirement" and "disability" as used under the Plan will be construed by reference to the provisions of the Westinghouse Pension Plan or other similar plan or program of the Company applicable to a Participant. (b) The term "Fair Market Value" as it relates to Common Stock means the mean of the high and low prices of the Common Stock as reported by the Composite Tape of the New York Stock Exchange (or such successor reporting system as the Committee may select) on the relevant date or, if no sale of the Common Stock has been reported for that day, the average of such prices on the next preceding day and the next following day for which there were reported sales. The term "Fair Market Value" as it relates to Formula Value Stock will mean the value determined by the Committee. (c) The term "Subsidiary" will mean, unless the context otherwise requires, any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the corporation if each of the corporations other than the last corporation in such chain owns stock possessing at least 50% of the voting power in one of the other corporations in such chain. (d) "Formula Value Stock" means shares of a class or classes of stock the value of which is derived from a formula established by the Committee which reflects such financial measures as the Committee may determine. Such shares will have such other characteristics as may be determined at time of their authorization. (e) "Permissible Transferee" means any of the following: (1) a member of the Participant's Immediate Family; (2) a trust solely for the benefit of the Participant and/or the Participant's Immediate Family; and (3) a partnership or limited liability company whose only partners or members, as the case may be, are the Participant and/or Permissible Transferees of the Participant as otherwise identified in this definition. "Immediate Family" has the meaning set forth in Rule 16a-1(e) under the Exchange Act, as such rule may be amended from time to time, or any successor rule. -16- EX-10.D 6 CBS CORPORATION 1 Exhibit 10(d) WESTINGHOUSE EXECUTIVE PENSION PLAN As Amended and Restated Effective December 4, 1997 2 TABLE OF CONTENTS
PAGE ---- Section 1. Definitions 1 Section 2. Qualification for Benefits; Mandatory Retirement 4 Section 3. Calculation of Executive Pension 5 Supplement Section 4. Death in Active Service 5 Section 5. Payment of Benefits 6 Section 6. Plan Costs 7 Section 7. Conditions to Receipt of Executive 7 Pension Supplement Section 8. Administration 7 Section 9. Modification or Termination 8 Section 10. Miscellaneous 9 Section 11. Creditors' Claims 9 Section 12. Change in Control 9 Section 13. Governing Law 11 Section 14. Severability 11 Section 15. Authority to Expand Benefits 12 Appendix A Executive Buy Back 13 Appendix B Rehired Executives 14
3 WESTINGHOUSE EXECUTIVE PENSION PLAN WHEREAS, Westinghouse Electric Corporation ("Westinghouse") established the Westinghouse Executive Pension Plan (the "Plan") in order to provide supplemental pension benefits for its eligible employees and their beneficiaries; and WHEREAS, the Plan has been established by Westinghouse primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees; and WHEREAS, the Board of Directors of Westinghouse has determined to amend the Plan in certain respects; NOW, THEREFORE, the Plan is hereby amended and restated in its entirety, effective as of December 4, 1997, as follows: Section 1. Definitions (a) Administrative Managers. Administrative Managers means the persons or entities identified from time to time by the chief executive officer of Westinghouse to serve as administrative managers for the Plan, the Westinghouse Pension Plan and certain other plans, and to have authority with respect to administration and all other fiduciary matters with respect to such plans that are not within the authority of the Financial Managers. (b) Average Annual Compensation. Average Annual Compensation means the amount determined by multiplying 12 times the average of the five highest of the Executive's December l monthly base salaries during the ten year period immediately preceding the earliest of the Executive's date of death, the Executive's actual retirement date or the Executive's Normal Retirement Date, and adding to that product the average of the Executive's five highest annual incentive compensation awards paid under the Westinghouse Annual Incentive Programs or equivalent annual program or programs during the ten-year period ending with the earliest of the year of the Executive's death, the year of the Executive's actual retirement date or the year of the Executive's Normal Retirement Date. In the case of an Eligible Affected Employee, the Executive's Effective Termination Date will be substituted for "actual retirement date" in determining Average Annual Compensation. (c) Board. Board means the Board of Directors of Westinghouse. (d) Credited Service. Credited Service shall have the same meaning as defined in the Westinghouse Pension Plan, provided for purposes of the Plan it shall also include such service with a Designated Entity or Designated Group; but it shall not include any "deemed" service which may be awarded under a special retirement window or similar arrangements. (e) Defined contribution plan. When used in the Plan, the term "defined contribution plan" shall not include (1) the Westinghouse Savings Program or any similar program of, or made -1- 4 available to employees of, an Employer, a Designated Entity or a Designated Group or (2) any amount received pursuant to a cash or deferred arrangement (as that term is defined in the Internal Revenue Code of 1986, as amended) maintained by, or made available to employees of, Westinghouse, an Employer, a Designated Entity or a Designated Group. (f) Designated Entity. Designated Entity means an Affiliated Entity or other entity that has been and is still designated by the Managers as participating in the Plan. (g) Designated Group. Designated Group means a group of employees that has been and is still both defined and designated by the Managers as participating in the Plan. (h) Employer. Employer means a participating Employer under the Westinghouse Pension Plan. (i) Executive. Executive means any Employee who is employed in a corporate grade 40 or above position or a comparable position with Westinghouse, an Employer, a Designated Entity or a Designated Group, or in a position with Westinghouse, an Employer, a Designated Entity or a Designated Group that is otherwise determined by the chief executive officer of Westinghouse or the Managers to be eligible as an Executive position under the Plan based upon the duties and responsibilities of the position, and the Employee has been so notified in writing. By participating in the Westinghouse Executive Pension Plan, an Executive is also deemed to be a "bona fide executive" and/or "high policymaking employee," as defined under the federal Age Discrimination in Employment Act, as amended. (j) Executive Benefit Service. Executive Benefit Service means the Executive's total years of Eligibility Service if: (1) the Executive was making the Maximum Contribution during each of those years; or (2) the Executive (i) was making the Maximum Contribution during each of those years after the date he or she first became an Executive and (ii) has complied with the provisions of the Executive Buy Back process (as set forth in Appendix A of the Plan) as to those years prior to his or her first becoming an Executive. The Executive Benefit Service of an Executive who did not make the Maximum Contribution during those years prior to the date he or she first became an Executive and has not complied with the Executive Buy Back process will be based solely on the period(s) of Eligibility Service during which he or she made the Maximum Contribution. (k) Executive Pension Base. Executive Pension Base means the amount determined by multiplying 1.47 percent times Average Annual Compensation times the number of years of Executive Benefit Service accrued to the earliest of the Executive's actual retirement date, the Executive's Normal Retirement Date or the date of the Executive's death; or, in the case of an Eligible Affected Employee, the Executive's Effective Termination Date. Also, in the case of an Eligible Affected Employee, in the event that benefits commence under this Plan prior to age 65, then the Executive Pension Base will be actuarially reduced by the same percentage that the Executive's benefit under the Westinghouse Pension Plan would be actuarially reduced for life annuity benefits commencing at the time. -2- 5 (l) Executive Pension Supplement. Executive Pension Supplement means the pension calculated pursuant to Sections 3 and 4 of this Plan. There will be no Executive Pension Supplement payable if the Executive's Qualified Plan Benefit equals or exceeds his or her Executive Pension Base. (m) Financial Managers. Financial Managers means the persons or entities identified from time to time by the chief executive officer of Westinghouse to serve as financial managers for the Plan, the Westinghouse Pension Plan and certain other plans, and to have authority with respect to establishing investment policy, appointing, directing, providing guidelines to and monitoring the performance of investment managers and trustees, establishing funding and actuarial policies and practices, and managing the funding, cost and financial aspects of such plans. (n) Managers. Managers means the Financial Managers and the Administrative Managers. (o) Maximum Contribution. Maximum Contribution means: (1) during such time as the Employee was eligible to participate in the Westinghouse Pension Plan, the Employee contributed the maximum amount the Employee was permitted to contribute to the Westinghouse Pension Plan, and (2) during such time as the Employee was employed by a Designated Entity or as part of a Designated Group, the Employee (i) contributed the maximum amount the Employee was permitted to contribute, if any, to that Designated Entity's or Designated Group's defined benefit pension or defined contribution plan, if any, or to such defined benefit pension or defined contribution plan as was made available to employees of said Designated Entity or Designated Group, if any, and (ii) paid Westinghouse an amount of each of his or her annual incentive compensation awards based on the maximum Westinghouse Pension Plan contribution formula applied to 50% of said awards. (p) Plan. Plan means the Westinghouse Executive Pension Plan. (q) Qualified Plan Benefit. Qualified Plan Benefit means (1) the annual amount of pension the Executive has accrued under the Westinghouse Pension Plan and any applicable defined benefit pension plan of, or made available to employees of, a Designated Entity or Designated Group based on Credited Service accumulated up to the earlier of the Executive's actual retirement date or death, (2) the amount the Executive is entitled to receive on a life annuity basis for retirement under any applicable defined contribution plan of, or made available to employees of, a Designated Entity or Designated Group, and (3) in any case where service included in the Executive's Eligibility Service also entitles that Executive to benefits under one or more retirement plans (whether a defined benefit or defined contribution plan or both) of another company, the amount the Executive is entitled to receive on a life annuity basis for retirement from those plans; provided, the method of benefit measurement, in the case of (2) and (3) above, shall be on the basis of procedures determined by the Administrative Managers on a plan-by-plan basis. The Qualified Plan Benefit does not include any early pension retirement supplement or any amount received pursuant to a cash or deferred arrangement (as that term is defined in the Internal Revenue Code of 1986, as amended) maintained by Westinghouse, an Employer, a Designated Entity or a Designated Group or any amount received pursuant to the Westinghouse Savings Program or any similar program of, or made available to employees of, an Employer, a Designated Entity or a Designated Group. In the case of an Eligible Affected Employee, the Executive's Effective Termination Date will be substituted for "actual retirement date" in determining his or her Qualified Plan Benefit. -3- 6 (r) Retirement Eligible. Retirement Eligible means that the Executive is accruing Eligibility Service and (i) has attained age 65 and completed five or more years of Eligibility Service, (ii) has attained age 60 and completed 10 or more years of Eligibility Service, (iii) has attained age 58 and completed 30 or more years of Eligibility Service, (iv) has satisfied the requirements for an immediate pension under the Special Retirement Pension provisions of the Westinghouse Pension Plan, or (v) is an Eligible Affected Employee. (s) Westinghouse. Westinghouse means Westinghouse Electric Corporation. (t) Westinghouse Annual Incentive Programs. Westinghouse Annual Incentive Programs means the Westinghouse Annual Performance Plan, the Westinghouse Annual Incentive Plan, and the former Westinghouse By-law XVI Incentive Compensation Program. (u) Westinghouse Pension Plan Definitions. Terms used in this Plan which are defined in the Westinghouse Pension Plan, as amended, shall have the same meanings unless otherwise expressly stated in this Plan. Section 2. Qualification for Benefits; Mandatory Retirement (a) Qualification for Benefits. Subject to Section 8 and other applicable provisions hereof, if any, each Executive shall be entitled to the benefits of this Plan on separation of service from Westinghouse, an Employer, a Designated Entity or a Designated Group, provided that such Executive: (i) has been employed in a position that meets the definition of Executive for five or more continuous years immediately preceding the earlier of the Executive's actual retirement date or the Executive's Normal Retirement Date; (ii) has made the Maximum Contribution during each year of Eligibility Service from the date he or she first became an Executive until the earliest of his or her date of death, actual retirement date or Normal Retirement Date; (iii) is a participant in the Westinghouse Pension Plan or in the defined benefit or defined contribution plan of, or made available to employees of, a Designated Entity or Designated Group, if any; and (iv) is Retirement Eligible on the date of voluntary or involuntary separation of service from Westinghouse, an Employer, a Designated Entity or a Designated Group or, in the case of a Surviving Spouse benefit, satisfies the requirements for benefits under Section 4 of the Plan. In the case of an Eligible Affected Employee, the Executive's Effective Termination Date will be substituted for "actual retirement date" in clauses (i) and (ii) above, and clause (iv) will not apply. (b) Mandatory Retirement. Pursuant to this Plan, Westinghouse shall be entitled, at its option, to retire any Executive who has attained sixty-five years of age and who, for the two-year period immediately before his or her retirement, has participated in this Plan, if such Executive is entitled to an immediate nonforfeitable annual retirement benefit from a pension, profit-sharing, savings or deferred compensation plan, or any combination of such plans, of Westinghouse, an Employer or any Affiliated Entity, which equals, in the aggregate, at least $44,000. The calculation of such $44,000 (or greater) amount shall be performed in a manner consistent with 29 U.S.C.A. Section 631(c)(2). -4- 7 Section 3. Calculation of Executive Pension Supplement The Executive Pension Supplement for an Executive who meets the qualifications of Section 2 of the Plan retiring on an Early, Normal or Special Retirement Date shall be calculated as follows: (a) If the Executive (i) has attained age 60 and completed 10 or more years of Eligibility Service, (ii) has attained age 65, or (iii) has satisfied the eligibility requirements for an immediate pension under the Special Retirement Pension provisions of the Westinghouse Pension Plan, the Executive Pension Supplement is determined by subtracting the Executive's Qualified Plan Benefit that would be payable if he or she elected a Life Annuity Option (after any reduction for early retirement, if applicable) from his or her Executive Pension Base. (b) If the Executive has not met the requirements of Section 3(a) above but has attained age 58 and completed 30 or more years of Eligibility Service, the Executive Pension Supplement is determined by subtracting the Executive's Qualified Plan Benefit that would be payable if he or she elected a Life Annuity Option (before any reduction for retirement prior to age 60) from his or her Executive Pension Base. If the Executive is an Eligible Affected Employee, the Executive Pension Supplement is determined by subtracting the Executive's Qualified Plan Benefit that would be payable if he or she elected a Life Annuity Option at his or her Effective Termination Date (after reduction for early retirement) from his or her Executive Pension Base (also after reduction by the same percentage for early retirement). Section 4. Death in Active Service (a) Eligibility For an Immediate Benefit. If an Executive dies in active service and, on his or her date of death, satisfies the requirements of the Surviving Spouse Benefit for Death Before Retirement provisions of the Westinghouse Pension Plan and satisfied the requirements of Section 2(a)(ii) and (iii) at the time of death, a Surviving Spouse benefit shall also be payable under this Plan if his or her Executive Pension Base exceeds his or her Qualified Plan Benefit. The duration portion of the requirement of Section 2(i) of the Plan that the Executive be employed in a position that meets the definition of Executive for five or more continuous years is waived in this case. The Surviving Spouse Benefit under this Section 4(a) shall be the Executive Pension Supplement reduced in the same manner as though the benefit were payable under the Westinghouse Pension Plan. For purposes of this paragraph, the Executive Pension Supplement shall be calculated as follows: (i) If the Executive had attained age 60 or if the Executive had completed 30 years of Eligibility Service, the Executive Pension Supplement would be calculated as described in Section 3(a); (ii) If the Executive did not meet either of the requirements set forth in subparagraph (i) above, the Executive Pension Supplement would be 80% of the difference between the Executive Pension Base and the unreduced Qualified Plan Benefit. -5- 8 (b) Eligibility for a Deferred Benefit. If an Executive dies in active service who does not satisfy the requirements of Section 4(a) above but who satisfies the requirements of the Surviving Spouse Benefit for Certain Vested Employees provisions of the Westinghouse Pension Plan and satisfied the requirements of Section 2(a)(ii) and (iii) at the time of death, a Surviving Spouse benefit shall also be payable under this Plan if his or her Executive Pension Base exceeds his or her Qualified Plan Benefit. The duration portion of the requirement of Section 2(a)(i) of the Plan that the Executive be employed in a position that meets the definition of Executive for five or more continuous years is waived in this case. The Surviving Spouse benefit under this Section 4(b) shall be the Executive Pension Supplement reduced in the same manner as though the benefit were payable under the Westinghouse Pension Plan. For purposes of this paragraph, the Executive Pension Supplement shall be calculated by subtracting the Executive's Qualified Plan Benefit (before any reductions) from his or her Executive Pension Base. Section 5. Payment of Benefits No benefits shall be payable under this Plan to any Executive whose employment terminates for any reason other than death prior to satisfying the definition of Retirement Eligible hereunder. The Executive Pension Supplement shall be paid in monthly installments, each equal to 1/12th of the annual amount determined in Section 3 or 4, whichever is applicable. If the Executive or Surviving Spouse is eligible for Plan benefits, such payments shall commence at the same time as payments under the Westinghouse Pension Plan, if any. If the Executive or Surviving Spouse is eligible for Plan benefits and is receiving payments from a defined benefit or defined contribution plan of, or made available to employees of, a Designated Entity or Designated Group and not from the Westinghouse Pension Plan, payments shall commence at the same time as payments under such Designated Entity or Designated Group plan provided the requirements of Section 2(a)(iv) have been met. The payments shall be payable for the life of the Executive or the Executive's Surviving Spouse, as the case may be. Unless the Financial Managers determine otherwise, the Executive may elect that the Executive Pension Supplement determined in Section 3 be paid in accordance with any of the optional forms of payment, other than as a lump sum, then available under the Westinghouse Pension Plan, subject to the same reductions or other provisions that apply to the elected form of payment under the Westinghouse Pension Plan. Any election hereunder as to optional forms of payment may be revoked prior to the effective date of such election, but may not be revoked on or after the Executive's actual retirement date for any reason. All elections hereunder become effective on the Executive's actual retirement date. Regardless of the form of payment elected by the Executive, after the Executive retires and begins receiving an Executive Pension Supplement a minimum of 60 times the monthly payment he or she would have received on a life annuity basis is guaranteed hereunder. -6- 9 Surviving Spouse benefits under this Plan will be paid in accordance with the form of payment made for Surviving Spouse Benefits under the Westinghouse Pension Plan. Once a Surviving Spouse Benefit determined under Section 4(a) has commenced, a minimum of 60 times the monthly benefit payable to the Surviving Spouse is guaranteed hereunder. In the event that an Executive retires or otherwise ceases to be an Employee of Westinghouse, an Employer, a Designated Entity or a Designated Group and is later rehired by one of those entities, the additional provisions set forth in Appendix B to the Plan will apply. Section 6. Plan Costs Benefits payable under the Plan and any expenses in connection therewith will be paid by Westinghouse to the extent they are not available to be paid from any trust fund established by Westinghouse to help defray the costs of providing Plan benefits. Section 7. Conditions to Receipt of Executive Pension Supplement Payments of benefits under this Plan to Executives are subject to the condition that the recipient shall not engage directly or indirectly in any business which is at the time competitive with any business or part thereof, or activity then conducted by, Westinghouse, any of its subsidiaries or any other corporation, partnership, joint venture or other entity of which Westinghouse directly or indirectly holds a 10% or greater interest (together, the "Company") in the area in which such business, or part thereof, or activity is then being conducted by the Company, unless such condition is specifically waived with respect to such recipient by the Westinghouse Board of Directors. Breach of the condition contained in the preceding sentence shall be deemed to occur immediately upon an Executive's engaging in competitive activity. Payments suspended for breach of the condition shall not thereafter be resumed whether or not the Executive terminates the competitive activity. A recipient shall be deemed to be engaged in such a business indirectly if he or she is an employee, officer, director, trustee, agent or partner of, or a consultant or advisor to or for, a person, firm, corporation, association, trust or other entity which is engaged in such a business or if he or she owns, directly or indirectly, in excess of five percent of any such firm, corporation, association, trust or other entity. The ongoing condition of this Section 7 shall not apply to an Executive age 65 or older. Section 8. Administration This Plan shall be administered by the Administrative Managers. The Administrative Managers shall have the right to make reasonable rules from time to time regarding the Plan; such rules shall be consistent with the policy provided herein. The Administrative Managers shall have full and absolute discretion and authority to control and manage the operation and administration of the Plan, and to interpret and apply the terms of the Plan. This full and absolute discretion and authority shall include the power to interpret, construe and apply the provisions of the Plan, and any construction adopted by the Administrative Managers in good faith shall be final and binding. In accordance with the provisions of Section 503 of the Employee Retirement Income Security Act of 1974, the Administrative Managers shall provide a procedure for handling claims of -7- 10 participants or their beneficiaries under this Plan. Such procedure shall be in accordance with regulations issued by the Secretary of Labor and shall provide adequate written notice within a reasonable period of time with respect to the denial of any such claim as well as a reasonable opportunity for a full and fair review of any such denial. The Board may authorize the establishment of one or more trusts and the appointment of a trustee or trustees ("Trustee") to hold any and all assets of the Plan in trust. Section 9. Modification or Termination (a) Westinghouse reserves the right, at any time and from time to time, without notice, to suspend or terminate the Plan or to amend, in whole or in part, any and all provisions of the Plan, acting as follows: (i) The Board may suspend the Plan, terminate the Plan, or adopt Plan amendments that amend any and all provisions of the Plan in whole or in part; (ii) The Compensation Committee of the Board may adopt Plan amendments that amend any and all provisions of the Plan in whole or in part; (iii) The Managers may adopt Plan amendments that amend any and all provisions of the Plan in whole or in part, provided that no amendments may be adopted by the Managers that would materially change any Plan benefits or materially increase the costs of the Plan; and (iv) The Administrative Managers may adopt Plan amendments that relate solely to the administration of the Plan and do not materially change any Plan benefits or materially increase the costs of the Plan. Any such change, termination or suspension shall be effective at such time as is specified by the Board, the Compensation Committee, the Managers, or the Administrative Managers, as applicable, or, if no such time is so specified, upon the adoption thereof. (b) Notwithstanding the above, no such change or termination may adversely affect (i) the benefits of any Executive who retires prior to such change or termination or (ii) the right of any then current Executive to receive upon retirement (or to have a Surviving Spouse or beneficiary receive upon the Executive's death), an Executive Pension Supplement, calculated as of the effective date of such change or termination, under the Plan provided that the Executive meets the following two conditions: (1) at the time of such change or termination the Executive has vested pension benefits under the Westinghouse Pension Plan and/or any applicable pension plan of a Designated Entity or Designated Group, and (2) at the date of such change or termination and at the date of actual retirement or death the Executive has occupied, for the then required period next preceding such dates, a position that meets the definition of Executive in Section 1(i) of this Plan as in effect at the date of such change or termination. -8- 11 Section 10. Miscellaneous (a) No Executive, former Executive or Surviving Spouse shall have the right to anticipate, alienate, sell, transfer, assign, pledge, encumber, or otherwise subject to lien any of the benefits provided under this Plan. Such rights may not be subject to the debts, contracts, liabilities, engagements or torts of the Executive, former Executive or Surviving Spouse of an Executive. (b) If, in the opinion of Westinghouse, a person to whom a benefit is payable is unable to care for his or her affairs because of illness, accident or any other reason, any payment due the person, unless prior claim therefore shall have been made by a duly qualified guardian or other duly appointed and qualified representative of such person, may be paid to some member of the person's family, or to some other party who, in the opinion of Westinghouse, has incurred expense for such person. Any such payment shall be a payment for the account of such person and shall be a complete discharge of Westinghouse's liability under this Plan. (c) Westinghouse, in adopting this Plan, shall not be held to create or vest in any Executive or any other person any interest, pension or benefits other than the benefits specifically provided herein, or to confer upon any Executive the right to remain in the service of Westinghouse. Section 11. Creditors' Claims Any assets purchased by Westinghouse to provide benefits under this Plan shall at all times remain subject to the claims of general creditors of Westinghouse and any Executive, former Executive or Surviving Spouse of an Executive participating in the Plan has only an unsecured promise to pay benefits from Westinghouse. Section 12. Change in Control A. The term "Change in Control" means the occurrence of one or more of the following events: (a) there shall be consummated (i) any consolidation or merger of Westinghouse in which Westinghouse is not the continuing or surviving corporation or pursuant to which shares of Westinghouse's Common Stock would be converted into cash, securities or other property, other than a merger of Westinghouse in which the holders of Westinghouse's Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of Westinghouse, or (b) the stockholders of Westinghouse shall approve any plan or proposal for the liquidation or dissolution of Westinghouse, or (c) (i) any person (as such term is defined in Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), corporation or other entity shall purchase any Common Stock of Westinghouse (or securities convertible into Westinghouse Common Stock) for cash, securities or any other consideration pursuant to a tender offer or exchange offer, unless, prior to the making of such purchase of Westinghouse Common Stock (or securities convertible into Westinghouse Common Stock), the Board shall determine that the making of such purchase shall not constitute a Change in Control, or (ii) any person (as such -9- 12 term is defined in Section 13(d) of the Exchange Act), corporation or other entity (other than Westinghouse or any benefit plan sponsored by Westinghouse or any of its subsidiaries) shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Westinghouse representing twenty percent or more of the combined voting power of Westinghouse's then outstanding securities ordinarily (and apart from any rights accruing under special circumstances) having the right to vote in the election of directors (calculated as provided in Rule 13d-3(d) in the case of rights to acquire any such securities), unless, prior to such person so becoming such beneficial owner, the Board of Directors of Westinghouse shall determine that such person so becoming such beneficial owner shall not constitute a Change in Control, or (d) at any time during any period of two consecutive years, individuals who at the beginning of such period constituted the entire Board of Directors of Westinghouse shall cease for any reason to constitute at least a majority thereof, unless the election or the nomination for election of each new director during such two-year period was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such two-year period. B. Notwithstanding any other provision of this Plan, upon a Change in Control, as defined above, the following shall apply: (i) all Executives shall be deemed vested; (ii) an amount sufficient to fund all unpaid benefits and any Surviving Spouse Benefits payable under this Plan, shall be paid immediately by Westinghouse to the Trustee pursuant to a trust agreement for the Westinghouse Executive Pension Plan Trust for payment of such benefits at the earliest date available in accordance with the provisions hereof and on such other terms as a committee composed of the Chief Executive Officer, the Chief Financial Officer and the Chief Legal Officer of Westinghouse, shall deem appropriate (including a direction to the Trustee to pay immediately all benefits on a present value basis and/or such other terms as they may deem appropriate). Notwithstanding this funding, Westinghouse shall be obligated to pay benefits to Executives and to Surviving Spouses of Executives to the extent such funding proves to be insufficient. To the extent such funding proves to be more than sufficient, the excess shall revert to Westinghouse. Upon a Change in Control, for any Executive in the Plan who is involuntarily separated and who is not then eligible for a Normal or Special Retirement Pension under the Westinghouse Pension Plan, such separation shall be deemed to be a separation due to a Permanent Job Separation, and the Special Retirement Pension provisions under the Westinghouse Pension Plan shall be used for purposes of determining eligibility and payment of benefits to such Executive under the Plan. The present value of benefits payable by the Trustee shall be calculated for specific groups of Executives at the time of the Change in Control as follows: a. The present value of the benefits payable from this Plan to Executives who have retired at the time of the Change in Control (as well as benefits payable from this Plan to any Surviving Spouse of an Executive) shall be calculated by using the PBGC immediate discount rate established and in effect for the beginning of the calendar year in which the Change in Control occurs. b. The present value of the benefits payable from this Plan to Executives who are eligible to retire under the terms of this Plan at the time of the Change in Control shall be calculated by using the PBGC immediate discount rates established and in effect at the -10- 13 beginning of the calendar year in which the Change in Control occurs, assuming a pension which is immediately payable at the time of the Change in Control. c. The present value of the benefits payable from this Plan to Executives who have completed at least thirty (30) years of service with Westinghouse, an Employer, a Designated Entity or a Designated Group but have not yet attained age 58 at the time of the Change in Control shall be calculated by using the PBGC deferred discount rates established and in effect for the beginning of the calendar year in which the Change in Control occurs, assuming a pension which is payable at age 58. d. The present value of benefits payable from this Plan to Executives who have completed at least ten (10) years of service with Westinghouse, an Employer, a Designated Entity or a Designated Group but less than thirty (30) years of service at the time of the Change in Control, but have not yet attained age 60 at the time of the Change in Control, shall be calculated by using the PBGC deferred discount rates established and in effect for the beginning of the calendar year in which the Change in Control occurs, assuming a pension which is payable at age 60. e. The present value of benefits payable from this Plan to Executives who have completed less than ten (10) years of service with Westinghouse, an Employer, a Designated Entity or a Designated Group at the time of the Change in Control shall be calculated by using the PBGC deferred discount rates established and in effect for the beginning of the calendar year in which the Change in Control occurs, assuming a pension which is payable at age 65. In calculating the benefit payable to each Executive, any offset for the Westinghouse Pension Plan or other qualified plan in which the Executive participates, shall be based upon the last official pension file data available, adjusted to the date of any Change in Control by assuming that the most recent salary reflected in the pension file remains constant. Notwithstanding any provision of this Plan, at any time following a Change in Control, this Plan may not be (a) amended such that future benefits would be reduced, (b) suspended or (c) terminated (i) as to the further accrual of benefits, and (ii) as to the payment of benefits, at any time prior to the last payment, determined in accordance with the provisions of this Plan, to each Executive, former Executive receiving benefits under the Plan, or eligible spouse. Section 13. Governing Law To the extent not preempted by federal law, the law of the Commonwealth of Pennsylvania shall govern the construction and administration of the Plan. Section 14. Severability If any provision of this Plan or the application thereof to any circumstance or person is held to be invalid by a court of competent jurisdiction, the remainder of the Plan and the application of such provision to other circumstances or persons shall not be affected thereby. -11- 14 Section 15. Authority to Expand Benefits The Board or the Compensation Committee of the Board may, from time to time and without notice, by resolution of the Board or of the Compensation Committee of the Board, authorize the payment of benefits or expand the benefits otherwise payable or to be payable hereunder to any one or more individuals. The Board and the Compensation Committee shall each have the right to delegate authority to take any action that they may take under this Section 15 of the Plan within such limits as they each may approve from time to time. -12- 15 APPENDIX A EXECUTIVE BUY BACK The Executive Buy Back process permits newly eligible Executives to "buy back" past years of Executive Benefit Service under the Plan for periods of time during which they did not make the Maximum Contribution. If an Employee did not make the Maximum Contribution during each of the years of his or her Eligibility Service prior to the time he or she first became an Executive, the Employee will be permitted to pay an amount equal to the Maximum Contributions that would have been payable during the ten years prior to the date he or she first became an Executive (or such lesser period from the later of January 1, 1985 or the date the Employee was employed by Westinghouse, an Employer, a Designated Entity or a Designated Group) plus compounded interest on that amount in order to "buy back" his or her non-contributory years of service. Upon qualifying as an Executive, an Executive will be offered an Executive Buy Back opportunity at the time he or she first becomes an Executive. The actual terms of the Executive Buy Back will be determined from time to time by the Administrative Managers. This election will be offered one time to the Executive and his or her decision whether or not to "buy back" will be irrevocable. Executive Buy Back payments will be made to Westinghouse and will not be deposited into the Westinghouse Pension Plan Trust. Any Executive Buy Back payments made by the Executive will not increase the Executive's Qualified Plan Benefit. If, at some point, an Employee is no longer an Executive or otherwise becomes ineligible to receive an Executive Pension Supplement, any Executive Buy Back payments the Employee has made (including any interest the Employee paid) plus any other amount as defined in Section 1(o)(2)(ii) in the definition of Maximum Contribution paid by the Employee to Westinghouse will be refunded, with interest, at such time as the Employee meets one of the following criteria: termination or retirement from Westinghouse, an Employer, a Designated Entity or a Designated Group; or death; provided, however, no refund shall be made if the Employee is an eligible Executive, whether or not the amount of his or her Executive Pension Supplement exceeds zero. All interest rates will be determined at the discretion of Westinghouse. -13- 16 APPENDIX B REHIRED EXECUTIVES Section 1. Retired Executives Rehired as Executives If an Executive who retired from Westinghouse, an Employer, a Designated Entity or a Designated Group and who received or is receiving an Executive Pension Supplement as a lump sum or on a monthly basis is rehired in an Executive position by Westinghouse, an Employer, a Designated Entity or a Designated Group, the following provisions apply: (a) For an Executive who elected a monthly Executive Pension Supplement, the Plan will: (i) suspend all Executive Pension Supplement payments; and (ii) if, but only if, the Executive is Retirement Eligible at the time of subsequent actual retirement: (1) restore previous years of Eligibility Service and Executive Benefit Service accrued prior to the Executive's retirement; and (2) recalculate the Executive's Executive Pension Supplement in accordance with the Plan at his or her subsequent actual retirement date as long as the Executive then meets all Plan benefit qualification requirements. The Executive, having previously met the five years of continuous service as an Executive requirement prior to his or her first retirement, need not again meet that requirement. The Executive's Average Annual Compensation will be computed without regard to the break in service, using zero for any periods during which the Executive was a retiree. In addition, if the Executive elected to take a lump sum Qualified Plan Benefit with respect to his or her initial retirement, then in any subsequent calculation of the Executive's Executive Pension Supplement, the Executive's Executive Pension Base will be reduced by both the Executive's Qualified Plan Benefit received at the time of the initial retirement and the Executive's Qualified Plan Benefit accrued from the date of rehire through the date of his or her subsequent retirement. (b) For an Executive who elected a lump sum Executive Pension Supplement and who is Retirement Eligible at the time of subsequent actual retirement, the Plan will: -14- 17 (i) restore previous years of Eligibility Service but not previous years of Executive Benefit Service; and (ii) calculate the Executive's additional Executive Pension Supplement at his or her subsequent actual retirement date on the basis of years of service after the rehire in accordance with the Plan as long as the Executive then meets all Plan benefit qualification requirements. As under Section 1(a) of this Appendix B, the Executive, having previously met the five years of continuous service as an Executive requirement prior to his or her first retirement, need not again meet that requirement. The Executive's Average Annual Compensation will be computed without regard to the break in service, using zero for any periods during which the Executive was a retiree. In addition, if the Executive elected a monthly Qualified Plan Benefit with respect to his or her initial retirement, then the Executive's Qualified Plan Benefit accrued from the date of rehire through the subsequent date of actual retirement will be subtracted from the Executive's Executive Pension Base in calculating the Executive's additional Executive Pension Supplement at his or her subsequent retirement. Section 2. Former Executives with Vested Pensions Rehired as Executives If the employment of an Executive of Westinghouse, an Employer, a Designated Entity or a Designated Group who was eligible only for a vested pension under the relevant qualified defined benefit or defined contribution plan, if any, was terminated and the Executive is rehired by Westinghouse, an Employer, a Designated Entity or a Designated Group, the following provisions apply: (i) restore previous years of Eligibility Service and Executive Benefit Service accrued prior to the Executive's termination of employment; (ii) the Executive must meet the five years of continuous service as an Executive requirement prior to a subsequent actual retirement counting only years of service after the rehire; and (iii) only base salary and incentive awards earned after the rehire will be used in computing Average Annual Compensation. In addition, if the Executive elected to take his or her Vested Pension as a lump sum, in any calculation of an Executive Pension Supplement at actual retirement the Executive's Executive Pension Base will be reduced by both the Executive's Qualified Plan Benefit at the time of the initial termination of employment and the Executive's Qualified Plan Benefit accrued from the date of rehire through the date of actual retirement. -15- 18 Section 3. Retired Executives Rehired in Non-Executive Positions If an Executive who retired from Westinghouse, an Employer, a Designated Entity or a Designated Group and who received or is receiving an Executive Pension Supplement as a lump sum or on a monthly basis is rehired by Westinghouse, an Employer, a Designated Entity or a Designated Group in a non-Executive position, the following provisions apply: (a) For a former Executive who elected a monthly Executive Pension Supplement, the Plan will: (i) suspend all Executive Pension Supplement payments; and (ii) if, but only if, the former Executive is still Retirement Eligible at time of subsequent actual retirement, recommence Executive Pension Supplement payments at the time of the Executive's subsequent actual retirement without recalculation of amount. At subsequent actual retirement, the former Executive may re-select any form of payment of his or her Executive Pension Supplement then permitted under the Plan. (b) For a former Executive who elected to take his or her Executive Pension Supplement as a lump sum, no further benefits will be paid by the Plan. -16-
EX-10.E 7 CBS CORPORATION 1 Exhibit 10(e) DEFERRED COMPENSATION AND STOCK PLAN FOR DIRECTORS (AS AMENDED AS OF JANUARY 1, 1998) SECTION 1. INTRODUCTION 1.1 Establishment. CBS Corporation, a Pennsylvania corporation formerly known as Westinghouse Electric Corporation (the "Company"), has established the Deferred Compensation and Stock Plan for Directors, as amended from time to time (the "Plan"), for those directors of the Company who are neither officers nor employees of the Company. The Plan provides, among other things, for the payment of specified portions of the Annual Director's Fee in the form of Stock Options and Restricted Stock and for the payment of the Annual Committee Chair's Fee in the form of Restricted Stock, and the opportunity for the Directors to defer receipt of all or a part of their cash compensation. Unless otherwise provided for herein, the term Company includes CBS Corporation and its subsidiaries. 1.2 Purposes. The purposes of the Plan are to encourage the Directors to own shares of the Company's stock and thereby to align their interests more closely with the interests of the other shareholders of the Company, to encourage the highest level of Director performance, and to provide a financial incentive that will help attract and retain the most qualified Directors. SECTION 2. DEFINITIONS 2.1 Definitions. The following terms will have the meanings set forth below: (a) "Annual Committee Chair's Fee" means the annual amount established from time to time by the Board as the annual fee to be paid to Directors for their services as chairs of standing committees of the Board. (b) "Annual Director's Fee" means the annual amount (which may be prorated for a Director serving less than a full calendar year, as in the case of a Director who will be retiring or not standing for reelection at the annual meeting of shareholders or a Director joining the Board (or otherwise first becoming a Director) after the beginning of the year) established from time to time by the Board as the annual fee to be paid to Directors for their services as directors. (c) "Attendance Percentage" for a Director with respect to a particular Grant Year means the percentage of the aggregate of all meetings of the Board and committees of which the Director was a member held during the Grant Year (or, for Directors who join the Board or otherwise first become Directors after the beginning of the Grant Year, Directors who retire at the annual meeting of shareholders (as described in the Company's By-laws) held during the Grant Year, Directors who do not stand for reelection at the annual meeting of shareholders -1- 2 held during the Grant Year, or Directors who die during the Grant Year, the aggregate of all such meetings held for the portion of the Grant Year during which the Director served as a director), excluding any meeting(s) not attended because of illness, which were attended by the Director. Except as otherwise provided below, in the event that a Director ceases to be a director at any time during the Grant Year for any reason other than retirement at the annual meeting of shareholders, not standing for reelection at the annual meeting of shareholders, or death, all meetings held during the Grant Year of the Board and committees of which he was a member at the time of termination of service will continue to be included as meetings when calculating the Attendance Percentage. (d) "Board" means the Board of Directors of the Company. (e) "Cash Account" means the account established by the Company in respect of each Director pursuant to Section 6.3(a) hereof and to which deferred cash compensation has been or will be credited pursuant to the Plan. (f) "Cause" means any act of (a) fraud or intentional misrepresentation or (b) embezzlement, misappropriation or conversion of assets or opportunities of the Company or any of its direct or indirect majority-owned subsidiaries. (g) "Change in Control" will have the meaning assigned to it in Section 9.2 hereof. (h) "Committee" means the Compensation Committee of the Board (or any subcommittee thereof) or any successor committee established by the Board, or any subcommittee thereof, in each case consisting of two or more members each of whom is a "non-employee director" as that term is defined by Rule 16b-3 under the Exchange Act, as such rule may be amended, or any successor rule. (i) "Common Stock Equivalent" means a hypothetical share of Stock which will have a value on any date equal to the mean of the high and low prices of the Stock as reported by the composite tape of the New York Stock Exchange on that date, except as otherwise provided under Section 9.1. (j) "Common Stock Equivalent Award" means an award of Common Stock Equivalents granted to a Director pursuant to Section 5 of the Plan prior to its amendment as of April 26, 1995. (k) "Debenture" means a hypothetical debenture of the Company that has a face value of $100, bears interest at a rate equal to the ten-year U.S. Treasury Bond rate (prior to January 1, 1995, the seven-year U.S. Treasury Bond rate) in effect the week prior to the regular January meeting of the Board (or, if no such meeting is held, the week prior to the first trading day of the New York Stock Exchange in February) in the year in respect of which deferred amounts are earned, and is convertible into Stock at a conversion rate determined by dividing $100 by the mean of the high and low prices of the Stock as reported by the composite tape -2- 3 of the New York Stock Exchange on the date the Debenture is credited to the Deferred Debenture Account pursuant to Section 6.3 hereof. (l) "Deferred Debenture Account" means the account established by the Company pursuant to Section 6.3(c) hereof in respect of each Director electing to defer cash compensation under the Plan for 1997 and/or for an earlier year or years and to which has been or will be credited Debentures and other amounts pursuant to the Plan. (m) "Deferred Stock Account" means the account established by the Company in respect of each Director pursuant to Section 5.2 hereof and to which has been or will be credited Common Stock Equivalents pursuant to the Plan. (n) "Director" means a member of the Board who is neither an officer nor an employee of the Company. For purposes of the Plan, an employee is an individual whose wages are subject to the withholding of federal income tax under Section 3401 of the Internal Revenue Code, and an officer is an individual elected or appointed by the Board or chosen in such other manner as may be prescribed in the By-laws of the Company to serve as such. (o) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. (p) "Fair Market Value" means the mean of the high and low prices of the Stock as reported by the composite tape of the New York Stock Exchange (or such successor reporting system as the Committee may select) on the relevant date or, if no sale of the Stock has been reported for that day, the average of such prices on the next preceding day and the next following day for which there were reported sales. (q) "Grant Date" means, as to a Stock Option Award, the date of grant pursuant to Section 7.1 and as to a Restricted Stock Award, the date of grant pursuant to Section 8.1. (r) "Grant Year" means, as to a particular award, the calendar year in which the award was granted. (s) "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time. (t) "Restricted Stock" means shares of Stock awarded to a Director pursuant to Section 8 and subject to certain restrictions in accordance with the Plan. (u) "Restricted Stock Award" means an award of shares of Restricted Stock granted to a Director pursuant to Section 8 of the Plan. (v) "Stock" means the common stock, $1.00 par value, of the Company. -3- 4 (w) "Stock Option" means a non-statutory stock option to purchase shares of Stock for a purchase price per share equal to the Exercise Price (as defined in Section 7.2(a)) in accordance with the provisions of the Plan. (x) "Stock Option Award" means an award of Stock Options granted to a Director pursuant to Section 7 of the Plan. (y) "Stock Option Value" means the value of a Stock Option for one share of Stock on the relevant date as determined by an outside firm selected by the Company. 2.2 Gender and Number. Except when otherwise indicated by the context, the masculine gender will also include the feminine gender, and the definition of any term herein in the singular will also include the plural. SECTION 3. PLAN ADMINISTRATION (a) The Plan will be administered by the Committee. The members of the Committee will be members of the Board appointed by the Board, and any vacancy on the Committee will be filled by the Board or in a manner authorized by the Board. The Committee will keep minutes of its meetings and of any action taken by it without a meeting. A majority of the Committee will constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present will be the acts of the Committee. Any action that may be taken at a meeting of the Committee may be taken without a meeting if a consent or consents in writing setting forth the action so taken is signed by all of the members of the Committee. The Committee will make appropriate reports to the Board concerning the operations of the Plan. (b) Subject to the limitations of the Plan, the Committee will have the sole and complete authority: (i) to impose such limitations, restrictions and conditions upon such awards as it deems appropriate; (ii) to interpret the Plan and to adopt, amend and rescind administrative guidelines and other rules and regulations relating to the Plan; and (iii) to make all other determinations and to take all other actions necessary or advisable for the implementation and administration of the Plan. Notwithstanding the foregoing, the Committee will have no authority, discretion or power to select the Directors who will receive awards pursuant to the Plan, determine the awards to be granted pursuant to the Plan, the number of shares of Stock to be issued thereunder or the price thereof or the time at which such awards are to be granted, establish the duration and nature of awards or alter any other terms or conditions specified in the Plan, except in the sense of administering the Plan subject to the provisions of the Plan. The Committee's determinations on matters within its authority will be conclusive and binding upon the Company and all other persons. (c) The Company will be the sponsor of the Plan. All expenses associated with the Plan will be borne by the Company. -4- 5 SECTION 4. STOCK SUBJECT TO THE PLAN 4.1 Number of Shares. 600,000 shares of Stock are authorized for issuance under the Plan in accordance with the provisions of the Plan, subject to adjustment and substitution as set forth in this Section 4. This authorization may be increased from time to time by approval of the Board and, if such approval is required, by the shareholders of the Company. The Company will at all times during the term of the Plan retain as authorized and unissued Stock at least the number of shares from time to time required under the provisions of the Plan, or otherwise assure itself of its ability to perform its obligations hereunder. 4.2 Other Shares of Stock. Any shares of Stock that are subject to a Common Stock Equivalent Award, a Stock Option Award, a Restricted Stock Award or a Debenture and which are forfeited, any shares of Stock that for any other reason are not issued to a Director, and any shares of Stock tendered by a Director to pay the Exercise Price of a Stock Option will automatically become available again for use under the Plan if Rule 16b-3 under the Exchange Act, as such rule may be amended, or any successor rule, and interpretations thereof by the Securities and Exchange Commission or its staff permit such share replenishment. 4.3 Adjustments Upon Changes in Stock. If there is any change in the Stock of the Company, through merger, consolidation, division, share exchange, combination, reorganization, recapitalization, stock dividend, stock split, spin-off, split up, dividend in kind or other change in the corporate structure or distribution to the shareholders, appropriate adjustments may be made by the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation) in the aggregate number and kind of shares subject to the Plan, and the number and kind of shares which may be issued under the Plan. Appropriate adjustments may also be made by the Committee in the terms of any awards or Debentures under the Plan to reflect such changes and to modify any other terms of outstanding awards on an equitable basis as the Committee in its discretion determines. SECTION 5. COMMON STOCK EQUIVALENT AWARDS 5.1 Grants of Common Stock Equivalent Awards. Common Stock Equivalents equal to a fixed number of shares of Stock were granted automatically to Directors on a formula basis under Section 5.1 of the Plan prior to its amendment as of April 26, 1995. All Common Stock Equivalents granted pursuant to Section 5.1 prior to its amendment as of April 26, 1995 are subject to adjustment as provided in Section 4.3. 5.2 Deferred Stock Account. A Deferred Stock Account has been established for each Director elected prior to the annual meeting of shareholders held in 1995. The Deferred Stock Account consists of compensation in the form of Common Stock Equivalents which have been awarded to the Director hereunder by the Company plus Common Stock Equivalents credited to the Deferred Stock Account in respect of dividends and other distributions on the Stock pursuant to Sections 5.3 and 5.4. 5.3 Hypothetical Investment. Compensation awarded hereunder in the form of Common Stock Equivalents is assumed to be a hypothetical investment in shares of Stock, and is -5- 6 subject to adjustment to reflect stock dividends, splits and reclassifications and as otherwise set forth in Section 4.3. 5.4 Hypothetical Dividends. Dividends and other distributions on Common Stock Equivalents will be deemed to have been paid as if such Common Stock Equivalents were actual shares of Stock issued and outstanding on the respective record or distribution dates. Common Stock Equivalents will be credited to the Deferred Stock Account in respect of cash dividends and any other securities or property issued on the Stock in connection with reclassifications, spin-offs and the like on the basis of the value of the dividend or other asset distributed and the value of the Common Stock Equivalents on the date of the announcement of the dividend or asset distribution, all at the same time and in the same amount as dividends or other distributions are paid or issued on the Stock. Such Common Stock Equivalents are subject to adjustment as provided in Section 4.3. Fractional shares will be credited to a Director's Deferred Stock Account cumulatively but the balance of shares of Common Stock Equivalents in a Director's Deferred Stock Account will be rounded to the next highest whole share for any payment to such Director pursuant to Section 5.6. 5.5 Statement of Account. A statement will be sent to each Director as to the balance of his Deferred Stock Account at least once each calendar year. 5.6 Payment of Deferred Stock. Upon termination of services as a Director, the balance of the Director's Deferred Stock Account will be paid to such Director in Stock in January of the year following the year of termination of services as a director on the basis of one share of Stock for each Common Stock Equivalent in such Director's Deferred Stock Account. 5.7 Payments to a Deceased Director's Estate. In the event of a Director's death before the balance of his or her Deferred Stock Account is fully paid to the Director, payment of the balance of the Director's Deferred Stock Account will then be made to the beneficiary properly designated by the Director pursuant to Section 5.8, if any, or to his or her estate in the absence of such a beneficiary designation, in the time and manner selected by the Committee. The Committee may take into account the application of any duly appointed administrator or executor of a Director's estate and direct that the balance of the Director's Deferred Stock Account be paid to his or her estate in the manner requested by such application. 5.8 Designation of Beneficiary. A Director may designate a beneficiary in the event of the Director's death in a form approved by the Company. SECTION 6. DEFERRAL OF COMPENSATION 6.1 Amount of Deferral. A Director may elect to defer receipt of all or a specified portion of the cash compensation otherwise payable to the Director for services rendered to the Company as a director. 6.2 Manner of Electing Deferral. A Director will make elections permitted hereunder by giving written notice to the Company in a form approved by the Committee and in compliance with Section 6.4. The notice will include: (i) the percentage of cash compensation -6- 7 to be deferred, which amount must be stated in whole increments of five percent; and (ii) the time as of which deferral is to commence. 6.3 Accounts. (a) Cash Account. A Cash Account has been or will be established for each Director electing to defer hereunder. Each Cash Account will be credited with the amounts deferred on the date such compensation is otherwise payable and will be debited with the amount of any such compensation forfeited in accordance with applicable Board policy. (b) Interest. Deferred amounts in the Cash Account will accrue interest from time to time as follows: (1) For deferred amounts credited to the Cash Account prior to January 1, 1998 (including but not limited to Annual Director's Fees for the calendar year 1997), such deferred amounts will accrue interest from time to time at a rate equal to the ten-year U.S. Treasury Bond rate (prior to January 1, 1995, the seven-year U.S. Treasury Bond rate) in effect the week prior to the regular January meeting of the Board (or, if no such meeting is held, the week prior to the first trading day of the New York Stock Exchange in February) in the year in respect of which such deferred amounts are earned until the last trading day of the New York Stock Exchange prior to the regular January meeting of the Board (or, if no such meeting is held, until the first trading day of February) in the year following the year in respect of which deferred amounts are earned, at which time such deferred amounts, including interest, will be invested in Debentures and credited to the Deferred Debenture Account. Deferred amounts will be credited to the Deferred Debenture Account only in $100 amounts. Fractional amounts of $100 will remain in the Cash Account and continue to accrue interest. (2) For deferred amounts credited to the Cash Account on or after January 1, 1998 (and any fractional amounts remaining in the Cash Account from prior deferrals), such deferred amounts will accrue interest from time to time at the Interest Credit Rate then in effect, compounded annually. The "Interest Credit Rate" will be reset by the Company on an annual basis in January of the year, and will equal the then current one-year U.S. Treasury Bill rate or such other fixed rate as the Committee may from time to time determine. (c) Deferred Debenture Account. A Deferred Debenture Account has been established for each Director electing to defer cash compensation hereunder for the calendar year 1997 and/or for an earlier year or years. Deferred amounts credited to the Cash Account prior to January 1, 1998 will be invested in Debentures and credited to the Deferred Debenture Account at the time and in the manner set forth in Section 6.3(b)(1). Deferred amounts credited to the Cash Account on or after January 1, 1998 will not be invested in Debentures but will remain in the Cash Account and accrue interest until payment hereunder. -7- 8 6.4 Time for Electing Deferral. Any election to (i) defer cash compensation, (ii) alter the portion of such amounts deferred, or (iii) revoke an election to defer such amounts, must be made prior to the time such compensation is earned by the Director and otherwise in compliance with any deadline which the Company may from time to time impose and in the manner set forth in Section 6.2. 6.5 Payment of Deferred Amounts. Payments from a Deferred Debenture Account and/or from a Cash Account will be made in five consecutive annual installments beginning in the January following the Director's termination of service. Payments from a Deferred Debenture Account will consist of accumulated interest on the Debentures (which amount will only be payable in cash) plus the greater value of (i) the face value of the Debentures or (ii) the shares of Stock into which the Debentures are convertible. In the event the value of the payment is determined by the amount referred to in clause (i), payment will be made in cash. In the event such value is determined by clause (ii), such payment will be made in Stock, other than the value of fractional shares which will be paid in cash. Payments from a Cash Account will consist of the deferred cash compensation and accumulated interest in said account and will be made in cash. 6.6 Payments to a Deceased Director's Estate. In the event of a Director's death before the balance of his or her Cash Account or Deferred Debenture Account is fully paid to the Director, payment of the balance of the Cash Account or Deferred Debenture Account will then be made to the beneficiary properly designated by the Director pursuant to Section 6.7, if any, or to his or her estate in the absence of such a beneficiary designation, in the time and manner selected by the Committee. The Committee may take into account the application of any duly appointed administrator or executor of a Director's estate and direct that the balance of the Director's Cash Account or Deferred Debenture Account be paid to his or her estate in the manner requested by such application. 6.7 Designation of Beneficiary. A Director may designate a beneficiary in the event of the Director's death in a form approved by the Company. SECTION 7. STOCK OPTION AWARDS 7.1 Grants of Stock Option Awards. (a) For calendar year 1995, Stock Options for a fixed number of shares of Stock were granted automatically to Directors on a formula basis under Section 7.1(a) of the Plan. (b) For calendar year 1995, Stock Options for a fixed number of shares of Stock were granted automatically on a formula basis under Section 7.1(b) of the Plan to Directors serving as chairs of standing committees of the Board. -8- 9 (c) For calendar years 1996 and 1997, Stock Options were granted automatically under Section 7.1(c) of the Plan to Directors for one-fourth of the value of their Annual Director's Fees. (d) Beginning with calendar year 1998, each Director will receive 5/16ths (31.25%) of the value of his or her Annual Director's Fee in the form of a Stock Option Award. Such Stock Options will be granted automatically each year on the last Wednesday in January of such year to each Director in office on such Grant Date. If a person joins the Board or otherwise first becomes a Director at any time after the last Wednesday in January of a given calendar year (beginning with 1998) but before the end of that calendar year, whether by action of the shareholders of the Company or the Board or otherwise, such person upon becoming a Director will be granted automatically 5/16ths (31.25%) of the value of his or her Annual Director's Fee for that calendar year in the form of a Stock Option Award on the last Wednesday of the calendar month in which such person first becomes a Director (or in the next following calendar month if such person first becomes a Director after the last Wednesday of the month). The total number of shares of Stock subject to any such Stock Option Award will be the number of shares determined by dividing the amount of the Annual Director's Fee to be paid in the form of a Stock Option Award by the Stock Option Value on the Grant Date, rounded up to the nearest whole share. (e) All Stock Options granted pursuant to Section 7.1 are subject to adjustment as provided in Section 4.3. 7.2 Terms and Conditions of Stock Options. Stock Options granted under the Plan will be subject to the following terms and conditions: (a) Exercise Price. Beginning with calendar year 1998, the purchase price per share at which a Stock Option may be exercised ("Exercise Price") will be equal to 100% of the Fair Market Value of a share of Stock on the Grant Date. For Stock Options granted in 1995, 1996 and 1997, the Exercise Price was determined as follows: on any Grant Date, (1) Stock Options for two-thirds of the option shares granted on the Grant Date had an Exercise Price per share equal to 100% of the Fair Market Value of a share of Stock on the Grant Date; and (2) Stock Options for the remaining one-third of the option shares granted on the Grant Date had an Exercise Price per share equal to 125% of the Fair Market Value of a share of Stock on the Grant Date. (b) Exercisability. Subject to the terms and conditions of the Plan and of the agreement referred to in Section 7.2(j), a Stock Option may be exercised in whole or in part upon notice of exercise to the Company, (1) as to any Stock Option granted in calendar year 1995, commencing on the first day after the Grant Date and until it terminates, and (2) as to any Stock Option granted after January 1, 1996 that vests as provided in Section 7.2(c)(2) or 7.2(c)(3), commencing on January 1 of the calendar year next following the Grant Year or upon the occurrence of a Change in Control, if earlier, and until it terminates. During a Director's lifetime, a Stock Option may be exercised only by the Director or the Director's guardian or legal representative. -9- 10 (c) Vesting of Stock Option Awards. (1) Stock Options granted in calendar year 1995 vested immediately on grant. (2) Stock Options granted after January 1, 1996 will vest on January 1 of the calendar year next following the Grant Year (the "Option Vesting Date") if the Director has an Attendance Percentage of at least seventy-five percent (75%) for the Grant Year. In the event that a Director has an Attendance Percentage of less than seventy-five percent (75%) for a Grant Year, Stock Options granted in that Grant Year for a number of shares equal to the Director's Attendance Percentage for that year multiplied by the total number of option shares granted for that year (rounded up to the nearest whole share) will vest on the Option Vesting Date, and Stock Options granted in that Grant Year as to the remaining option shares will be forfeited and will terminate as of the Option Vesting Date. (3) Notwithstanding anything to the contrary herein, (i) in the event that a director is removed from office for Cause, all outstanding Stock Options will be forfeited immediately as of the time the grantee is so removed from office, and (ii) upon the occurrence of a Change in Control, all outstanding Stock Options will vest and become immediately exercisable. (d) Mandatory Holding of Stock. Except as otherwise provided in Section 7.5 or Section 10, any Stock acquired on exercise of a Stock Option must be held by the grantee for a minimum of: (1) three years from the date of exercise; (2) two years from the date the grantee ceases to be a director of the Company; or (3) until the occurrence of a Change in Control, whichever first occurs (the "Option Shares Holding Period"). (e) Option Term. The term of a Stock Option (the "Option Term") will be the shorter of: (1) the period of ten years from its Grant Date; (2) the period from the Grant Date until the Option Vesting Date for a Stock Option that does not vest and is terminated on said date as provided in Section 7.2(c)(2) (or with respect to any portion of a Stock Option that does not vest on the Option Vesting Date and is terminated as provided in Section 7.2(c)(2)); (3) the period from the Grant Date until the time the Stock Option is forfeited as provided in Section 7.2(c)(3)(i) in the event a director is removed from office for Cause; or (4) the period from the Grant Date until the date the Stock Option ceases to be exercisable as provided in Section 7.2(h). (f) Payment of Exercise Price. Stock purchased on exercise of a Stock Option must be paid for as follows: (1) in cash or by check (acceptable to the Company), bank draft or money order payable to the order of the Company, (2) through the delivery of shares of Stock which are then outstanding and which have a Fair Market Value on the date of exercise equal to the Exercise Price per share multiplied by the number of shares as to which the Stock Option is being exercised (the "Aggregate Exercise Price"); (3) by delivery of an unconditional and irrevocable undertaking by a broker to deliver promptly to the Company sufficient funds to pay the Aggregate Exercise Price, or (4) by a combination of the permissible forms of payment; provided, however, that any portion of the Exercise Price representing a fraction of a share must -10- 11 be paid in cash and no share of Stock held for less than six months may be delivered in payment of the Aggregate Exercise Price. (g) Rights as a Shareholder. The holder of a Stock Option will not have any of the rights of a shareholder with respect to any shares of Stock subject to the Stock Option until such shares are issued by the Company following the exercise of the Stock Option. (h) Termination of Eligibility. If a grantee ceases to be a Director for any reason, any outstanding Stock Options will be exercisable according to the following provisions: (1) If a grantee ceases to be a director for any reason other than removal for Cause or death, any outstanding Stock Options held by such grantee which are vested or which thereafter vest will be exercisable by the grantee in accordance with their terms at any time prior to the expiration of the Option Term; (2) If a grantee is removed from office as a director of the Company for Cause, any outstanding vested Stock Options held by such grantee will be exercisable by the grantee in accordance with their terms at any time prior to the earlier of (a) the time the grantee is so removed from office and (b) the expiration of the Option Term; and (3) Following the death of a grantee while a director or after the grantee ceased to be a director for any reason other than removal for Cause, any Stock Options that are outstanding and exercisable by such grantee at the time of death or which thereafter vest will be exercisable in accordance with their terms by the person or persons entitled to do so under the grantee's will, by a beneficiary properly designated by the Director in the event of death pursuant to Section 7.4, if any, or by the person or persons entitled to do so under the applicable laws of descent and distribution at any time prior to the earlier of (a) the expiration of the Option Term and (b) two years after the date of death. (i) Termination of Stock Option. A Stock Option will terminate on the earlier of (1) exercise of the Stock Option in accordance with the terms of the Plan, and (2) expiration of the Option Term as specified in Sections 7.2(e) and 7.2(h). (j) Stock Option Agreement. All Stock Options will be confirmed by an agreement, or an amendment thereto, which will be executed on behalf of the Company by the Chief Executive Officer, the President or any Vice President and by the grantee. (k) General Restrictions. (1) The obligation of the Company to issue Stock pursuant to Stock Options under the Plan will be subject to the condition that, if at any time the Company determines that (a) the listing, registration or qualification of shares of Stock upon any securities exchange or under any state or federal law, or (b) the consent or approval of any government or regulatory body is necessary or desirable, then such Stock will not be issued unless such listing, registration, qualification, consent or approval has been effected or obtained free from any conditions not acceptable to the Company. -11- 12 (2) Shares of Stock for use under the provisions of this Section 7 will not be issued until they have been duly listed, upon official notice of issuance, upon the New York Stock Exchange and such other exchanges, if any, as the Board may determine, and a registration statement under the Securities Act of 1933 with respect to such shares has become, and is, effective. Subject to the foregoing provisions of this Section 7.2 and the other provisions of the Plan, any Stock Option granted under the Plan will be subject to such restrictions and other terms and conditions, if any, as the Committee may determine, in its discretion, and as are set forth in the agreement referred to in Section 7.2(j), or an amendment thereto; provided, however, that in no event will the Committee or the Board have any power or authority which would cause transactions pursuant to the Plan to cease to be exempt from the provisions of Section 16(b) of the Exchange Act pursuant to Rule 16b-3, as such rule may be amended, or any successor rule. 7.3 Annual Statement. A statement will be sent to each Director as to the status of his or her Stock Options at least once each calendar year. 7.4 Designation of a Beneficiary. A Director may designate a beneficiary to hold and exercise outstanding Stock Options in accordance with the Plan in the event of the Director's death in a form approved by the Company. 7.5 Holding Period Applicable to a Deceased Grantee's Estate. As long as at least six months have elapsed since the Grant Date, a beneficiary properly designated by the Director pursuant to Section 7.4, if any, or a person holding a Stock Option under a deceased grantee's will or under the applicable laws of descent or distribution, exercising a Stock Option in accordance with Section 7.2(h) will not be subject to the Holding Period with respect to shares of Stock received on exercise of a Stock Option. SECTION 8. RESTRICTED STOCK AWARDS. 8.1 Grants of Restricted Stock Awards. (a) For calendar years 1996 and 1997, each Director received one-fourth of the value of his or her Annual Director's Fee in the form of a Restricted Stock Award. Beginning with calendar year 1998, each Director will receive 5/16ths (31.25%) of the value of his or her Annual Director's Fee in the form of a Restricted Stock Award. Such Restricted Stock will be granted automatically each year on the last Wednesday in January of such year to each Director in office on such Grant Date. If a person joins the Board or otherwise first becomes a Director at any time after the last Wednesday in January of a given calendar year (beginning with 1998) but before the end of that calendar year, whether by action of the shareholders of the Company or the Board or otherwise, such person upon becoming a Director will be granted automatically 5/16ths (31.25%) of the value of his or her Annual Director's Fee for that calendar year in the form of a Restricted Stock Award on the last Wednesday in the -12- 13 calendar month in which such person first becomes a Director (or in the next following calendar month if said person first becomes a Director after the last Wednesday of the month). (b) Beginning with calendar year 1996, each Director who is the chair of a standing committee of the Board will receive the full value of his or her Annual Committee Chair's Fee in the form of a Restricted Stock Award. Such Restricted Stock will be granted automatically each year immediately following the annual meeting of shareholders and the organization meeting of the Board related to such annual meeting of shareholders, beginning with the annual meeting of shareholders and related organization meeting held in 1996, to each Director who is elected at such organization meeting to serve as the chair of a standing committee of the Board. (c) The total number of shares of Stock representing any such Restricted Stock Award will be the number of shares determined by dividing the amount of the Annual Director's Fee or the Annual Committee Chair's Fee, as the case may be, to be paid in the form of a Restricted Stock Award by the Fair Market Value of a share of Stock on the Grant Date, rounded up to the nearest whole share. (d) Restricted Stock granted pursuant to Section 8.1 is subject to adjustment as provided in Section 4.3. 8.2 Terms and Conditions of Restricted Stock. Restricted Stock granted under the Plan will be subject to the following terms and conditions: (a) Restriction Period. Restricted Stock will be subject to a Restriction Period ("Restriction Period") beginning on the Grant Date and continuing through December 31 of the Grant Year. (b) Vesting. (1) Except as set forth in Section 8.2(b)(3), a Director's right to ownership in shares of Restricted Stock granted to a Director pursuant to Section 8.1(a) will vest on the January 1 immediately following the expiration of the Restriction Period for such shares (the "Restricted Stock Vesting Date") if the Director has an Attendance Percentage of at least seventy-five percent (75%) for the Grant Year. In the event that a Director has an Attendance Percentage of less than seventy-five percent (75%) for a Grant Year, a number of shares of Restricted Stock equal to the Director's Attendance Percentage for the Grant Year multiplied by the total number of shares of Restricted Stock granted pursuant to Section 8.1(a) during the Grant Year (rounded up to the nearest whole share) will vest on the Restricted Stock Vesting Date and the remaining shares of Restricted Stock granted pursuant to Section 8.1(a) during the Grant Year will be forfeited as of the Restricted Stock Vesting Date. (2) Except as set forth in Section 8.2(b)(3) below, a Director's right to ownership in shares of Restricted Stock granted to a committee chair pursuant to Section 8.1(b) will vest on the Restricted Stock Vesting Date. -13- 14 (3) Notwithstanding anything to the contrary herein, (i) in the event that a director is removed from office for Cause prior to the Restricted Stock Vesting Date, all of said Director's shares of Restricted Stock that have not yet vested will be forfeited immediately as of the time the grantee is so removed from office and the Company will have the right to complete the blank stock power described below with respect to such shares, and (ii) upon the occurrence of a Change in Control, all shares of Restricted Stock that have not yet vested will immediately vest. (c) Issuance of Shares. On or about the Grant Date, a certificate representing the shares of Restricted Stock will be registered in the Director's name and deposited by the Director, together with a stock power endorsed in blank, with the Company. Subject to the transfer restrictions set forth in Section 8.2(d) and to the last sentence of this Section 8.2(c), the Director as owner of shares of Restricted Stock will have the rights of the holder of such Restricted Stock during the Restriction Period. On the Restricted Stock Vesting Date following expiration of the Restriction Period, vested shares of Restricted Stock will be redelivered by the Company to the Director, and non-vested shares of Restricted Stock will be forfeited and the Company will have the right to complete the blank stock power with respect to such non-vested shares; provided, however, with respect to shares of Restricted Stock granted in 1996 prior to shareholder approval of an amendment to the Plan on April 24, 1996, no certificates were issued, such shares were not issued and outstanding, and the Directors did not have any of the rights of an owner of the shares until the date such shareholder approval occurred. (d) Transfer Restrictions; Mandatory Holding of Stock. Except as otherwise provided in Section 8.5 or Section 10, shares of Restricted Stock are not transferable during the Restriction Period. Once the Restriction Period lapses and shares vest, except as otherwise provided in Section 8.5 or Section 10, shares acquired as a Restricted Stock Award must be held by the grantee for a minimum of: (1) three years from the Grant Date; (2) two years from the date the grantee ceases to be a director of the Company; or (3) until the occurrence of a Change of Control, whichever first occurs (the "Restricted Shares Holding Period"). (e) Restricted Stock Agreement. All Restricted Stock Awards will be confirmed by an agreement, or an amendment thereto, which will be executed on behalf of the Company by the Chief Executive Officer, the President or any Vice President and by the grantee. (f) General Restriction. (1) The obligation of the Company to issue shares of Restricted Stock under the Plan will be subject to the condition that if, at any time, the Committee determines that (a) the listing, registration or qualification of shares of Restricted Stock upon any securities exchange or under any state or federal law or (b) the consent or approval of any government or regulatory body is necessary or desirable, then such Restricted Stock will not be issued unless such listing, registration, qualification, consent or approval has been effected or obtained free from any conditions not acceptable to the Company. -14- 15 (2) Shares of Stock for use under the provisions of this Section 8 will not be issued until they have been duly listed, upon official notice of issuance, upon the New York Stock Exchange and such other exchanges, if any, as the Board may determine, and a registration statement under the Securities Act of 1933 with respect to such shares has become, and is, effective. Subject to the foregoing provisions of this Section 8.2 and the other provisions of the Plan, any shares of Restricted Stock granted under the Plan will be subject to such restrictions and other terms and conditions, if any, as may be determined by the Committee, in its discretion, and as are set forth in the agreement referred to in Section 8.2(e), or an amendment thereto; provided, however, that in no event will the Committee or the Board have any power or authority which would cause transactions pursuant to the Plan to cease to be exempt from the provisions of Section 16(b) of the Exchange Act under Rule 16b-3, as such rule may be amended, or any successor rule. 8.3 Annual Statement. A statement will be sent to each Director as to the status of his Restricted Stock at least once each calendar year. 8.4 Designation of a Beneficiary. A Director may designate a beneficiary to hold shares of Restricted Stock in accordance with the Plan in the event of the Director's death in a form approved by the Company. 8.5 Holding Period Applicable to a Deceased Grantee's Estate. As long as at least six months have elapsed since the Grant Date, a beneficiary properly designated by the Director pursuant to Section 8.4 in the event of death, if any, or a person holding shares of Restricted Stock under a deceased grantee's will or under the applicable laws of descent or distribution, will not be subject to the Restricted Shares Holding Period with respect to such shares of Restricted Stock. SECTION 9. CHANGE IN CONTROL 9.1 Settlement of Compensation. In the event of a Change in Control of the Company as defined herein, (a) to the extent not already vested, all Stock Option Awards, Restricted Stock Awards and other benefits hereunder will be vested immediately; and (b) the value of all unpaid benefits and deferred amounts will be paid in cash to PNC Bank, National Association, the trustee pursuant to a trust agreement dated as of June 22, 1995, as amended from time to time, or any successor trustee, or otherwise on such terms as the Committee may prescribe or permit. For purposes of this Section 9.1, the value of deferred amounts will be equal to the sum of (i) the value of all Common Stock Equivalent Awards then held in such Director's Deferred Stock Account (the value of which will be based upon the highest price of the Stock as reported by the composite tape of the New York Stock Exchange during the 30 days immediately preceding the Change in Control), (ii) the value of the Director's Cash Account, and (iii) the greater value of (x) the cash amount equal to the face value of the Debentures in the Director's Deferred Debenture Account plus cash equal to accrued interest on the Debentures or (y) the number of shares of Stock into which the Debentures in the Director's Deferred Debenture Account are convertible (the value of which will be based upon the highest price of the Stock as -15- 16 reported by the composite tape of the New York Stock Exchange during the 30 days immediately preceding the Change in Control), plus cash equal to accrued interest on the Debentures. 9.2 Definition of Change in Control. A Change in Control will mean the occurrence of one or more of the following events: (a) there shall be consummated (i) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company; or (b) the shareholders of the Company shall approve of any plan or proposal for the liquidation or dissolution of the Company; or (c) (i) any person (as such term is defined in Section 13(d) of the Exchange Act), corporation or other entity shall purchase any Stock of the Company (or securities convertible into the Company's Stock) for cash, securities or any other consideration pursuant to a tender offer or exchange offer, unless, prior to the making of such purchase of Stock (or securities convertible into Stock), the Board shall determine that the making of such purchase shall not constitute a Change in Control, or (ii) any person (as such term is defined in Section 13(d) of the Exchange Act), corporation or other entity (other than the Company or any benefit plan sponsored by the Company or any of its subsidiaries) shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty percent or more of the combined voting power of the Company's then outstanding securities ordinarily (and apart from any rights accruing under special circumstances) having the right to vote in the election of directors (calculated as provided in Rule 13d-3(d) in the case of rights to acquire any such securities), unless, prior to such person so becoming such beneficial owner, the Board shall determine that such person so becoming such beneficial owner shall not constitute a Change in Control; or (d) at any time during any period of two consecutive years, individuals who at the beginning of such period constituted the entire Board shall cease for any reason to constitute at least a majority thereof, unless the election or nomination for election of each new director during such two-year period is approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such two-year period. SECTION 10. ASSIGNABILITY 10.1 The right to receive payments or distributions hereunder (including any "derivative security" issued pursuant to the Plan, as such term is defined by the rules promulgated under Section 16 of the Exchange Act), any shares of Restricted Stock granted hereunder during the Restriction Period, and any Stock Options granted hereunder will not be -16- 17 transferable or assignable by a Director other than by will, by the laws of descent and distribution, to a beneficiary properly designated by the Director pursuant to the appropriate section of the Plan in the event of death, if any, or pursuant to a domestic relations order as defined by Section 414(p)(1)(B) of the Internal Revenue Code or the rules thereunder that satisfies Section 414(p)(1)(A) of the Internal Revenue Code or the rules thereunder. 10.2 In addition, Stock acquired on exercise of a Stock Option will not be transferable prior to the end of the applicable Option Shares Holding Period, if any, set forth in Sections 7.2(d) and 7.5, and Stock acquired as Restricted Stock will not be transferable prior to the end of the applicable Restricted Shares Holding Period, if any, set forth in Sections 8.2(d) and 8.5, in either case other than by will, by transfer to a beneficiary properly designated by the Director pursuant to the appropriate section of the Plan in the event of death, if any, by the applicable laws of descent and distribution, or pursuant to a domestic relations order as defined by Section 414(p)(1)(B) of the Internal Revenue Code or the rules thereunder that satisfies Section 414(p)(1)(A) of the Internal Revenue Code or the rules thereunder. SECTION 11. RETENTION; WITHHOLDING OF TAX 11.1 Retention. Nothing contained in the Plan or in any Stock Option Award or Restricted Stock Award granted under the Plan will interfere with or limit in any way the right of the Company to remove any Director from the Board pursuant to the Restated Articles of Incorporation and the By-laws of the Company, nor confer upon any Director any right to continue in the service of the Company. 11.2 Withholding of Tax. To the extent required by applicable law and regulation, each Director must arrange with the Company for the payment of any federal, state or local income or other tax applicable to any payment or any delivery of Stock hereunder before the Company will be required to make such payment or issue (or, in the case of Restricted Stock, deliver) such shares under the Plan. SECTION 12. PLAN AMENDMENT, MODIFICATION AND TERMINATION The Board may at any time terminate, and from time to time may amend or modify the Plan, provided, however, that no amendment or modification may become effective without approval of the amendment or modification by the shareholders if shareholder approval is required to enable the Plan to satisfy any applicable statutory or regulatory requirements. SECTION 13. REQUIREMENTS OF LAW 13.1 Federal Securities Law Requirements. Implementation and interpretations of, transactions pursuant to, the Plan will be subject to all conditions required under Rule 16b-3, as such rule may be amended, or any successor rule, to qualify such transactions for any exemption from the provisions of Section 16(b) of the Exchange Act available under that rule, or any successor rule. -17- 18 13.2 Governing Law. The Plan and all agreements hereunder will be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania. SECTION 14. OTHER COMPENSATION This Plan will not preclude the adoption by appropriate means of any other compensation or deferral plan for directors. -18- EX-10.G 8 CBS CORPORATION 1 Exhibit 10(g) 1991 LONG-TERM INCENTIVE PLAN (as amended as of January 28, 1998) ARTICLE I GENERAL 1.1 Purpose The purposes of the 1991 Long-Term Incentive Plan ("Plan") for eligible employees of CBS Corporation (formerly known as Westinghouse Electric Corporation) ("Corporation") and its Subsidiaries (the Corporation and its Subsidiaries severally and collectively referred to in the Plan as the "Company") are to foster and promote the long-term financial success of the Company and materially increase stockholder value by (i) attracting and retaining employees of outstanding ability, (ii) strengthening the Company's capability to develop, maintain and direct a high performance team, (iii) motivating employees, by means of performance-related incentives, to achieve long-range performance goals, (iv) providing incentive compensation opportunities competitive with those of other major companies and (v) enabling employees to participate in the long-term growth and financial success of the Company. 1.2 Administration (a) The Plan will be administered by a committee of the Board of Directors of the Corporation ("Committee") which will consist of two or more members. The members will be appointed by the Board of Directors, and any vacancy on the Committee will be filled by the Board of Directors or in a manner authorized by the Board. The Committee will keep minutes of its meetings and of any action taken by it without a meeting. A majority of the Committee will constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present will be the acts of the Committee. Any action that may be taken at a meeting of the Committee may be taken without a meeting if a consent or consents in writing setting forth the action so taken is signed by all of the members of the Committee. The Committee will make appropriate reports to the Board of Directors concerning the operations of the Plan. (b) Subject to the limitations of the Plan, the Committee will have the sole and complete authority: (i) to select in accordance with Section 1.3 persons who will participate in the Plan ("Participant" or "Participants") (including the right to delegate authority to select Participants); (ii) to make Awards and payments in such forms and amounts as it may determine, including the right to delegate authority to make Awards within limits approved by the Committee; (iii) to impose such limitations, restrictions, terms and conditions upon such Awards as the Committee or its authorized delegates deems appropriate; (iv) to interpret the Plan and the -1- 2 terms of any document relating to the Plan and to adopt, amend and rescind administrative guidelines and other rules and regulations relating to the Plan; (v) to amend or cancel an existing Award in whole or in part (including the right to delegate authority to amend or cancel an existing Award in whole or in part within limits approved from time to time by the Committee), except that the Committee and its authorized delegates may not, unless otherwise provided in the Plan, or unless the Participant affected thereby consents, take any action under this clause that would adversely affect the rights of such Participant with respect to the Award, and except that the Committee and its authorized delegates may not take any action to amend any outstanding Option under the Plan in order to decrease the Option Price under such Option or to cancel and replace any such Option with an Option with a lower Option Price; and (vi) to make all other determinations and to take all other actions necessary or advisable for the interpretation, implementation and administration of the Plan. The Committee's determinations on matters within its authority will be conclusive and binding upon the Company and all other persons. (c) The Committee will act with respect to the Plan on behalf of the Corporation and on behalf of any Subsidiary issuing stock under the Plan, subject to appropriate action by the board of directors of any such Subsidiary. All expenses associated with the Plan will be borne by the Corporation subject to such allocation to its Subsidiaries and operating units as it deems appropriate. 1.3 Selection for Participation Participants selected by the Committee or its authorized delegates must be Eligible Persons as defined below. "Eligible Persons" are persons who are employees of the Company ("Employee" or "Employees") or, in the event of death while an Employee, his or her estate. Eligible Persons will also include independent contractors of the Company as to an Award if the person is an independent contractor at the time the Award is granted. In making this selection and in determining the form and amount of Awards, the Committee may give consideration to the functions and responsibilities of the Eligible Person, his or her past, present and potential contributions to the Company and other factors deemed relevant by the Committee. 1.4 Types of Awards under Plan Awards ("Awards") under the Plan may be in the form of any one or more of the following: (i) Non-statutory Stock Options ("NSOs" or "Options"), as described in Article II, (ii) Stock Appreciation Rights ("SARs") and Limited Stock Appreciation Rights ("Limited Rights"), as described in Article III, (iii) Performance Awards ("Performance Awards") as described in Article IV, and (iv) Restricted Stock ("Restricted Stock") as described in Article V. -2- 3 1.5 Shares Subject to the Plan Shares of stock issued under the Plan may be in whole or in part authorized and unissued or treasury shares of the Corporation's common stock, par value $1.00 ("Common Stock"), or "Formula Value Stock" as defined in Section 8.12(d) (Common Stock and Formula Value Stock severally and collectively referred to in the Plan as "Stock"). The maximum number of shares of Stock which may be issued for all purposes under the Plan will be 30,500,000, plus such additional shares as the Board of Directors or the Committee may, from time to time, authorize by a resolution or resolutions duly adopted by said Board of Directors or Committee. Except as otherwise provided below, any shares of Stock subject to an Option or other Award which is canceled or terminates without having been exercised will again be available for Awards under the Plan. Shares subject to an option canceled upon the exercise of an SAR will not again be available for Awards under the Plan except to the extent the SAR is settled in cash. To the extent that an Award is settled in cash, shares of Stock subject to that Award will again be available for Awards. Shares of Stock tendered by a Participant or withheld by the Company to pay the exercise price of an Option or to satisfy the tax withholding obligations of the exercise or vesting of an Award will be available again for Awards under the Plan. Shares of Restricted Stock forfeited to the Company in accordance with the Plan and the terms of the particular Award will be available again for Awards under the Plan. No fractional shares will be issued, and the Committee will determine the manner in which fractional share value will be treated. ARTICLE II STOCK OPTIONS 2.1 Award of Stock Options The Committee may, from time to time, subject to the provisions of the Plan and such other terms and conditions as the Committee may prescribe, award to any Participant Options to purchase Stock. The Committee may provide with respect to any option to purchase Stock that, if the Participant, while an Eligible Person, exercises the option in whole or in part using already-owned Stock, the Participant will, subject to this Section 2.1 and such other terms and conditions as may be imposed by the Committee, receive an additional option ("Reload Option"). The Reload Option will be to purchase, at Fair Market Value as of the date the original option was exercised, a number of shares of Stock equal to the number of whole shares used by the Participant to exercise the original option. The Reload Option will be exercisable only between the date of its grant and the date of expiration of the original option. -3- 4 A Reload Option will be subject to such additional terms and conditions as the Committee may approve, which terms may provide that the Committee may cancel the Participant's right to receive the Reload Option and that the Reload Option will be granted only if the Committee has not canceled such right prior to the exercise of the original option. Such terms may also provide that, upon the exercise by a Participant of a Reload Option while an Eligible Person, an additional Reload Option will be granted with respect to the number of whole shares used to exercise the first Reload Option. 2.2 Stock Option Agreements The award of an option will be evidenced by a written agreement ("Stock Option Agreement") in such form and containing such terms and conditions as the Committee may from time to time determine. 2.3 Option Price The purchase price of Stock under each Option ("Option Price") will not be less than the Fair Market Value of such Stock on the date the Option is awarded. 2.4 Exercise and Term of Options (a) Except as otherwise provided in the Plan, Options will become exercisable at such time or times as the Committee may specify. The Committee may at any time and from time to time accelerate the time at which all or any part of the Option may be exercised. (b) The Committee will establish procedures governing the exercise of options and will require that notice of exercise be given. Stock purchased on exercise of an option must be paid for as follows: (1) in cash or by check (acceptable to the Company in accordance with guidelines established for this purpose), bank draft or money order payable to the order of the Company or (2) if so provided by the Committee (i) through the delivery of shares of Stock which are then outstanding and which have a Fair Market Value on the date of exercise equal to the exercise price, (ii) by delivery of an unconditional and irrevocable undertaking by a broker to deliver promptly to the Company sufficient funds to pay the exercise price, or (iii) by any combination of the permissible forms of payment. 2.5 Termination of Eligibility In the event the Participant is no longer an Eligible Person and ceased to be such as a result of termination of service to the Company with the consent of the Committee or as a result -4- 5 of his or her death, retirement or disability, each of his or her outstanding Options will be exercisable by the Participant (or his or her legal representative or designated beneficiary), to the extent that such Option was then exercisable, at any time prior to an expiration date established by the Committee at the time of award, but in no event after such expiration date. In the event an Award is made to the estate of a person who died while an Employee, each outstanding Option held by such estate will be exercisable by the estate (or the distributee of said estate) at any time prior to an expiration date established by the Committee at the time of award. If the Participant ceases to be an Eligible Person for any other reason, all of the Participant's then outstanding Options will terminate immediately. ARTICLE III STOCK APPRECIATION RIGHTS AND LIMITED RIGHTS 3.1 Award of Stock Appreciation Right (a) An SAR is an Award entitling the recipient on exercise to receive an amount, in cash or Stock or a combination thereof (such form to be determined by the Committee), determined in whole or in part by reference to appreciation in Stock value. (b) In general, an SAR entitles the Participant to receive, with respect to each share of Stock as to which the SAR is exercised, the excess of the share's Fair Market Value on the date of exercise over its Fair Market Value on the date the SAR was granted. (c) SARs may be granted in tandem with options granted under the Plan ("Tandem SARS") or independently of Options ("Independent SARs"). An SAR granted in tandem with an NSO may be granted either at or after the time the option is granted. (d) SARs awarded under the Plan will be evidenced by either a Stock Option Agreement (when SARs are granted in tandem with an Option) or a separate agreement between the Company and the Participant. (e) Except as otherwise provided herein, a Tandem SAR will be exercisable only at the same time and to the same extent and subject to the same conditions as the option related thereto is exercisable, and the Committee may prescribe additional conditions and limitations on the exercise of the SAR. The exercise of a Tandem SAR will cancel the related Option. Tandem SARs may be exercised only when the Fair Market Value of Stock to which it relates exceeds the Option Price. (f) Except as otherwise provided herein, an Independent SAR will become exercisable at such time or times, and on such conditions, as the Committee may specify, and the Committee may at any time accelerate the time at which all or any part of the SAR may be exercised. -5- 6 The Committee may provide, under such terms and conditions as it may deem appropriate, for the automatic grant of additional SARs upon the full or partial exercise of an Independent SAR. Any exercise of an Independent SAR must be in writing, signed by the proper person and delivered or mailed to the Company, accompanied by any other documents required by the Committee. (g) Except as otherwise provided herein, all SARs will automatically be exercised on the last trading day prior to the expiration date established by the Committee at the time of the award for the SAR, or, in the case of a Tandem SAR, for the related Option, so long as exercise on such date will result in a payment to the Participant. (h) Unless otherwise provided by the Committee, no SAR will become exercisable or will be automatically exercised for six months following the date on which it was granted. (i) At the time of award of an SAR, the Committee may limit the amount of the payment that may be made to a Participant upon the exercise of the SAR. The Committee may further determine that, if the amount to be received by a Participant in any year is limited pursuant to this provision, payment of all or a portion of the amount that is unpaid as a result of the limitation may be made to the Participant at a subsequent time. No such limitation will require a Participant to return to the Company any amount theretofore received by him or her upon the exercise of an SAR. (j) Payment of the amount to which a Participant is entitled upon the exercise of an SAR will be made in cash, Stock, or partly in cash and partly in Stock, as the Committee may determine. To the extent that payment is made in Stock, the shares will be valued at their Fair Market Value on the date of exercise of the SAR. (k) Each SAR will expire on a date determined by the Committee or earlier upon the occurrence of the first of the following: (i) in the case of a Tandem SAR, termination of the related option, (ii) expiration of a period of six months after the Participant's ceasing to be an Eligible Person as a result of termination of service to the Company with the consent of the Committee or as a result of his or her death, retirement or disability, or (iii) the Participant ceasing to be an Eligible Person for any other reason. 3.2 Limited Rights (a) The Committee may award Limited Rights pursuant to the provisions of this Section 3.2 to the holder of an Option to purchase Common Stock granted under the Plan (a "Related Option") with respect to all or a portion of the shares subject to the Related Option. A Limited Right may be exercised only during the period beginning on the first day following a Change in Control, as defined in Section 7.2 of the Plan, and ending on the thirtieth day -6- 7 following such date. Each Limited Right will be exercisable only to the same extent that the Related Option is exercisable, and in no event after the termination of the Related Option. In no event may a Limited Right be exercised during the first six months after the date of grant of the Limited Right. Limited Rights will be exercisable only when the Fair Market Value (determined as of the date of exercise of the Limited Rights) of each share of Common Stock with respect to which the Limited Rights are to be exercised exceeds the Option Price per share of Common Stock subject to the Related option. (b) Upon the exercise of Limited Rights, the Related Option will be considered to have been exercised to the extent of the number of shares of Common Stock with respect to which such Limited Rights are exercised. Upon the exercise or termination of the Related Option, the Limited Rights with respect to such Related Option will be considered to have been exercised or terminated to the extent of the number of shares of Common Stock with respect to which the Related Option was so exercised or terminated. (c) The effective date of the grant of a Limited Right will be the date on which the Committee approves the grant of such Limited Right. Each grantee of a Limited Right will be notified promptly of the grant of the Limited Right in such manner as the Committee prescribes. (d) Upon the exercise of Limited Rights, the holder thereof will receive in cash an amount equal to the product computed by multiplying (i) the excess of (a) the higher of (x) the Minimum Price Per Share (as hereinafter defined), or (y) the highest reported closing sales price of a share of Common Stock on the New York Stock Exchange at any time during the period beginning on the sixtieth day prior to the date on which such Limited Rights are exercised and ending on the date on which such Limited Rights are exercised, over (b) the Option Price per share of Common Stock subject to the Related Option, by (ii) the number of shares of Common Stock with respect to which such Limited Rights are being exercised. (e) For purposes of this Section 3.2, the term "Minimum Price Per Share" will mean the highest gross price (before brokerage commissions and soliciting dealers' fees) paid or to be paid for a share of Common Stock (whether by way of exchange, conversion, distribution upon liquidation or otherwise) in any Change in Control which is in effect at any time during the period beginning on the sixtieth day prior to the date on which such Limited Rights are exercised and ending on the date on which such Limited Rights are exercised. For purposes of this definition, if the consideration paid or to be paid in any such Change in Control will consist, in whole or in part, of consideration other than cash, the Board will take such action, as in its judgment it deems appropriate, to establish the cash value of such consideration. ARTICLE IV PERFORMANCE AWARDS 4.1 Nature of Performance Awards A Performance Award provides for the recipient to receive an amount in cash or Stock or -7- 8 a combination thereof (such form to be determined by the Committee) following the attainment of Performance Goals. Performance Goals may be related to personal performance, corporate performance (including corporate stock performance), departmental performance or any other category of performance deemed by the Committee to be important to the success of the Company. The Committee will determine the Performance Goals, the period or periods during which performance is to be measured and all other terms and conditions applicable to the Award. Regardless of the degree to which Performance Goals are attained, a Performance Award will be paid only when, if and to the extent that the Committee determines to make such payment. 4.2 Other Awards Subject to Performance Condition The Committee may, at the time any Award described in this Plan is granted, impose the condition (in addition to any conditions specified or authorized in the Plan) that Performance Goals be met prior to the Participant's realization of any payment or benefit under the Award. ARTICLE V RESTRICTED STOCK 5.1 Award of Restricted Stock The Committee may award to any Participant shares of Stock subject to this Article V and such other terms and conditions as the Committee may prescribe, such Stock referred to herein as "Restricted Stock." Each certificate for Restricted Stock will be registered in the name of the Participant and deposited by him or her, together with a stock power endorsed in blank, with the Corporation. 5.2 Restricted Stock Agreement Shares of Restricted Stock awarded under the Plan will be evidenced by a written agreement in such form and containing such terms and conditions as the Committee may determine. 5.3 Restriction Period At the time of award, there will be established for each Participant a "Restriction Period" of such length as the Committee determines. The Restriction Period may be waived by the Committee. Shares of Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered, except as hereinafter provided, during the Restriction Period. Subject to such restriction on transfer, the Participant as owner of such shares of Restricted Stock will have -8- 9 the rights of the holder of such Restricted Stock, except that the Committee may provide at the time of the Award that any dividends or other distributions paid on such Stock during the Restriction Period will be accumulated and held by the Company and will be subject to forfeiture under Section 5.4. Upon the expiration or waiver by the Committee of the Restriction Period, the Corporation will redeliver to the Participant (or his or her legal representative or designated beneficiary) the shares deposited pursuant to Section 5.1. 5.4 Termination of Eligibility In the event the Participant is no longer an Eligible Person and ceased to be such as a result of termination of service to the Company with the consent of the Committee, or as a result of his or her death, retirement or disability, the restrictions imposed under this Article V will lapse with respect to such number of shares theretofore awarded to him or her as may be determined by the Committee. All other shares of Restricted Stock theretofore awarded to him or her which are still subject to restrictions, along with any dividends or other distributions thereon that have been accumulated and held by the Company, will be forfeited, and the Corporation will have the right to complete the blank stock power. In the event the Participant ceases to be an Eligible Person for any other reason, all shares of Restricted Stock theretofore awarded to him or her which are still subject to restrictions, along with any dividend or other distributions thereon that have been accumulated and held by the Company, will be forfeited, and the Corporation will have the right to complete the blank stock power. ARTICLE VI DEFERRAL OF PAYMENTS 6.1 Deferral of Amounts If the Committee makes a determination to designate Awards or, from time to time, groups or types of Awards, eligible for deferral hereunder, a Participant may, subject to such terms and conditions and within such limits as the Committee may from time to time establish, elect to defer the receipt of amounts due to him or her under the Plan. Amounts so deferred are referred to herein as "Deferred Amounts." The Committee may also permit amounts now or hereafter deferred or available for deferral under any present or future incentive compensation program or deferral arrangement of the Company to be deemed Deferred Amounts and to become subject to the provisions of this Article. Awards which are so deferred will be deemed to have been awarded in cash and the cash deferred as Deferred Amounts. The period between the date on which the Participant's Deferred Amount would have -9- 10 been payable absent deferral and the final payment of such Deferred Amount will be referred to herein as the "Deferral Period." 6.2 Investment During Deferral Period Unless otherwise determined by the Committee, and subject to such changes as the Committee may determine, the Deferred Amount will be treated during the Deferral Period as if it were invested in putative convertible debentures with a fixed interest rate, compounded annually, for the entire Deferral Period. For purposes of determining the value of the Deferred Amount at the time of payment, each putative debenture will be deemed to be convertible into Common Stock at a conversion rate computed by reference to the Fair Market Value of the Common Stock on the last trading day prior to the regular January meeting of the Board of Directors on or preceding the date of deferral. Payment of Deferred Amounts may be made in cash, Stock, or partly in cash and partly in Stock, in the Committee's sole discretion. 6.3 Participant Reports Annually, each Participant who has a Deferred Amount will receive a report setting forth all of his or her then Deferred Amounts and the yield thereon to date. 6.4 Payment of Deferred Amounts Payment of Deferred Amounts will be made at such time or times, and may be in cash, Stock, or partly in cash and partly in Stock, as the Committee from time to time determines. The limitations respecting the issuance of Stock or other limitations on aggregate awards payable contained in the Annual Performance Plan of the Corporation, Article XVI of the by-laws of the Corporation, the 1974 Stock Option Plan, the 1979 Stock Option and Long-Term Incentive Plan, the 1984 Long-Term Incentive Plan, the Plan and in any plan hereafter adopted by the stockholders will be limitations applicable to the payment of any Deferred Amounts under this Article VI. 6.5 Alternative Valuation Election Unless otherwise determined by the Committee, a Participant may, at a time established by the Committee, but prior to such Participant's ceasing to be an Eligible Person, elect to establish the ultimate payable value of each Deferred Amount by reference to the Fair Market Value of the Common Stock as of the day on which an alternate valuation election is received by the corporation in accordance with procedures established by the Committee. Notwithstanding the establishment of the ultimate payable value resulting from the -10- 11 alternate valuation election by the Participant, the yield will continue as though no such election had been made and will continue to be subject to the limitations set forth in Section 6.2, and Deferred Amounts and the yield thereon will be paid as otherwise provided in this Article. ARTICLE VII CHANGES IN CONTROL 7.1 Effect of Change in Control Notwithstanding any other provision of the Plan, upon the occurrence of a Change in Control, as defined in Section 7.2: (i) all Options and, subject to the exercise provisions of Section 3.2(a) of the Plan, Limited Rights, but not SARS, outstanding and unexercised on the date of the Change in Control will become immediately exercisable; (ii) all Performance Awards will be deemed to have been earned on such basis as the Committee may prescribe and then paid on such basis, at such time and in such form as the Committee may prescribe, or deferred in accordance with the elections of Participants; (iii) all Restricted Stock will be deemed to be earned and the Restriction Period will be deemed expired on such terms and conditions as the Committee may determine; and (iv) all amounts deferred under this Plan will be paid to a trustee or otherwise on such terms as the Committee may prescribe or permit. 7.2 Definition of Change in Control The term "Change in Control" means the occurrence of one or more of the following events: (a) there shall be consummated (i) any consolidation or merger of the Corporation in which the Corporation is not the continuing or surviving corporation or pursuant to which shares of the Common Stock would be converted into cash, securities or other property, other than a merger of the Corporation in which the holders of Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation, or (b) the stockholders of the Corporation shall approve any plan or proposal for the liquidation or dissolution of the Corporation, or (c) (i) any person (as such term is defined in Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), corporation or other entity shall purchase any Common Stock of the Corporation (or securities convertible into Common Stock) for cash, securities or any other consideration pursuant to a tender offer or exchange offer, unless, prior to the making of such purchase of Common Stock (or securities convertible into Common Stock), the Board shall determine that the making of such purchase shall not constitute a Change in Control, or (ii) any person (as such term is defined in Section 13(d) of the Exchange Act), corporation or other entity (other than the Corporation or any benefit plan sponsored by the Corporation or any of its subsidiaries) shall be the "beneficial owner" (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing twenty percent or more of the combined voting power of the -11- 12 Corporation's then outstanding securities ordinarily (and apart from any rights accruing under special circumstances) having the right to vote in the election of directors (calculated as provided in Rule 13d-3(d) in the case of rights to acquire any such securities), unless, prior to such person so becoming such beneficial owner, the Board shall determine that such person so becoming such beneficial owner shall not constitute a Change in Control, or (d) at any time during any period of two consecutive years, individuals who at the beginning of such period constituted the entire Board shall cease for any reason to constitute at least a majority thereof, unless the election or nomination for election of each new director during such two-year period was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such two-year period. ARTICLE VIII GENERAL PROVISIONS 8.1 Non-Transferability No Option, Limited Right, SAR, Performance Award or share of Restricted Stock or Deferred Amount under the Plan will be transferable other than by will, by the applicable laws of descent and distribution, or by transfer to a properly designated beneficiary in the event of death. All Awards and Deferred Amounts will be exercisable or received during the Participant's lifetime only by such Participant or his or her legal representative. Any transfer contrary to this Section 8.1 will nullify the option, Limited Right, SAR, Performance Award or share of Restricted Stock, and any attempted transfer of a Deferred Amount contrary to this Section 8.1 will be void and of no effect. 8.2 Beneficiaries The Committee may establish or authorize the establishment of procedures not inconsistent with Section 8.1 under which a Participant may designate a beneficiary or beneficiaries to hold, exercise and/or receive amounts due under an Award or with respect to Deferred Amounts in the event of the Participant's death. 8.3 Adjustments Upon Changes in Stock If there is any change in the Stock of the Company, through merger, consolidation, reorganization, recapitalization, stock dividend, stock split, split up, dividend in kind or other change in the corporate structure or distribution to the stockholders, appropriate adjustments may be made by the Board of Directors of the Company (or if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation) in the aggregate number and kind of shares subject to the Plan, and the number and kind of shares and the price per share subject to outstanding Options or which may be issued under outstanding -12- 13 Performance Awards or Awards of Restricted Stock. Appropriate adjustments may also be made by the Board of Directors or the Committee in the terms of any Awards under the Plan to reflect such changes and to modify any other terms of outstanding Awards on an equitable basis, including modifications of performance targets and changes in the length of Performance Periods. 8.4 Conditions of Awards (a) The rights of a Participant with respect to any Award received under this Plan will be subject to the conditions that, until the Participant has fully received all payments, transfers and other benefits under the Award, he or she will (i) not engage, either directly or indirectly, in any manner or capacity as advisor, principal, agent, partner, officer, director, employee, member of any association or otherwise, in any business or activity which is at the time competitive with any business or activity conducted by the Company and (ii) be available, unless he or she has died, at reasonable times for consultations at the request of the Company's management with respect to phases of the business with which he or she is or was actively connected during his or her employment, but such consultations will not (except in the case of a Participant whose active service was outside the United States) be required to be performed at any place or places outside of the United States of America or during usual vacation periods or periods of illness or other incapacity. In the event that either of the above conditions is not fulfilled, the Participant will forfeit all rights to any unexercised option or SAR, or any Performance Award or Stock held which has not yet been determined by the Committee to be payable or unrestricted (and any unpaid amounts equivalent to dividends or other distributions or amounts equivalent to interest relating thereto) as of the date of the breach of condition. Any determination by the Board of Directors of the Corporation, which will act upon the recommendation of the Chief Executive Officer, that the Participant is, or has, engaged in a competitive business or activity as aforesaid or has not been available for consultations as aforesaid will be conclusive. (b) This Section 8.4 will not apply to Limited Rights. 8.5 Use of Proceeds All cash proceeds from the exercise of options will constitute general funds of the Company. 8.6 Tax Withholding The Company will withhold from any cash payment made pursuant to an Award an amount sufficient to satisfy all federal, state and local withholding tax requirements (the "withholding requirements"). -13- 14 In the case of an Award pursuant to which Stock may be delivered, the Committee will have the right to require that the Participant or other appropriate person remit to the Company an amount sufficient to satisfy the withholding requirements, or make other arrangements satisfactory to the Committee with regard to such requirements, prior to the delivery of any Stock. If and to the extent that such withholding is required, the Committee may permit the Participant or such other person to elect at such time and in such manner as the Committee provides to have the Company hold back from the shares to be delivered, or to deliver to the Company, Stock having a value calculated to satisfy the withholding requirement. In the alternative, the Committee may, at the time of grant of any such Award, require that the Company withhold from any shares to be delivered Stock with a value calculated to satisfy applicable tax withholding requirements. 8.7 Non-Uniform Determinations The Committee's determinations under the Plan, including without limitation, (i) the determination of the Participants to receive Awards, (ii) the form, amount, timing and payment of such Awards, (iii) the terms and provisions of such Awards and (iv) the agreements evidencing the same, need not be uniform and may be made by it selectively among Participants who receive, or who are eligible to receive, Awards under the Plan, whether or not such Participants are similarly situated. 8.8 Leaves of Absence; Transfers The Committee will be entitled to make such rules, regulations and determinations as it deems appropriate under the Plan in respect to any leave of absence from the Company granted to a Participant. Without limiting the generality of the foregoing, the Committee will be entitled to determine (i) whether or not any such leave of absence will be treated as if the Participant ceased to be an Employee and (ii) the impact, if any, of any such leave of absence on Awards under the Plan. In the event a Participant transfers within the Company, such Participant will not be deemed to have ceased to be an Employee for purposes of the Plan. 8.9 General Restriction (a) Each Award under the Plan will be subject to the condition that, if at any time the Committee determines that (i) the listing, registration or qualification of shares of Stock upon any securities exchange or under any state or federal law, (ii) the consent or approval of any government or regulatory body or (iii) an agreement by the Participant with respect thereto, is necessary or desirable, then such Award will not be consummated in whole or in part unless such listing, registration, qualification, consent, approval or agreement has been effected or obtained free from any conditions not acceptable to the Committee. -14- 15 (b) Shares of Common Stock for use under the provisions of this Plan will not be issued until they have been duly listed, upon official notice of issuance, upon the New York Stock Exchange and such other exchanges, if any, as the Board of Directors of the Corporation determines, and a registration statement under the Securities Act of 1933 with respect to such shares has become, and is, effective. 8.10 Effective Date The Plan will be deemed effective as of December 4, 1991. No Award may be granted under the Plan after the Plan is terminated pursuant to Section 8.11, but Awards previously made may extend beyond that date and Reload Options and additional Reload Options provided for with respect to original options outstanding prior to that date may continue unless the Committee otherwise provides and subject to such additional terms and conditions as the Committee may provide, and the provisions of Article VI of the Plan will survive and remain effective as to all present and future Deferred Amounts until such later date as the Committee or the Board of Directors may determine. The adoption of the Plan will not preclude the adoption by appropriate means of any other stock option or other incentive plan for employees and/or independent contractors. 8.11 Amendment, Suspension and Termination of Plan The Board of Directors may at any time or times amend the Plan for any purpose which may at the time be permitted by law, or may at any time suspend or terminate the Plan as to any further grants of Awards. 8.12 Certain Definitions (a) Unless otherwise determined by the Committee, the terms "retirement" and "disability" as used under the Plan will be construed by reference to the provisions of the Westinghouse Pension Plan or other similar plan or program of the Company applicable to a Participant. (b) The term "Fair Market Value" as it relates to Common Stock means the mean of the high and low prices of the Common Stock as reported by the Composite Tape of the New York Stock Exchange (or such successor reporting system as the Committee may select) on the relevant date or, if no sale of the Common Stock has been reported for that day, the average of such prices on the next preceding day and the next following day for which there were reported sales. The term "Fair Market Value" as it relates to Formula Value Stock will mean the value determined by the Committee. -15- 16 (c) The term "Subsidiary" will mean, unless the context otherwise requires, any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the corporation if each of the corporations other than the last corporation in such chain owns stock possessing at least 50% of the voting power in one of the other corporations in such chain. (d) "Formula Value Stock" means shares of a class or classes of stock the value of which is derived from a formula established by the Committee which reflects such financial measures as the Committee may determine. Such shares will have such other characteristics as may be determined at time of their authorization. -16- EX-10.V 9 CBS CORPORATION 1 Exhibit 10(v) AGREEMENT made as of the 17th day of May, 1995 by and between CBS Inc. ("CBS"), a New York corporation, having its principal office at 51 West 52nd Street, New York, New York 10019, and Leslie Moonves ("Executive"), residing at 1045 North Bundy Drive, Los Angeles, California 90049. W I T N E S S E T H WHEREAS, CBS desires to secure the services of Executive as an executive, and Executive is willing to perform such services, upon the terms, provisions and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and mutual covenants hereinafter contained, it is agreed between CBS and Executive as follows: 1. (a) CBS hereby employees Executive, and Executive hereby accepts employment, as President, CBS Entertainment Division of CBS ("CED"), and as Executive Vice President, CBS Broadcast Group ("CBG"), for a five-year term commencing December 5, 1995 and ending December 4, 2000 (the "Employment Term"). Each successive year of the Employment Term is herein referred to as a "Contract Year," with the first Contract Year to commence December 5, 1995 and to continue through December 4, 1996, and each successive Contract Year thereafter to commence on December 5 and continue through December 4 of the applicable Contract Year. (b) Executive shall report directly and only to the person who is President of the CBG. (c) So long as this agreement is not terminated pursuant to paragraph 7 below and Executive is rendering services hereunder, there shall be no higher executive of CED, and Executive shall have full authority and responsibility to run CED, including the hiring and replacement of personnel for CED and the setting of projects for development and production, such projects to include series and other production commitments, in accordance with CBS policies and practices. Financial commitments undertaken by Executive must adhere to established practices and policies of CBS. Executive shall have the opportunity to participate in discussions concerning the development and review of such practices and policies. (d) So long as this agreement is not terminated pursuant to paragraph 7 below and Executive is rendering services hereunder, Executive shall provide executive services to CBS in a manner determined by the President, CBG. 2. (a) CBS agrees to pay Executive, and Executive agrees to accept from CBS for his services hereunder, a base salary of $2,500,000 per annum for the first Contract Year, $2,500,000 for the second Contract Year, $2,500,000 for the third Contract Year, $2,500,000 for the fourth Contract Year, and $2,500,000 for the fifth Contract Year. Base salary shall be payable bi-weekly or in such other manner as CBS may designate for employees generally. (b) In addition to the base salary provided for in paragraph 2(a) above, Executive shall receive a bonus payment of $1,500,000 per annum in each Contract Year of the Employment Term. Bonus payments, which shall not be considered as base salary, shall be prorated over the applicable 1 2 Contract Year, and each pro rata portion shall be paid with base salary in the manner described above in paragraph 2(a). The bonus payments provided for herein are intended to substitute for any sums that otherwise would or might be payable to Executive under the CBS Executive Incentive Plan (EIP), for which Executive shall not be eligible. 3. Executive shall be included in all plans now existing or hereafter adopted for the general benefit of CBS employees such as pension plans, investment funds and group medical, disability or other insurance plans and benefits, if and to the extent he is and remains eligible to participate thereunder, and subject to the provisions of such plans as the same may be in effect from time to time. Executive shall also be eligible and recommended to the CBS Board of Directors for participation in the CBS's Supplemental Executive Retirement Plan (SERP) and the CBS Stock Rights Plan (SRP) or any successor plans thereto, and other plans in which participation is limited to CBS executives in positions comparable to Executive's; provided, however, that Executive shall not be eligible to participate in or receive payments under the EIP or any successor plans thereto. To the extent Executive participates in any benefit plan, such participation shall be based solely upon Executive's base salary, except that Executive's participation in SERP shall be based upon fifty percent (50%) of the annual bonus payment provided for in paragraph 2(b). With respect to Executive's eligibility for participation in the SRP, it is understood and agreed that Executive shall be proposed for a grant of stock options pursuant to the CBS Stock Rights Plan at each meeting of the CBS Board of Directors during the Employment Term at which grants are proposed for CBS senior executives and that if and when such stock options are granted, the number of options granted to Executive shall be no less than that awarded to any person reporting to the President, CBG at the time of such grant. Executive acknowledges, however, that since SERP and the Stock Rights Plan are administered under procedures that are not subject to contractual arrangements, eligibility for consideration is not a guarantee of actual participation because the CBS Board of Directors' discretion, or that of the appropriate committee of such Board, in granting participation, is absolute. 4. Executive shall be entitled to four (4) weeks vacation with pay in each Contract Year, and vacation shall be governed in accordance with CBS policy. 5. Executive agrees to devote all of his business time and attention to the affairs of CBS, except during vacation periods and reasonable periods of illness or other incapacity consistent with the practices of CBS for executives in comparable positions, and agrees that his business/professional services shall be completely exclusive to CBS during the term hereof. 6. Executive acknowledges that he has been furnished a copy of the Policy Notes from the President concerning Conflicts of Interest ("Conflicts Policy") dated December 13, 1989, and a copy of the "CBS Policy Summary." Executive further acknowledges that he has read and fully understands all of the requirements thereof, and acknowledges that at all times during the term hereof, he shall perform his services hereunder in full compliance with the Conflicts Policy and the CBS Policy Summary and with any revisions thereof or additions thereto including without limitation any notice provisions therein (notwithstanding any notice provisions to the contrary which may be contained in paragraph 13 of this 2 3 agreement); provided, however, that is understood and agreed that the exercise by Executive during the Employment Term of stock options awarded to him by his prior employer that would be forfeited if not exercised by him during the Employment Term shall not be deemed to be a violation of the Conflicts Policy. 7. If, during the term of this agreement, the employment of Executive by CBS should be terminated by CBS for cause (which for these purposes is defined as (i) fraud, misappropriation or embezzlement on the part of Executive; (ii) Executive's willful failure to perform services hereunder, unless such failure is cured within fifteen (15) days after written notice specifying the alleged failure; or (iii) Executive's intentional breach of the provisions of paragraph 5 or of paragraph 6 hereof, unless such breach is cured within fifteen (15) days after written notice specifying the alleged breach) or for Executive's incapacity, then CBS shall immediately have the right to terminate this agreement without further obligation; provided, however, that in the event of Executive's incapacity CBS may terminate this agreement effective only during the period of incapacity and only after the expiration of a period the length of which shall be determined by the CBS Personnel Department pursuant to the then applicable CBS sick leave policy for CBS exempt staff employees as though such policy were applicable to this agreement but in any event not less than four (4) consecutive weeks. If Executive is found to be insurable for the purposes of the CBS Senior Executive Life Insurance Plan (SELIP), CBS will obtain insurance, at CBS's expense and for CBS's benefit, or CBS will self-insure, against Executive's incapacity, for an amount equal to the total compensation payable to Executive pursuant to paragraph 2 of this agreement during the Employment Term. The insured amount shall be reduced at the beginning of the second Contract Year of the Employment Term, and of each Contract Year thereafter, to correspond to the remaining compensation payable to Executive under the terms of paragraph 2 of this agreement. The insured amount shall be further reduced by the maximum amount of Executive's salary which may be insured under the CBS Long Term Disability ("LTD") Plan at the time of disability, regardless of whether Executive elects to obtain full benefits to which he is entitled under CBS's LTD Plan. If Executive is found to be insurable as set forth above and CBS terminates this agreement by reason of Executive's incapacity, Executive shall continue to be paid the annual compensation that would otherwise be payable under the terms of paragraph 2 of this agreement for the duration of the Employment Term, less the maximum amount of Executive's salary which may be insured under the CBS Long Term Disability ("LTD") Plan at the time of disability, regardless of whether Executive elects to obtain full benefits to which he is entitled under CBS's LTD Plan. Nothing herein shall obligate CBS to utilize Executive's services, and CBS shall have fulfilled all of its obligations hereunder by payment to Executive of the applicable compensation provided for in paragraphs 2 and 11 hereof, plus any benefits to which Executive is entitled pursuant to paragraph 3 above during the Employment Term, and the fulfillment of the indemnification obligation set forth in paragraph 12 below. 3 4 If, during the Employment Term, CBS elects to terminate Executive's employment hereunder for any reason other than cause (as hereinabove defined), or if this agreement is terminated by Executive for Good Reason (as hereinbelow defined), Executive shall have no duty to mitigate, and shall be entitled to receive his base salary and bonus as provided for in paragraph 2 and any additional payment provided for in paragraph 11 (none of which shall constitute severance pay), for the remainder of the Employment Term, with no offset based on any employment Executive may obtain following such termination. Following any such termination, CBS shall have no obligation whatsoever to make any further payments to Executive except as provided in the preceding sentence. Notwithstanding anything contained in this agreement, Executive shall not be entitled to receive any severance pay upon the termination of this agreement or of Executive's employment hereunder at any time during the Employment Term. "Good Reason" shall mean any of the following (without Executive's prior express written consent) which, on written notice from Executive, CBS shall not have cured within fifteen (15) days: (A) the repeated failure of CBS to pay Executive any compensation due and owing hereunder (it being agreed that written notice with respect to a repeated failure need be given only one time); (B) removing Executive from his title or position as President, CED; (C) inserting any other person in the chain of authority between the Executive and the person who is President of CBG; (D) diminishing in any substantial way Executive's authority for the management and operation of CED; or (E) diminishing in any substantial way the functions of CED. 8. In accordance with the then applicable CBS policy, CBS shall reimburse Executive for the cost of his reasonable, actual and necessary business and travel expenses incurred in connection with his services hereunder. 9. Executive shall be entitled to receive a payment of $1,500 for each month of his employment hereunder to offset certain benefits which Executive is foregoing with his present employer by accepting employment with CBS. 10. CBS shall own all right, title and interest in perpetuity to the results of Executive's services and all artistic materials and intellectual properties which are, in whole or in part, created, developed or produced by Executive during the Employment Term and which are suggested by or related to Executive's employment hereunder or any activities to which Executive is assigned, and Executive shall not have or claim to have any right, title or interest therein of any kind or nature. Nothing in the preceding sentence is intended to constitute a waiver of CBS's Conflict of Interest policies. 11. In the vent of a Change of Control (as defined below) during the Employment Term and while Executive is rendering services hereunder, Executive shall continue to be employed by CBS pursuant to the terms of this agreement. If there is a Change of Control (as defined below) during the Employment Term and while Executive is rendering services hereunder in which the Per Share Consideration (as defined below) is less than the Threshold Amount (as defined below), Executive shall receive, in addition to the compensation provided for in paragraph 2 hereof, an additional payment of $1,000,000 for each remaining Contract Year (or prorated portion thereof) of the Employment Term 4 5 following consummation of such Change of Control, payable over the course of each such year in the manner provided for in paragraph 2. If the Per Share Consideration in such Change of Control during the Employment Term and while Executive is rendering services hereunder is equal to or more than the Threshold Amount, CBS shall pay to Executive (in lieu of the additional payment provided for in the preceding sentence), promptly following consummation thereof, $5,000,000 plus an amount equal to the product of $500,000 and the amount by which the Per Share Consideration exceeds the sum of the Threshold Amount and $10. "Change of Control" means a transaction or business combination in which the shareholders of CBS immediately before consummation thereof do not immediately following consummation thereof beneficially own at least fifty percent (50%) of the voting securities of the resulting entity; provided, however, that the acquisition or disposition of shares of CBS by Loews Corporation shall not in any event result in a Change of Control within the meaning of this agreement, except for the disposition of such shares in connection with a transaction in which a third party acquires at least fifty percent (50%) of the voting securities of CBS. "Per Share Consideration" means the fair market value as of the date of payment of the consideration per share of CBS Common Stock received in a Change of Control transaction (such fair market value to be determined in good faith by the CBS Board of Directors, provided that if such consideration includes publicly traded securities, fair market value for such securities shall be the average of the closing or last sale prices for such securities for the ten trading days following consummation of such Change of Control). "Threshold Amount" means $80 plus the amount, if any, by which retained earnings (as set forth in CBS's annual audited balance sheet) per outstanding CBS share increases from December 31, 1995 to December 31 of the fiscal year immediately preceding the Change of Control; provided, however, that at no time shall the Threshold Amount be less than $80. In the vent of a stock split or stock dividend, or a reclassification or similar change in CBS's outstanding Common Stock, or in the event of an extraordinary dividend or a spin-off (but not a share repurchase), CBS's Board of Directors shall in good faith make appropriate adjustments to the amounts set forth in this paragraph. 12. CBS shall, to the fullest extent permitted by applicable law, indemnify Executive and hold him harmless from and against any claim, loss, liability, judgment or expense (including reasonable attorneys fees) arising from or relating to Executive's employment by CBS. 13. Any controversy or claim arising out of or relating to this agreement, or to the construction, validity or enforceability thereof (except any claim or controversy arising out of or relating to paragraph 11 of this agreement, or the construction, validity or enforceability thereof), shall be settled by arbitration held in New York City in accordance with the Commercial Arbitration Rules of the American Arbitration Association. An arbitration held pursuant to this paragraph shall be conducted by a single arbitrator mutually agreeable to and designated by the parties, who shall be either a retired or former Judge of a Untied States District Court of United States Court of Appeals, or a law professor with acknowledged expertise from a nationally recognized law school. Such arbitration shall be commenced by delivery by hand or certified mail of a written demand setting forth the claim or controversy which the demanding party wishes to have resolved. The arbitrator shall determined rules for the conduct of the 5 6 arbitration proceeding. All documents, information or testimony provided by either party to the other, or the arbitrator, shall be maintained in confidence. Any award, ruling or judgment of the arbitrator shall be rendered in writing and shall be final and binding on the parties. The arbitrator shall be empowered to grant any appropriate remedy that may be available in law or equity, except that the arbitrator shall have no authority to award punitive damages. Judgment on an award rendered by the arbitrator may be entered in any court having jurisdiction thereof. All fees and other costs of the arbitration, including the fees and expenses of the arbitrator and of each party's attorneys and expert witnesses, shall be allocated by the arbitrator at his or her discretion. 14. This agreement contains the entire understanding of the parties with respect to the subject matter thereof, supersedes any and all prior agreements of the parties with respect to the subject matter thereof, and cannot be changed or extended except by a writing signed by both parties hereto. This agreement shall be binding upon and insure to the benefit of the parties and their respective legal representatives, executors, heirs, administrators, successors and assign, it being understood that no assignment of this agreement, in whole or in part, will relieve either party of its obligations hereunder. This agreement and all matters and issues collateral thereto shall be governed by the laws of the State of New York applicable to contracts performed entirely therein. If any provision of this agreement, as applied to either party or to any circumstance, shall be adjusted by a court to be void or unenforceable, the same shall in no way affect any other provision of this agreement or the validity or enforceability thereof. 15. All notice or other communications hereunder shall be given in writing and shall be deemed given if served personally or mailed by registered or certified mail, return receipt requested, to the parties at their address above indicated, or at such other addresses as they may hereafter designated in writing. All such notices or other communications directed to CBS shall be directed to the attention of Peter Keegan, Executive Vice President and Chief Financial Officer, and to Ellen Oran Kaden, Executive Vice President, General Counsel and Secretary, or such other persons whom CBS may hereafter designated in writing. Any notice to Executive also shall be sent in the same manner to: Ernest Del, Esq. Del, Rubel, Shaw, Mason & Derin 2029 Century Park East - Suite 3910 Los Angeles, California 90067-3025 6 7 IN WITNESS WHEREOF, the parties have executed this agreement as of the day and year first above written. CBS Inc. ---------------------------------- /s/ Leslie Moonves - -------------------------- Executive 8 [LOGO] 51 West 52nd Street CBS BROADCASTING INC. Michael H. Jordan New York, New York 10019 Chairman and (212) 975-3535 Chief Executive Officer CONFIDENTIAL & PROPRIETARY January 20, 1998 Mr. Leslie Moonves 51 West 52nd Street New York, New York 10019 Dear Mr. Moonves: This letter (the "Amendment") will amend, as set forth below, the provisions of the Agreement between you ("Executive") and CBS Broadcasting Inc. (formerly known as CBS Inc.) ("CBS") dated as of May 17, 1995 (the "Agreement") pursuant to which you perform services for CBS. Upon execution of the Amendment by you and CBS, all changes set forth in the Amendment will be effective as of June 17, 1997 except as otherwise set forth herein. 1. The following two sentences are hereby added after the first sentence of current paragraph 1(a) of the Agreement: "Beginning August 7, 1997, Executive will be employed as President, CBS Television, and Executive Vice President, CBS, rather than as President, CBS Entertainment Division of CBS ("CED"), and Executive Vice President, CBS Broadcast Group. In addition, Executive will serve on the CBS Committee currently consisting of Michael H. Jordan, Mel Karmazin and Fredric G. Reynolds." 9 Mr. Leslie Moonves CONFIDENTIAL & PROPRIETARY January 20, 1998 Page 2 2. Current paragraph 1(b) of the Agreement is hereby replaced with the following: "(b) Executive shall report directly and only to the person who is Chairman and Chief Executive Officer of CBS (currently, Michael H. Jordan)." 3. The following is hereby added to the end of the first sentence of current paragraph 1(c) of the Agreement: "and, in addition to such authority and responsibility to run CED, Executive shall, beginning August 7, 1997, have full authority and responsibility to run Eyemark Entertainment, CBS Enterprises, and sales, advertising and promotion, and research for CBS Network Television, all in accordance with CBS policies and practices." 4. Current paragraph 1(d) of the Agreement is hereby replaced with the following: "(d) So long as this agreement is not terminated pursuant to paragraph 7 below and Executive is rendering services hereunder, Executive shall provide executive services to CBS in a manner determined by the person who is Chairman and Chief Executive Officer of CBS (currently, Michael H. Jordan)." 5. The second sentence through the last sentence of current paragraph 3 of the Agreement (relating to CBS executive and stock plans) are hereby replaced with the following two paragraphs: "As provided in this agreement prior to the Amendment, Executive shall be eligible for participation in the CBS Supplemental Executive Retirement Plan (SERP), or any successor plan thereto, with Executive's participation in SERP to be based upon fifty percent (50%) of the annual bonus payment provided for in paragraph 2(b) of this agreement, such participation in or benefits under such plan to be subject to the terms of such plan as such plan may be in effect from time to time. 10 Mr. Leslie Moonves CONFIDENTIAL & PROPRIETARY January 20, 1998 Page 3 From and after the date of the Amendment, Executive shall be entitled during the remaining term of this agreement so long as he is an employee of CBS to participate in or receive benefits under any and all other CBS employee benefit plans made available to CBS senior-level executives, such participation in or benefits under any such plan or plans to be subject to the terms of such plans as such plans may be in effect from time to time; provided, however, that Executive shall not be entitled to any annual incentives other than the bonus payments provided in paragraph 2(b) of this agreement or any stock options other than the stock options provided in paragraph 16 of this agreement, and provided, however, that Executive shall not be entitled to participate in or receive benefits under any plan provided exclusively to the Chief Executive Officer or provided solely to executives of, or relating primarily to the performance or sale of, a particular business or groups of businesses not involving Executive." 6. The following is hereby added as new paragraph 16 of the Agreement: "Prior to the effective date of the Amendment and after November 24, 1995, Executive received three stock option grants from CBS Corporation for 50,000, 80,000 and 80,000 shares, respectively, of common stock of CBS Corporation. Each such stock option grant is reflected in and governed by a stock option agreement executed by CBS Corporation and Executive. Subject to execution by both parties of the Amendment and the relevant stock option agreements, Executive has been granted non-qualified stock options to purchase an aggregate of 790,000 shares of common stock of CBS Corporation under the CBS Corporation 1993 Long-Term Incentive Plan or its successor as in effect from time to time (the "Plan"). The options for 500,000 shares of this aggregate amount all have an option exercise price per share of $21.75, the fair market value (as defined in the Plan) of the CBS Corporation common stock on the grant date for these options (June 17, 1997), will all become exercisable ("vest") beginning on June 18, 1998, and will all expire on June 16, 2007. The options for the remaining 290,000 shares of this aggregate amount all have an option exercise price per share of $24.3125, the fair market value (as defined in the Plan) of the CBS Corporation common stock on the grant date for these options (July 28, 1997), will vest beginning on July 29, 1998 as to 96,666 shares, on July 29, 1999 as to 96,667 shares and on July 16, 2000 as to 96,667 shares, and will all expire on July 27, 2007. In each case, these options will vest only if Executive is an employee of CBS Corporation or one of its subsidiaries on the vesting date except as otherwise set forth in the relevant stock option agreement. The relevant stock option agreements for these option grants will define and govern all of the terms and conditions of the stock options, including but not limited to termination provisions. Such stock option agreements will be issued upon execution of the Amendment by both parties. 11 Mr. Leslie Moonves CONFIDENTIAL & PROPRIETARY January 20, 1998 Page 4 Executive will be considered for a grant of additional stock options during the Employment Term so long as this agreement is not terminated pursuant to paragraph 7 hereof and Executive is rendering services hereunder, it being understood that any such grant would be within the sole discretion of the Compensation Committee of the Board of Directors of CBS Corporation and that there would be no guarantee of any such further grant or as to the terms thereof even if other senior-level CBS executives or members of the CBS Committee are granted additional stock options." 7. The following is hereby added as new paragraph 17 of the Agreement: "Beginning August 7, 1997 and for the remaining term of this agreement so long as Executive is rendering services hereunder, Executive shall have a right of non-exclusive but priority business use of (and may also use for non-business travel on a prudent basis when an airplane is available, it being understood that business purpose trips take priority over non-business travel) any jet airplane(s) which CBS Corporation owns or leases during that time, it being understood that CBS Corporation is under no obligation to maintain or increase its current number of airplanes or to lease or charter any additional airplanes for this purpose. Such right of priority use would be subject to (i.e. subordinate to) the right of use by the Chief Executive Officer and equal to the right of use by any other CBS executive whose position is commensurate with Executive's position. With respect to any conflict of use between Executive and any other such equal executive, Executive and such other executive will work in good faith to coordinate their schedules and accommodate the other's travel needs, it being understood that from time to time it may become necessary for Executive and/or any such other executive to use a commercial flight in lieu of a company airplane. Executive's family members may accompany him on corporate aircraft flights. Flight Operations will outline to Executive the tax implications of any use of corporate aircraft by Executive and any members of his family. Executive will not be required to reimburse CBS for any non-business use of corporate aircraft." Except as specifically amended in the Amendment, all the terms and conditions of the Agreement are in all other respects hereby ratified and confirmed. 12 Mr. Leslie Moonves CONFIDENTIAL & PROPRIETARY January 20, 1998 Page 5 Kindly sign in the space provided below to indicate your acceptance of the foregoing and return one copy of the Amendment to Ms. Karen Beldegreen at CBS. Very truly yours, CBS Broadcasting Inc. By: /s/ MICHAEL H. JORDAN --------------------- Name: Michael H. Jordan Its: Chairman and Chief Executive Officer Consented to, Accepted and Agreed: /s/ LESLIE MOONVES - ------------------ Leslie Moonves Date: 1-22-98 - ------------------ EX-10.W 10 CBS CORPORATION 1 Exhibit 10(w) ASSET PURCHASE AGREEMENT between WESTINGHOUSE ELECTRIC CORPORATION and SIEMENS POWER GENERATION CORPORATION Dated November 14, 1997 RELATING TO THE POWER GENERATION BUSINESS 2 TABLE OF CONTENTS PAGE ARTICLE 1 DEFINITIONS........................... 2 Section 1.1 Specified Definitions................................ 2 Section 1.2 Other Terms.......................................... 15 Section 1.3 Other Definitional Provisions........................ 15 ARTICLE 2 SALE AND PURCHASE OF ASSETS; ASSUMPTION OF LIABILITIES..................... 16 SECTION 2.1 Purchase and Sale.................................... 16 SECTION 2.2 Acquired Assets and Excluded Assets.................. 16 (a) Acquired Assets........................................... 16 (b) Excluded Assets........................................... 18 (c) Nonassignable Rights...................................... 20 (d) Termination of Rights of Sold Subsidiaries.............................................. 20 SECTION 2.3 Assumption of Liabilities............................ 20 (a) Assumed Liabilities....................................... 20 (b) Excluded Liabilities...................................... 22 SECTION 2.4 Purchase Price....................................... 23 SECTION 2.5 Purchase Price Adjustment............................ 23 ARTICLE 3 THE CLOSING............................... 27 SECTION 3.1 Closing Date......................................... 27 SECTION 3.2 Transactions To Be Effected at the Closing.............................................. 27 (a) Deliveries by Sellers..................................... 27 (b) Deliveries by Purchaser................................... 27 (c) Nominee Shares............................................ 28 ARTICLE 4 REPRESENTATIONS AND WARRANTIES.................... 28 SECTION 4.1 Representations and Warranties of WEC.................................................. 28 (a) Organization, Standing and Power.......................... 28 (b) Authority................................................. 28 (c) Financial Statements; Undisclosed Liabilities............................................. 30 (d) Compliance with Applicable Laws........................... 31 (e) Litigation; Decrees....................................... 31 (f) Title to Acquired Assets.................................. 31 (g) Real Property............................................. 32 (h) Intellectual Property and Technology...................... 34 (i) Insurance................................................. 35 (j) Contracts................................................. 35 (k) Sufficiency of Acquired Assets............................ 38 i 3 (l) Absence of Certain Changes or Events...................... 38 (m) Employee Benefits......................................... 38 (n) Environmental Matters..................................... 41 (o) Taxes..................................................... 42 (p) Sold Subsidiaries......................................... 44 (q) Labor Matters............................................. 44 (r) Tangible Property......................................... 45 SECTION 4.2 Representations and Warranties of Purchaser............................................ 45 (a) Organization. Standing and Power.......................... 45 (b) Authority................................................. 45 (c) Financing................................................. 46 ARTICLE 5 COVENANTS............................ 47 SECTION 5.1 Covenants of WEC Relating to Conduct of Business.......................................... 47 (a) Ordinary Course........................................... 47 (b) Advice of Changes......................................... 49 SECTION 5.2 Access to Information................................ 49 SECTION 5.3 Governmental Approvals, Etc.......................... 50 SECTION 5.4 Third Party Consents................................. 52 (a) Employee Matters.......................................... 53 (b) Accrued Vacation.......................................... 54 (c) Union Representation...................................... 55 (d) Pension Plan.............................................. 55 (g) Severance Obligations..................................... 62 (h) Executive Compensation.................................... 62 (i) Cooperation............................................... 63 (j) WARN Act.................................................. 63 (k) COBRA..................................................... 64 (l) Workers Compensation...................................... 64 (m) Multiemployer Plans....................................... 64 (n) Internal Revenue Service Forms............................ 64 SECTION 5.6 Collection of Receivables............................ 68 SECTION 5.7 Expenses............................................. 68 SECTION 5.8 Brokers or Finders................................... 68 SECTION 5.9 License Agreement.................................... 69 SECTION 5.10 Certain Information.................................. 69 SECTION 5.11 Bulk Transfer Laws................................... 70 SECTION 5.12 Additional Agreements................................ 70 SECTION 5.13 Certain Understandings............................... 70 SECTION 5.14 Allocation; Tax Matters.............................. 71 SECTION 5.15 Supplies............................................. 76 SECTION 5.16 Transfer of Assets of Sold Subsidiaries......................................... 76 SECTION 5.17 Credit Support....................................... 76 SECTION 5.18 Non-Competition...................................... 77 (a) Covenants Against Competition............................. 77 (b) Rights and Remedies Upon Breach........................... 79 (c) Severability of Covenants................................. 79 (d) Blue-Pencilling........................................... 79 ii 4 SECTION 5.19 Post-Closing Agreements.............................. 79 (a) Transitional Services..................................... 80 (b) Facilities................................................ 80 (c) Field Sales Offices....................................... 80 SECTION 5.20 Removal of Excluded Assets and Liabilities from Sold Subsidiaries................... 80 SECTION 5.21 Guarantee Agreement.................................. 80 SECTION 5.22 Steam Generator Agreement............................ 80 SECTION 5.23 Post Closing Hiring of Employees..................... 80 [Section 5.24 Instrumentation and Control Matters.............................................. 81 ARTICLE 6 CONDITIONS PRECEDENT....................... 82 SECTION 6.1 Conditions to Each Party's Obligation........................................... 82 (a) Certain Waiting Periods................................... 82 (b) No Injunctions or Restraints.............................. 82 (c) Governmental Action....................................... 83 SECTION 6.2 Conditions to Obligation of Purchaser............................................ 83 (a) Representations and Warranties............................ 83 (b) Performance of Obligations of WEC......................... 83 (c) Material Permits.......................................... 83 (d) Opinion of WEC's Counsel.................................. 84 (e) Conveyancing Documents.................................... 84 SECTION 6.3 Conditions to Obligation of WEC.................................................. 84 (a) Representations and Warranties............................ 84 (b) Performance of Obligations of Purchaser................................................. 84 (c) Opinion of Purchaser's Counsel............................ 84 ARTICLE 7 TERMINATION, AMENDMENT AND WAIVER................ 85 SECTION 7.1 Termination.......................................... 85 SECTION 7.2 Amendments and Waivers............................... 86 ARTICLE 8 INDEMNIFICATION......................... 86 SECTION 8.1 Indemnification by WEC............................... 86 SECTION 8.2 Indemnification by Purchaser......................... 89 SECTION 8.3 Characterization of Indemnification Payments............................................. 89 SECTION 8.4 Losses Net of Insurance; Tax Loss and Benefits; No Consequential Damages............... 89 SECTION 8.5 Termination of Indemnification....................... 90 SECTION 8.6 Procedures Relating to Third Party Claims (Other than Tax Controversies)................ 90 SECTION 8.7 Procedures Relating to Non-Third Party Claims. ....................................... 92 iii 5 SECTION 8.8 Joint Defense Agreement.............................. 92 SECTION 8.9 Arbitration of Environmental Liabilities.......................................... 92 ARTICLE 9 GENERAL PROVISIONS........................ 93 SECTION 9.1 Notices.............................................. 93 SECTION 9.2 Interpretation....................................... 95 SECTION 9.3 Survival of Representations.......................... 95 SECTION 9.4 Severability......................................... 96 SECTION 9.5 Counterparts......................................... 96 SECTION 9.6 Entire Agreement; No Third Party Beneficiaries........................................ 96 SECTION 9.7 Governing Law........................................ 96 SECTION 9.8 Mediation; Consent to Jurisdiction................... 96 SECTION 9.9 Publicity............................................ 97 SECTION 9.10 Assignment........................................... 98 SECTION 9.11 Release of Siemens Aktiengesellschaft................................... 98 SECTION 9.12 Waiver of July Trial; Trial Costs.................... 98 iv 6 LIST OF EXHIBITS Exhibit A Transitional Services Agreement Exhibit B Opinion of Weil, Gotshal & Manges LLP, special counsel to WEC Exhibit C Opinion of Louis J. Briskman, Esq., General Counsel of WEC Exhibit D Opinion of Purchaser's Counsel Exhibit E Shared Technology Agreement Exhibit F Joint Defense Agreement Exhibit G Guarantee Agreement Exhibit H Steam Generator Agreement Exhibit I Trademark and Trade Name License Agreement LIST OF SCHEDULES Schedule 1.1(a) [INTENTIONALLY OMITTED] Schedule 1.1(b) Investments Schedule 1.1(c) Leased Real Property Schedule 1.1(d) Matters Not Constituting a Material Adverse Effect Schedule 1.1(e) Owned Real Property Schedule 1.1(f) Permitted Liens Schedule 1.1(g) Settlement Agreements Schedule 1.1(h) Sold Subsidiaries Schedule 2.2(a) Acquired Assets Schedule 2.2(b) Excluded Assets Schedule 2.2(b)(ix)(A) Surplus Property Schedule 2.2(b)(ix)(B) Additional Acquired Assets Schedule 2.3(a) Assumed Liabilities v 7 Schedule 2.5(c) Target Amount Schedule 4.1(b) Intellectual Property, Technology and Contracts Schedule 4.1(c)(ii) Undisclosed Liabilities 4.1(c)(iii) Material Obligors Schedule 4.1(d) Actions of Governmental Authorities Schedule 4.1(e) Certain Lawsuits, Actions and Proceedings Schedule 4.1(h) Material Intellectual Property and Technology Schedule 4.1(i) Insurance Schedule 4.1(j) Contracts Schedule 4.1(j)(i) Employment Contracts Schedule 4.1(j)(ii) Collective Bargaining Agreements Schedule 4.1(j)(iii) Transactions with Affiliates Schedule 4.1(j)(iv) Indebtedness Schedule 4.1(j)(v) Covenants Not to Compete Schedule 4.1(j)(vi) Real Property Leases Schedule 4.1(j)(vii) Personal Property Leases Schedule 4.1(j)(viii) Purchase Contracts Schedule 4.1(j)(ix) Joint Ventures; Partnerships Schedule 4.1(j)(x) Asset Sales; Preferential Rights Schedule 4.1(j)(xi) Take-or-Pay/Requirements Contracts Schedule 4.1(j)(xii) Acquisition Contracts Schedule 4.1(j)(xiii) Material License or Development Agreements Schedule 4.1(j)(xiv) Sales Contracts Schedule 4.1(j)(xv) Business Unit Settlements vi 8 Schedule 4.1(l) Certain Changes or Events Schedule 4.1(m)(i) Plans and Benefit Arrangements 4.1(m)(ii)(A) Actions of Governmental Authorities Regarding Plans 4.1(m)(ii)(B) Business Pension Plans 4.1(m)(ii)(C) Plan Noncompliance 4.1(m)(ii)(D) Events Resulting in Material Liability to Plans 4.1(m)(ii)(E) Group Health Plan Noncompliance 4.1(m)(ii)(F) Material Plan Amendments Schedule 4.1(n) Environmental Matters Schedule 4.1(o) Tax Matters Schedule 4.1(q) Labor Matters Schedule 5.1 Ordinary Course Schedule 5.5(f)(iv) Payment Schedule Under WEC's FAS 106 Plans Schedule 5.5(l) Multiemployer Plans Schedule 5.5(o)(i) Foreign Employment Contracts Schedule 5.5(o)(iii) Delayed Foreign Employees Schedule 5.9(a)(ii) Licensed Intellectual Property Schedule 5.14(a) Allocation of Purchase Price Schedule 5.14(c) Sold Subsidiaries Subject to Section 338(h)(10) Election Schedule 5.15(b) Licensed Entities Schedule 5.17 Credit Support Arrangements Schedule 5.25 STC Programs Schedule 6.2(c) Third Party Consents Schedule 9.2 Persons with Knowledge vii 9 THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is made November 14, 1997, among WESTINGHOUSE ELECTRIC CORPORATION, a Pennsylvania corporation ("WEC"), and SIEMENS POWER GENERATION CORPORATION, a Delaware corporation ("PURCHASER"). W I T N E S S E T H: WHEREAS, WEC is engaged, through its Power Generation Business Unit, in a business, which, among other things, (i) designs, manufactures, sells, installs and services steam and combustion turbine generators and components for the generation, transmission, distribution and control of electric power, (ii) constructs turn-key fossil fuel power plants worldwide, (iii) supplies, services and operates power plants for independent power producers and utilities and supplies power generation equipment and services to other non-utility customers, (iv) provides field service and factory service on electrical apparatus and maintains repair facilities which perform machine work on electrical apparatus (through its Electrical Systems Services Division), and (v) sells replacement parts and components related to the generators and components described in clause (i) above (including the Acquired Assets and the Assumed Liabilities, but excluding the Excluded Assets and the Excluded Liabilities (each as hereinafter defined), the "BUSINESS"), certain assets of which are owned by Subsidiaries of WEC; and WHEREAS, WEC desires to (and to cause its appropriate Subsidiaries to) sell, transfer and assign to Purchaser, and Purchaser desires to purchase and assume from WEC and its appropriate Subsidiaries, substantially all of the assets and liabilities of the Business, together with the shares of capital stock of certain Subsidiaries of WEC, all as more specifically provided herein; and WHEREAS, WEC also is engaged in an energy systems business, (the "ENERGY SYSTEMS BUSINESS") which serves the domestic and international electric power industry, among other things, by supplying nuclear power plants, advanced nuclear plant design technology, nuclear fuel and associated materials and components and fuel technology and technical services, including, field and factory equipment refurbishment, total plant outage and maintenance services, as well as operating plant services including parts and equipment, instrumentation and control systems (through its Process Control Division), reactor coolant pumps, motors and controlled mechanisms and distributed control, communicators, data acquisition systems and information systems and project management, decontamination and decommissioning; and 1 10 WHEREAS, Subsidiaries of WEC, the capital stock of which will be transferred to Purchaser hereunder, hold assets utilized in both the Business and the Energy Systems Business, and certain assets relating to the Energy Systems Business will be transferred by such Subsidiaries prior to the Closing to WEC or other subsidiaries of WEC pursuant to the terms hereof; and WHEREAS, certain facilities, assets and services of WEC and its subsidiaries are utilized both in the Business and the Energy Systems Business or the other businesses of WEC and certain of such facilities, assets and services will be shared by the owners of the Business and WEC pursuant to the terms of certain agreements contemplated hereby. NOW, THEREFORE, in consideration of the mutual covenants, representations and warranties herein contained, and subject to and on the terms and conditions herein set forth, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.1 SPECIFIED DEFINITIONS. As used in this Agreement, the following capitalized terms have the meanings specified below: "ACCOUNTING FIRM" means such nationally recognized independent public accounting firm as shall be agreed upon by the parties hereto in writing. "ACCOUNTS RECEIVABLE" shall have the meaning specified in Section 2.2(a). "ACQUIRED ASSETS" shall have the meaning specified in Section 2.2(a). "ACTION OR PROCEEDING" shall mean any action, proceeding or suit, including any by a Governmental Authority. "ADJUSTED PURCHASE PRICE" shall have the meaning specified in Section 2.5(b). "AFFILIATE" of a Person means a Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. "ALLOCATION STATEMENT" shall have the meaning specified in Section 5.14(a). "ASSUMED LIABILITIES" shall have the meaning specified in Section 2.3(a). 2 11 "BALANCE SHEET" shall have the meaning specified in Section 4.1(c)(i). "BANKRUPTCY EXCEPTION" shall have the meaning specified in Section 4.1(j). "BENEFIT ARRANGEMENT" means a benefit program or practice for bonuses, incentive compensation, vacation pay, severance pay, insurance, restricted stock, stock options, performance awards, employee discounts, company cars, tuition reimbursement, holidays, leaves of absence or any other perquisite or benefit (including, without limitation, any fringe benefit under Section 132 of the Code) to employees, officers or independent contractors that is not a Plan. "BENEFITS" shall have the meaning specified in Section 5.18(b)(ii). "BENEFITS MAINTENANCE PERIOD" shall have the meaning specified in Section 5.5(a). "BOOKS AND RECORDS" of any Person means all files, documents, instruments, papers, books and records relating to the business, operations, conditions of (financial or other), results of operations and assets and properties of such Person, including, without limitation, financial statements, Tax Returns and related work papers and letters from accountants, budgets, pricing guidelines, ledgers, journals, title policies, minute books, stock certificates and books, stock transfer ledgers, customer lists, computer files and programs, retrieval programs, operating data and plans and environmental studies and plans. "BUSINESS" shall have the meaning specified in the first recital to this Agreement. "BUSINESS DAY" means any day other than Saturday, a Sunday or a day when commercial banks in New York City are authorized or required by law to be closed. "BUSINESS EMPLOYEE" shall have the meaning specified in Section 5.5(a). "BUSINESS PENSION PLANS" shall have the meaning specified in Section 4.1(m)(ii)(B). "CLOSING" means the closing of the purchase, assignment and sale of the Acquired Assets and the assumption of the Assumed Liabilities contemplated hereunder. "CLOSING BALANCE SHEET" has the meaning specified in Section 2.5(a). 3 12 "CLOSING DATE" means the time and date on which the Closing takes place, as established by Section 3.1. "CLOSING NET ASSETS" shall have the meaning specified in Section 2.5(a). "CODE" means the Internal Revenue Code of 1986, as amended, and all Laws promulgated pursuant thereto or in connection therewith. "CONFIDENTIAL INFORMATION" shall have the meaning specified in Section 5.18(a)(ii). "CONFIDENTIALITY AGREEMENT" shall have the meaning specified in Section 5.2. "CONTRACTS" means all contracts; leases; indentures; joint venture, governmental funding or incentive program, environmental indemnity, license (including any sublicense), development and other agreements; commitments; and all other legally binding arrangements, including all interworks orders and interdivisional orders between the Business and other businesses of WEC, including the Energy Systems Business, in each case whether oral or written, relating primarily to the Business, to which any of Sellers or a Sold Subsidiary is a party or bound, except for Plans and Benefit Arrangements. "CREDIT SUPPORT ARRANGEMENTS" shall have the meaning specified in Section 5.17. "DELAYED FOREIGN EMPLOYEES" shall have the meaning specified in Section 5.5(o). "DELAYED TRANSFER DATE" shall have the meaning specified in Section 5.5(o). "ENCUMBRANCES" means any mortgages, pledges, liens, security interests, restrictions, defects in title, easements or encumbrances. "ENERGY SYSTEMS BUSINESS" shall have the meaning specified in the recitals to this Agreement. "ENVIRONMENTAL LAW" means any foreign or United States local, county, state or federal law (including common law), regulation, order, decree or other legally binding requirement that governs the existence of or provides a remedy for release resources or the environment (including the protection of endangered species or wetlands) or the manufacture, processing, distribution, use, generation, treatment, storage, disposal, transportation, Release or management of, or other activities of Hazardous Substances, the protection of persons, natural resources or the environment (including the protection of endangered species or wetlands) or the manufacture, processing, distribution, use, generation, treatment, storage, disposal, transportation, Release or management of, or other activities 4 13 with respect to, Hazardous Substances including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. Section 9601 et SEQ., the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 ET SEQ., the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. Section 6901 et seq., the Clean Water Act, 33 U.S.C. Section 1251 et seq., the Clean Air Act, 33 U.S.C. Section 2601 et SEQ., the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. Section 136 et seq., the Oil Pollution Act of 1990, 33 U.S.C. Section 2701 et SEQ. and the Occupational Safety and Health Act, 29 U.S.C. Section 651 ET SEQ., as such laws have been amended or supplemented, and any other similar federal, state, local or county laws or regulations, in each case as in effect on or prior to the Closing Date or, with respect to representations and warranties made on the date hereof, on or prior to the date hereof. "ENVIRONMENTAL LIABILITY" means any Liability arising under Environmental Laws or under any Permit issued pursuant to any Environmental Law, and including all direct costs and expenses associated with Remedial Action, in connection with the Acquired Assets, the Sold Subsidiaries or the Business, to the extent arising from any condition existing or any act or omission of Sellers, any Sold Subsidiary or any other Person (including without limitation any prior owner, occupant or user of any Premises and any Person engaged in the removal, transportation or disposition of Hazardous Substances that were originated or at any time stored or otherwise held at any site associated with the Sold Subsidiaries or the Business, whether or not included in whole or in part in the Acquired Assets) at or prior to the Closing Date, including claims, demands, penalties, fines, liens, fees and costs of environmental consultants, personal injuries and property damages, administrative proceedings, assessments, judgments, orders, causes of action (including toxic tort suits), notices of actual or alleged violations or liability (including such notices regarding the disposal, transportation or Release (or threatened Release) of Hazardous Substances on the Premises or elsewhere), proceedings and any associated Losses. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and all Laws promulgated pursuant thereto or in connection therewith. "EVENT" shall have the meaning specified in Section 5.5(f)(iv). "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXCLUDED ASBESTOS LIABILITIES" means all Liabilities in respect of death or personal injury actually or allegedly caused directly or indirectly by asbestos or asbestos compounds or products. 5 14 "EXCLUDED ASSETS" shall have the meaning specified in Section 2.2(b). "EXCLUDED LIABILITIES" shall have the meaning specified in Section 2.3(b). "EXISTING SCHEDULE" shall have the meaning specified in Section 5.5(f)(iv). "EXON-FLORIO AMENDMENT" means Section 721 of the Omnibus Trade and Competitiveness Act of 1988 (amending Title VII of the Defense Production Act, 50 U.S.C. App. Section 2170 (1997)). "FAS 106 LIABILITY" shall have the meaning specified in Section 5.5(f)(iv). "FINANCIAL STATEMENTS" shall have the meaning specified in Section 4.1(c)(i). "FIRST-TIER ENVIRONMENTAL LOSSES" shall have the meaning specified in Section 8.1(a). "FIXTURES AND EQUIPMENT" means all furniture, fixtures, furnishings, machinery, vehicles, equipment and other tangible personal property owned or leased by Sellers or any Sold Subsidiary and used or held for use primarily in connection with the Business. "FOREIGN BUSINESS EMPLOYEES" shall have the meaning specified in Section 5.5(o). "FOREIGN PLAN PARTICIPANT" shall have the meaning specified in Section 5.5(o). "FOREIGN PLANS" shall have the meaning specified in Section 4.1(m). "FOREIGN RETIREMENT PLAN" shall have the meaning specified in Section 5.5(o). "FREE-STANDING PLAN" shall have the meaning specified in Section 4.1(m). "GAAP" means United States generally accepted accounting principles. "GOVERNMENT CONTRACT" means any Contract entered into with any Governmental Authority. "GOVERNMENT OPERATIONS BUSINESS" means the operations conducted by the Government Operations business unit of WEC, including the provision of management services for certain 6 15 government-owned facilities under Contracts with the United States Department of Energy and the United States Department of Defense, management of nuclear reactor programs for the United States Navy and management of a chemical agent destruction program for the Department of Defense. "GOVERNMENTAL AUTHORITY" means any agency, board, bureau, court, commission, department, instrumentality or administration of any foreign government, the United States government, any state government or any local or other governmental body in a state, territory or possession of the United States or the District of Columbia or any political subdivision of any of the foregoing. "GUARANTEE AGREEMENTS" shall have the meaning specified in Section 5.21. "GUARANTORS" means each of (i) Siemens Corporation, a Delaware corporation and the parent of Purchaser, (ii) Siemens Aktiengesellschaft, a company organized under the laws of the Federal Republic of Germany and an the parent of Siemens Corporation ("Siemens Parent") and (iii) Siemens Finanzierungsgesellschaft Fur Informationstechnik mbH, a company organized under the laws of the Federal Republic of Germany and a wholly-owned Subsidiary of Siemens Parent. "HAZARDOUS SUBSTANCE" means (i) any petroleum or petroleum products (to the extent regulated under Environmental Law), flammable explosives, radioactive materials, asbestos or asbestos-containing products or materials, urea formaldehyde foam insulation and transformers or other equipment that contain dielectric fluid containing polychlorinated biphenyls (PCBs); and (ii) any substance, material or waste that is regulated under any Environmental Law or is defined as, or included in the definition of, or deemed by any Environmental Law or Governmental Authority to be "hazardous," "toxic," a "contaminant," "waste," a "pollutant," "hazardous substance," "hazardous waste," "restricted hazardous waste," "hazardous material," "extremely hazardous waste," a "toxic substance," a "toxic pollutant" or words with similar meaning. "INACTIVE EMPLOYEE" shall have the meaning specified in Section 5.5(a). "INCOME TAX" means any Tax on or determined by reference to net income. "INDEBTEDNESS" of any Person means, without duplication, (i) the principal of and premium (if any) in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (ii) all obligations of such Person issued 7 16 or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable and other accrued current liabilities arising in the Ordinary Course of Business); (iii) all obligations of such Person under leases required to be capitalized in accordance with GAAP; (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction; (v) all obligations of the type referred to in clauses (i) through (iv) of any Persons for the payment of which such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including guarantees of such obligations; and (vi) all obligations of the type referred to in clauses (i) through (v) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person). "INDEMNIFIED PARTY" shall have the meaning specified in Section 8.6(a). "INTELLECTUAL PROPERTY" means all domestic and foreign patents, utility models, patent applications, trademarks, trademark registrations, servicemarks, tradenames, tradename registrations, registered copyrights, applications for any of the foregoing, and licenses with respect to the foregoing owned by Sellers or any Sold Subsidiary that relate primarily to the Business (except as otherwise provided by Section 5.16). "INVENTORY" means all raw materials, work-in-process, finished goods, merchandise, office and other supplies, parts, packaging materials and other accessories related thereto which are held at, or are in transit from or to, the Premises or located at other locations at which the Business is conducted, or located at suppliers' premises, in each case, which are used or held for use by any Seller or Sold Subsidiary in the conduct of the Business, including any of the foregoing purchased subject to any conditional sales or title retention agreement in favor of any other Person, together with all rights of any Seller or Sold Subsidiary against suppliers of such inventories. "INVESTMENTS" means all capital stock, partnership interests and other equity interests owned by any Seller in any Person which is held primarily in connection with the Business, including the capital stock, partnership interests and other equity interests owned by any Seller in the Sold Subsidiaries, and all capital stock, partnership interests and other equity interests owned by any Sold Subsidiary in any Person (except as otherwise provided by Section 5.16). Schedule 1.1(b) sets forth a list of all Investments. "LABOR CONTRACT" shall have the meaning specified in Section 4.1(j)(ii). 8 17 "LAW" means, as to any Person, any foreign or United States federal, state or local law, statute, code, ordinance, regulation, order, writ, injunction, judgment or decree applicable to such Person and to the businesses and assets thereof. "LEASED REAL PROPERTY" means all real property leased by any Seller as lessee and by any Sold Subsidiary as lessee and listed in Schedule 1.1(c). "LESSEE LEASES" means all oral and written agreements (including all amendments and supplements thereto) with or binding upon any Seller with respect to the Business or any Sold Subsidiary with respect to the Leased Real Property. "LESSOR LEASE SUBLEASE" shall have the meaning specified in Section 4.1(c). "LIABILITIES" means, as to any Person, all debts, adverse claims, liabilities and obligations, direct indirect, absolute or contingent, known or unknown, of such Person, whether accrued, vested or otherwise, whether in contract, tort, strict liability or otherwise and whether or not actually reflected, or required by GAAP to be reflected, in such Person's balance sheets or other books and records. "LIENS" means mortgages, liens, security interests, pledges, or encumbrances, of any nature whatsoever. "LOSSES" means any and all demands, claims, complaints, actions or causes of action, suits, proceedings, investigations, arbitrations, assessments, losses (including, except as provided in Section 8.4, loss of value), damages, liabilities, obligations (including those arising out of any action, such as any settlement or compromise thereof or judgment or award therein) and all costs and expenses, including, without limitation, reasonable attorneys' and other advisors' fees and disbursements reduced by recoveries under insurance policies and Government Contracts and net Tax benefits as provided in Section 8.4. "MATERIAL ADVERSE EFFECT" means an effect or change that is materially adverse to the business, assets, financial condition or results of operations of the Business taken as a whole. "MATERIAL CONTRACT" shall have the meaning specified in Section 4.1(j). "MATERIAL LESSEE LEASE" shall have the meaning specified in Section 4.1(g)(ii). "MATERIAL SUBLEASE" shall have the meaning specified in Section 4.1(c). 9 18 "MULTIEMPLOYER PLAN" shall have the meaning specified in Section 5.5(m). "NET ASSETS" shall have the meaning specified in Section 2.5(c). "NEW FOREIGN RETIREMENT PLAN" shall have the meaning specified in Section 5.5(o). "NOMINEE SHARES" shall have the meaning specified in Section 3.2(c). "NOTICE OF DISAGREEMENT" shall have the meaning specified in Section 2.5(a). "ORDINARY COURSE OF BUSINESS" means, with respect to any Seller or Sold Subsidiary, actions taken in the ordinary course of business consistent with past practices of such Seller or Sold Subsidiary in relation to the Business since January 1, 1997. "OWNED REAL PROPERTY" means all real property owned in fee by any Seller or Sold Subsidiary and listed on Schedule 1.1(e). "PENSION PLAN" means an "employee pension benefit plan" as such term is defined in Section 3(2) of ERISA. "PERMITS" means all permits, licenses, franchises, approvals, consents and authorizations by or of any Governmental Authority that (i) are owned or held by or otherwise have been granted to or for the benefit of any Seller and that relate to the Business or any part thereof or to any of the Acquired Assets or (ii) are owned or held by or otherwise have been granted to or for the benefit of any Sold Subsidiary (except as otherwise provided by Section 5.16). "PERMITTED LIENS" means (i) Liens expressly disclosed in Schedule 1.1(f) or in the Financial Statements or that secure Indebtedness that is included in Assumed Liabilities and reflected as a liability on the Balance Sheet, (ii) any progress payment Liens arising in the ordinary course of business from progress payments made by the United States Government or any agency thereof or any other Governmental Authority on Government Contracts that are included in Assumed Liabilities and (iii) (A) mechanics', carriers', workmen's, repairmen's and other like Liens arising or incurred in the Ordinary Course of Business that are included in the Assumed Liabilities and are for amounts not yet overdue or that are being contested in good faith by appropriate proceedings, (B) Liens for Taxes, assessments and other governmental charges not yet due and payable or Liens for Taxes, assessments and governmental charges other than Income Taxes that may thereafter be paid without penalty or that are being contested in good faith by appropriate proceedings and (C) 10 19 imperfections of title and other Liens that, individually or in the aggregate, do not materially affect the value of the encumbered asset or the continued use and operation of the encumbered asset in the Business. "PERSON" means any individual, corporation, partnership, limited liability company, joint venture, trust, unincorporated organization, other form of business or legal entity or Governmental Authority. "PLAN" means any plan, program, agreement or arrangement, whether or not written, that is or was an "employee benefit plan" as such term is defined in Section 3(3) of ERISA, whether or not subject to ERISA and whether or not maintained in the U.S., and (a) which is maintained by Sellers or the Sold Subsidiaries, (b) to which Sellers or the Sold Subsidiaries contribute or fund or provide benefits; or (c) which provides or promises benefits to any person who performs or who has performed services for Sellers or the Sold Subsidiaries and because of those services is or has been (i) a participant therein or (ii) entitled to benefits thereunder. "POST-CLOSING TAX RETURNS" shall have the meaning specified in Section 5.14(j). "PRE-CLOSING TAX PERIOD" means any period ending on or before the Closing Date in respect of which any Tax is payable and the portion ending on the Closing Date of any such period that includes but does not end on the Closing Date. "PRE-CLOSING INCOME TAX RETURNS" shall have the meaning specified in Section 5.14(i). "PREMISES" means, collectively, the Owned Real Property and the Leased Real Property. "PROCESS CONTROL DIVISION" means the business unit of WEC that is engaged in the business of supplying advanced industrial control and information systems for nuclear and fossil-fueled power generation, water and wastewater treatment, metals, mining, chemical and other process industry applications worldwide. "PROPERTY PLANS" shall have the meaning specified in Section 2.2(a)(xvi). "PURCHASE PRICE ADJUSTMENT" shall have the meaning specified in Section 2.5(b). "PURCHASE PRICE" shall have the meaning specified in Section 2.4. "PURCHASER ANCILLARY DOCUMENTS" shall have the meaning specified in Section 4.2(b). 11 20 "PURCHASER EXECUTIVE PLAN" shall have the meaning specified in Section 5.5(h). "PURCHASER FAS 106 PLANS" shall have the meaning specified in Section 5.5(f)(iii). "PURCHASER PENSION PLAN" shall have the meaning specified in Section 5.5(d)(i). "PURCHASER TAX CONTROVERSIES" shall have the meaning specified in Section 5.14(l). "PURCHASER'S 401(K) PLAN" shall have the meaning specified in Section 5.5(e). "PURCHASER'S WORKERS COMPENSATION PROGRAM" shall have the meaning specified in Section 5.5(l). "RATE" shall have the meaning specified in Section 2.5(b). "RELEASE" means any releasing, spilling, leaking, discharging, disposing of, pumping, pouring, emitting, emptying, injecting, leaching, dumping or allowing to escape and includes any "release" as defined in CERCLA or in violation of any other Environmental Law. "REMEDIAL ACTION" means any action to clean up, monitor, abate, transport, remove, treat or in any other way address any Hazardous Substances that is (i) required by any Environmental Law or (ii) reasonably required to avoid or reduce actual or potential liability under any Environmental Law. "RESTRICTED PERIOD" shall have the meaning specified in Section 5.18(a)(i). "RESTRICTIVE COVENANTS" shall have the meaning specified in Section 5.18(b). "REVISED SCHEDULE" shall have the meaning specified in Section 5.5(f)(iv). "SCHEDULES" means the disclosure schedules delivered by WEC to Purchaser in connection herewith. "SECOND-TIER ENVIRONMENTAL LOSSES" shall have the meaning specified in Section 8.1(a). "SECTION 338 ELECTIONS" shall have the meaning specified in Section 5.14(c). "SELLER ANCILLARY DOCUMENTS" shall have the meaning specified in Section 4.1(b). 12 21 "SELLER'S STRADDLE PERIOD TAXES" shall have the meaning specified in Section 5.14(j)(ii). "SELLERS" means, collectively, WEC and the Selling Subsidiaries. "SELLING SUBSIDIARY" means any Subsidiary of WEC having any right, title or interest in, to, or under the Acquired Assets or any Liabilities included in the Assumed Liabilities, but shall not include any Sold Subsidiary. "SETTLEMENT AGREEMENTS" means those agreements described in Schedule 1.1(g). "SIEMENS PARENT" shall have the meaning provided in the definition of Guarantors. "SIGNIFICANT OWNED REAL PROPERTY" means any Owned Real Property (i) having improvements thereon in excess of 75,000 square feet and/or (ii) being the site of any manufacturing, design, management, warehouse, assembly, distribution, research, marketing or other operation that, in any case, is material to the operation of the Business as presently conducted. "SOFC" shall have the meaning specified in Section 5.25. "SOLD SUBSIDIARY" means any Subsidiary of WEC listed in Schedule 1.1(h) under the caption "Sold Subsidiary". "SPECIAL ENVIRONMENTAL LIABILITY" shall have the meaning specified in Section 2.3(a)(v). "STATEMENT" shall have the meaning specified in Section 2.5(a). "STC" shall have the meaning specified in Section 5.25. "STC PROGRAMS" shall have the meaning specified in Section 5.25. "STEAM GENERATOR AGREEMENT" shall have the meaning specified in Section 5.22. "STRADDLE PERIOD TAX RETURNS" shall have the meaning specified in Section 5.14(j). 13 22 "SUBSIDIARY ASSETS" means all assets, properties, goodwill and rights of the Sold Subsidiaries of whatever kind or nature, real or personal, tangible or intangible, other than as contemplated by Section 5.16. "SUBSIDIARY" means, as to any Person, another Person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its Board of Directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such Person. "SUPPLIES" shall have the meaning specified in Section 5.15(a). "SURPLUS PROPERTY" shall have the meaning specified in Section 2.2(b). "TANGIBLE PROPERTY" shall have the meaning specified in Section 4.1(r). "TARGET AMOUNT" shall have the meaning specified in Section 2.5(b). "TAXES" means all federal, state, local, foreign or other governmental taxes, assessments, duties, fees, levies or similar charges of any kind, including all income, profit, franchise, excise, property, use, intangibles, sales, payroll, employment, withholding and other taxes, and including all interest and penalties imposed with respect to such amounts. "TAX CONTROVERSIES" shall have the meaning specified in Section 5.14(l). "TAX RETURN" means any return, report, form or other information filed with any taxing authority with respect to Taxes. "TECHNOLOGY" means all trade secrets, inventions, know-how, formulae, processes, procedures, research records, records of inventions, test information, market surveys and marketing know-how and unregistered copyrights owned by any Seller or any Sold Subsidiary that relate primarily to the Business except as otherwise provided by Section 5.16. "THIRD PARTY CLAIM" shall have the meaning specified in Section 8.6(a). "THIRD-TIER ENVIRONMENTAL LOSSES" shall have the meaning specified in Section 8.1(a). 14 23 "TRANSFER TAXES" shall have the meaning specified in Section 5.14(d). "TRANSITIONAL SERVICES AGREEMENT" shall have the meaning specified in Section 5.19(a). "WARN ACT" shall have the meaning specified in Section 5.5(d)(v). "WEC EXECUTIVE PLAN" shall have the meaning specified in Section 5.5(h). "WEC FAS 106 PLANS" shall have the meaning specified in Section 5.5(f)(iii). "WEC PENSION PLAN" shall have the meaning specified in Section 5.5(d)(i). "WEC TAX CONTROVERSIES" shall have the meaning specified in Section 5.14(l). "WEC SAVINGS PROGRAM" shall have the meaning specified in Section 5.5(e). "WELCO" means Westinghouse Electric Company as such term is used in the Form 10 filed with the Securities and Exchange Commission on August 13, 1997. SECTION 1.2 OTHER TERMS. Other terms may be defined elsewhere in the text of this Agreement and, unless otherwise indicated, shall have such meaning throughout this Agreement. SECTION 1.3 OTHER DEFINITIONAL PROVISIONS. (a) The words "hereof," "herein," and "hereunder" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement. (b) The terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa. (c) The terms "dollars" and "$" shall mean United States dollars. 15 24 ARTICLE 2 SALE AND PURCHASE OF ASSETS; ASSUMPTION OF LIABILITIES SECTION 2.1 PURCHASE AND SALE. Upon the terms and subject to the conditions of this Agreement, at the Closing, WEC agrees to sell, assign, transfer, convey and deliver to Purchaser all of WEC's right, title and interest in, to and under the Acquired Assets and to cause each Selling Subsidiary to sell, assign, transfer, convey and deliver to Purchaser all of such Selling Subsidiary's right, title and interest in, to and under the Acquired Assets, in each case free and clear of any Liens other than Permitted Liens, and Purchaser agrees to purchase, acquire and accept from Sellers, all such right, title and interest in, to and under the Acquired Assets. SECTION 2.2 ACQUIRED ASSETS AND EXCLUDED ASSETS. (A) ACQUIRED ASSETS. The term "ACQUIRED ASSETS" means the business, properties, assets, goodwill and rights of Sellers of whatever kind and nature, real or personal, tangible or intangible, other than the Excluded Assets, primarily used or held for use in the Business, wherever located and whether or not reflected on the Books and Records of the Sellers, as they exist on the date hereof, with such changes, deletions or additions thereto as may occur from the date hereof to the Closing Date consistent with the terms and conditions of this Agreement, including, subject to Section 2.2(b): (i) all Owned Real Property (and all easements and rights-of-way appurtenant thereto) and all Leased Real Property; (ii) all Inventory; (iii) all Fixtures and Equipment, including the Fixtures and Equipment referred to in Section 5.25; (iv) all trade accounts receivable and all notes, bonds and other evidences of indebtedness of and rights to receive payments arising out of sales occurring in the conduct of the Business and the security agreements related thereto, including any rights of any of the Sellers with respect to any third party collection proceedings or any other Actions or Proceedings which have been commenced in connection therewith (the "ACCOUNTS RECEIVABLE"); (v) subject to the license to be granted pursuant to Section 5.9(a), all Intellectual Property; (vi) subject to the license to be granted pursuant to Section 5.9(a), all Technology; 16 25 (vii) subject to Section 2.2(c), all Permits; (viii) subject to Sections 2.2(c) and 5.19(c), all Contracts; (ix) subject to Section 2.2(c), all bids, quotations and proposals for Contracts, whether oral or written, to which any of Sellers is a party or by which any of Sellers is bound that relate primarily to the Business; (x) all Investments; (xi) all Books and Records with respect to the Business, except (A) to the extent relating to the Excluded Assets or the Excluded Liabilities and (B) the materials described in Section 2.2(b)(vii); (xii) subject to Section 2.2(c), all rights, claims and causes of action to the extent relating to the Business or any of the Assumed Liabilities or the Acquired Assets; (xiii) all prepaid expenses, to the extent relating to the Business; (xiv) all motor vehicles owned or leased by the Sellers and used or held for use primarily in the conduct of the Business; (xv) all security deposits (A) deposited by or on behalf of any Seller as lessee or sublessee under any of the Contracts or (B) deposited with or paid to any Seller pursuant to any Contract; (xvi) all site plans, surveys, soil and substratus studies, architectural drawings, plans and specifications, engineering, electrical and mechanical plans and studies, floor plans, landscape plans, appraisals, feasibility studies, environmental studies and other plans and studies of any kind if existing and in the possession or subject to the control of any Seller relating to the Owned Real Property or the Leased Real Property (collectively, "PROPERTY PLANS"); (xvii) all rights of any Seller under or pursuant to all warranties, representations and guarantees made by suppliers, manufacturers and contractors in connection with products sold to or services provided to any Seller for the Business, or affecting the property, machinery or equipment owned by Sellers or any Sold Subsidiary and used in the conduct of the Business, or relating to the Premises; (xviii) (A) all insurance proceeds, and all rights to insurance proceeds receivable in respect of any Assumed 17 26 Liability insured on a "claims made" basis and (B) all insurance proceeds, and all rights to insurance proceeds received or receivable in respect of any loss or casualty with respect to any asset that will be or would, if held by a Seller or a Sold Subsidiary on the Closing Date, be an Acquired Asset; (xix) all proceeds, net of any cost of disposition, from the sale or other disposition after the date of this Agreement and prior to the Closing Date of any asset that (A) is of a type permitted or required by GAAP to be treated as a fixed asset on the books of the Business and (B) but for such sale or other disposition prior to the Closing would be an Acquired Asset; (xx) all transferable telephone exchange numbers used in the Business; (xxi) the assets of the STC described in Section 5.25; and (xxii) all assets described on Schedule 2.2(a), whether or not related to the Business. (B) EXCLUDED ASSETS. The term "EXCLUDED ASSETS" means: (i) all cash on hand or in banks and all cash equivalents, except any cash or cash equivalents (A) reflected on the Statement or (B) described in Section 2.2(a)(xv)(B), (xviii) and (xix) or (C) constituting security deposits deposited with or paid to any Sold Subsidiary pursuant to any Contract; (ii) all rights of Sellers under this Agreement and the agreements, instruments and certificates delivered in connection with this Agreement; (iii) all records prepared in connection with the sale of the Business, including bids received from third persons and analyses relating to the Business (but not the Sellers' rights under any confidentiality agreements with such bidders, which shall be included in Acquired Assets); (iv) except as provided in Section 2.3(a)(xviii), all rights of Sellers under insurance policies; (v) all rights, claims and causes of action relating to any of the Excluded Liabilities or the Excluded Assets, including rights, claims and causes of action under insurance policies relating thereto; 18 27 (vi) all rights to claims, available to or being pursued by Sellers or any Sold Subsidiary, for refunds of or credits against Income Taxes (including all investment tax credits, research credits and credits for prepayments of Income Taxes) attributable to the Business for Pre-Closing Tax Periods; (vii) any consolidated, combined, unitary or separate company Tax Return relating to Income Taxes that includes any of Sellers or any Sold Subsidiary, and records and work papers used in preparation thereof; (viii) all assets used primarily in the Government Operations Business, the Energy Systems Business or the Process Control Division; (ix) all real property ("SURPLUS PROPERTY") owned, leased or occupied by any Seller or Sold Subsidiary that is not listed on Schedule 1.1(c) or 1.1(e) and all real property that is entirely or substantially vacant, "mothballed" or held principally for remediation or other risk management purposes including, without limitation, the properties listed on Schedule 2.2(b)(ix); (x) the stock of Westinghouse Electric S.A.; (xi) subject to the license to be granted pursuant to Section 5.9(b), the names and marks "Westinghouse Electric Corporation", "Westinghouse" and "Circle W" (in logotype design or any other style or design), and any name or mark derived from or including any of the foregoing); (xii) all assets of the Sold Subsidiaries not used or held for use primarily in the Business or which pursuant to Section 5.16 will be transferred by the Sold Subsidiaries to other Subsidiaries of WEC in the manner provided by Section 5.16; (xiii) subject to the provisions of the Steam Generator Agreement, all Settlement Agreements and rights of Sellers thereunder; (xiv) subject to the Transitional Services Agreement and the arrangements contemplated by Section 5.19(b), all assets used in connection with or relating to WEC's corporate headquarters or corporate activities that are provided to or managed for the benefit of any of the Sellers or any of the Sold Subsidiaries; and (xv) all assets identified in Schedule 2.2(b). 19 28 (C) NONASSIGNABLE RIGHTS. Notwithstanding anything to the contrary contained herein, but without limiting the rights and obligations of the parties under the other provisions of this Agreement (including, without limitation, Section 5.4), this Agreement shall not operate to assign any Intellectual Property, Technology, Permit or Contract or any claim, right or benefit arising thereunder or resulting therefrom if an attempted assignment thereof, without the consent of any Person, would constitute a breach, default or other contravention thereof or a violation of Law (it being understood that, except as otherwise provided in Section 6.2(c), the failure to obtain such consents shall not relieve either party from its obligation to consummate at the Closing the transactions contemplated by this Agreement). (D) TERMINATION OF RIGHTS OF SOLD SUBSIDIARIES. Notwithstanding anything to the contrary in any agreement or otherwise, any rights, express or implied, of any Sold Subsidiary to use any and all domestic and foreign patents, patent applications, trademarks, trademark registrations, servicemarks, trade names, registered copyrights and licenses with respect to the foregoing and all trade secrets, inventions, know-how, formulae, processes, procedures, research records, records of inventions, test information, market surveys and marketing know-how and unregistered copyrights owned by Sellers shall terminate at the Closing, except to the extent included in the Intellectual Property or Technology and except as otherwise contemplated by Section 5.9. SECTION 2.3 ASSUMPTION OF LIABILITIES. (A) ASSUMED LIABILITIES. Upon the terms and subject to the conditions of this Agreement (including the indemnity provisions hereof), Purchaser hereby agrees to assume, effective as of the Closing, and agrees to pay, perform and discharge when due all of the following Liabilities of Sellers (except Excluded Liabilities) arising out of, relating to or otherwise in respect of the Acquired Assets, the Business or the operations of the Business before, on or after the Closing Date (collectively, the "ASSUMED LIABILITIES"): (i) all Liabilities of Sellers under the Contracts; (ii) all accounts payable owed by Sellers arising out of operations of the Business or otherwise in respect of the Business; (iii) all Liabilities in respect of any and all products sold by the Business (wherever the same may have been manufactured or serviced by Sellers), including Liabilities for refunds, adjustments, allowances, repairs, exchanges, returns and warranty, merchantability and other claims; 20 29 (iv) all Liabilities (other than Environmental Liabilities or Liabilities otherwise arising by reason of any Release of Hazardous Substances) arising as a result of being the owner or occupant of, or the operator of the activities conducted at, (A) the Premises and (B) any other real property owned, leased or operated at any time by the Sellers and used in the Business, including all Liabilities relating to personal injury and property damage; (v) all Environmental Liabilities but only to the extent that (A) they arise as a result of being the owner or occupant of, or the operator of the activities conducted at, the Premises; (B) they relate to the treatment, storage, transportation or disposal of Hazardous Substances on, to or at a waste site, treatment site, disposal site or other location after they were produced, generated, used or stored at the Premises or (C) they relate to a Release of a Hazardous Substance that occurred on property other than property of WEC or an Affiliate of WEC, in connection with the conduct of the Business but not in connection with the treatment, storage, transportation for treatment, storage or disposal or disposal of the Hazardous Substance (an Environmental Liability described in clause (C) of this paragraph (v) is sometimes hereinafter referred to as a "Special Environmental Liability"); (vi) all Liabilities relating to the employment or termination of employment of any employee or former employee of the Business; (vii) all Liabilities arising under or in connection with any Plan or Benefit Arrangement; (viii) all Liabilities for Taxes (other than Income Taxes for Pre-Closing Tax Periods) attributable to the Business for all taxable periods; (ix) all Liabilities in respect of lawsuits, actions and proceedings, pending or threatened, and claims, whether or not presently asserted, arising out of, relating to or otherwise in any way in respect of the Business, including, without limitation, those set forth on Schedule 4.1(e); (x) all Liabilities in respect of the STC, but only to the extent provided in or contemplated by the arrangements described in Section 5.25; (xi) all Liabilities of Sellers arising out of, relating to or otherwise in respect of the Acquired Assets, the Business or the operations of the Business as of the Closing Date of the type reflected on the Balance Sheet, including the notes thereto; and 21 30 (xii) all Liabilities described on Schedule 2.3(a), whether or not related to the Business. (B) EXCLUDED LIABILITIES. Any provision of this Agreement to the contrary notwithstanding (and without implication that Purchaser is assuming any liability not expressly excluded and, where applicable, without implication that any of the following have been included in the Assumed Liabilities), the following liabilities (the "EXCLUDED LIABILITIES") of the Sellers and the Sold Subsidiaries are excluded and shall not be assumed or discharged by Purchaser: (i) any Liability of any Seller or any Sold Subsidiary (I) for Income Taxes or for Pre-Closing Tax Periods that are attributable to the Business or the Sold Subsidiaries or (II) for Taxes, other than Income Taxes, payable by the Sold Subsidiaries (to the extent the Taxes described in this clause (II) are not related to the Business) for Pre-Closing Tax Periods, including (A) any Liability for Income Taxes of any of the Sellers or any Sold Subsidiary pursuant to Treasury Regulation Section 1.1502-6(a) or any comparable provision of state, local or foreign law and (B) Taxes resulting from the sale and transfer from WEC to Purchaser of the Acquired Assets (including Income Taxes resulting from the Section 338 Elections), but Excluded Liabilities shall not include (X) any Transfer Taxes for which Purchaser is liable pursuant to Section 5.14(d) or (Y) any Taxes resulting from actions with respect to the Sold Subsidiaries or the Acquired Assets taken by Purchaser or its Affiliates after the Closing; (ii) any Environmental Liabilities relating to real property owned, leased or occupied at any time by any Seller or Sold Subsidiary and not included in the Premises; (iii) any Liabilities in respect of any claim, lawsuit, action or proceeding before or after the Closing to the extent the same directly pertain to any Excluded Asset or Excluded Liability; (iv) any Excluded Asbestos Liabilities; (v) any Liabilities relating to the capital stock of any Seller or any shareholders' agreements to which any Seller is party; (vi) any Liabilities relating to amounts required to be paid by WEC pursuant to Section 2.4 or Section 2.5; (vii) except for any Liabilities reflected on the Statement and Liabilities contemplated by the agreements and arrangements referred to in Sections 5.25 and 5.26, any Liabilities owed to any Seller or any Affiliate of any Seller; 22 31 (viii) any Liabilities in respect of any claim, lawsuit, action or proceeding that is asserted or brought by any Governmental Authority (in any criminal proceeding), before or after the Closing, based on any actual or alleged criminal violation of Law occurring prior to the Closing; (ix) except as provided in Section 2.3(a)(v) (as limited by Section 2.3(b)(iii)), any Liabilities arising out of or in respect of (A) any Subsidiary sold or otherwise divested prior to the Closing, or the business conducted by any such Subsidiary or (B) any divested business or business unit; (x) any Liabilities with respect to Plans and Benefit Arrangements retained by WEC under Section 5.5; and (xi) any other Liabilities not assumed by Purchaser pursuant to the provisions of Section 2.3(a). SECTION 2.4 PURCHASE PRICE. Subject to adjustment pursuant to Section 2.5, the purchase price for the Acquired Assets shall be $1,525,000,000 (the "Purchase Price"), payable as set forth in Section 3.2(b), together with the assumption of the Assumed Liabilities. SECTION 2.5 PURCHASE PRICE ADJUSTMENT. (a) As promptly as practicable and in any event within 90 days after the Closing Date, WEC shall at its expense prepare and deliver to Purchaser (i) an audited balance sheet of the Business (excluding the assets and liabilities of STC contemplated by Section 5.25) (the "Closing Balance Sheet") as of the close of business on the Closing Date in accordance with GAAP applied on a consistent basis with the Financial Statements and (ii) an audited statement of Net Assets acquired (the "Statement of Net Assets Acquired") setting forth the Closing Balance Sheet with adjustments to eliminate assets not acquired and liabilities not assumed by Purchaser pursuant to the Agreement to arrive at Net Assets Acquired. In addition, a statement (the "Statement") will be prepared and audited setting forth the Net Assets Acquired with adjustments to eliminate all noncurrent assets and all environmental liabilities to arrive at Net Assets (as defined below) as of the close of business on the Closing Date ("Closing Net Assets"), together with special purpose reports of WEC's independent auditors to the effect that the Statement of Net Assets Acquired and the Statement have been prepared and audited in compliance with the requirements of this Section 2.5. Purchaser shall cause the employees of the Business to assist WEC in the preparation of the Closing Balance Sheet, the Statement of Net Assets Acquired and the Statement and shall 23 32 provide WEC and its independent auditors on-site access at all reasonable times to the personnel, properties, books and records of the Business for such purposes. Purchaser acknowledges that WEC shall have the primary responsibility and authority for preparing the Closing Balance Sheet, the Statement of Net Assets Acquired and the Statement. During the 60-day period following Purchaser's receipt of the Statement, Purchaser and its independent auditors shall be permitted to review the working papers of WEC and its independent auditors relating to the Statement. The Statement shall become final and binding upon the parties on the 60th day following delivery thereof, unless Purchaser gives written notice of its disagreement with the Statement ("Notice of Disagreement") to WEC prior to such date. Any Notice of Disagreement shall specify in reasonable detail the nature of any disagreement so asserted, and only include disagreements based on mathematical errors or based on Closing Net Assets not being calculated in accordance with this Section 2.5. If a Notice of Disagreement complying with the preceding sentence is received by WEC in the period specified, then the Closing Net Assets set forth in the Statement shall be deemed adjusted as provided in the Notice of Disagreement and that adjusted calculation shall become final and binding upon the parties at 5:00 p.m., New York City time on the tenth (10th) day following the date of receipt of the Notice of Disagreement, unless prior to that time WEC shall have notified Purchaser in writing of its objection to the Notice of Disagreement. In the event that WEC notifies Purchaser prior to 5:00 p.m., New York City time on the tenth (10th) day following the date of receipt of the Notice of Disagreement of its objection to the Notice of Disagreement, then the Statement as revised in accordance with the resolutions that result from clause (I) or (II) below and the following paragraph shall become final and binding upon the earlier of (I) the date WEC and Purchaser resolve in writing any differences they have with respect to the matters specified in the Notice of Disagreement or (II) the date any disputed matters are finally resolved in writing by the Accounting Firm in accordance with the following paragraph. During the 60-day period following the delivery of a Notice of Disagreement that complies with the preceding paragraph, WEC and Purchaser shall seek in good faith to resolve in writing any differences which they may have with respect to the matters specified in the Notice of Disagreement. During such period WEC and its independent auditors shall have reasonable on-site access during normal business hours to the personnel, properties, books, records, schedules, analyses and working papers of the Business and shall be permitted to review and make copies reasonably required of the working papers of Purchaser or its representatives and its independent auditors (if any) relating to the preparation of the Notice of Disagreement. If, at the end of such 60-day period, WEC and Purchaser have not so resolved such differences, WEC and Purchaser shall submit to the 24 33 Accounting Firm for review and resolution any and all matters which remain in dispute and which were properly included in the Notice of Disagreement. WEC and Purchaser shall use reasonable efforts to cause the Accounting Firm to render a decision resolving the matters in dispute within 30 days following the submission of such matters to the Accounting Firm. WEC and Purchaser agree that judgment may be entered upon the determination of the Accounting Firm in any court having jurisdiction over the party against which such determination is to be enforced. Except as specified in the following sentence, the cost of any arbitration (including the fees and expenses of the Accounting Firm) pursuant to this Section 2.5 shall be borne by WEC and Purchaser in inverse proportion as they may prevail on matters resolved by the Accounting Firm, which proportionate allocations shall also be determined by the Accounting Firm at the time the determination of the Accounting Firm is rendered on the merits of the matters submitted. The fees and expenses of WEC's independent auditors incurred in connection with the issuance of their special purpose report relating to the Statement and review of any Notice of Disagreement shall be borne by WEC, and the fees and expenses of Purchaser's independent auditors incurred in connection with their review of the Statement shall be borne by Purchaser. (b) The Purchase Price shall be increased by the amount by which Closing Net Assets, as adjusted in accordance with Section 2.5(a), exceeds the sum of the Target Amount (as defined below) plus $25,000,000, and the Purchase Price shall be decreased by the amount by which Closing Net Assets (as so adjusted) is less than the sum of the Target Amount plus $25,000,000 (the Purchase Price as so increased or decreased shall hereinafter be referred to as the "Adjusted Purchase Price"). The Target Amount shall be $490,000,000. If the Purchase Price is less than the Adjusted Purchase Price, Purchaser shall, and if the Purchase Price is greater than the Adjusted Purchase Price, WEC shall, within 10 business days after the Statement becomes final and binding upon the parties, make payment to the other party by wire transfer in immediately available funds of the amount of such difference, together with interest thereon at the three-month treasury bill rate (as reported by The Wall Street Journal or, if not reported thereby, by another authoritative source) in effect on the Closing Date plus .25% (the "RATE"), calculated on the basis of the actual number of days elapsed over 365, from the Closing Date to the date of actual payment, compounded annually. Notwithstanding the foregoing provisions of this Section 2.5, if the Statement delivered by WEC pursuant to Section 2.5(a) and any Notice of Disagreement delivered by Purchaser pursuant to Section 2.5(a) both reflect a calculation of Closing Net Assets that if correct would require a payment by the same party, then within 10 days after delivery of the Notice of Disagreement that party shall make a payment to the other, in the manner and with interest as provided elsewhere in this Section 2.5(b), in an amount equal 25 34 to the lesser of (i) the amount payable by that party pursuant to the calculation reflected in the Statement and (ii) the amount payable by that party pursuant to the calculation reflected in the Notice of Disagreement. Any amount paid pursuant to the preceding sentence shall be applied against, and correspondingly reduce, the amount otherwise payable under this Section 2.5(b). (c) The term "Net Assets" shall mean all current assets (except that amounts received by Purchaser at the Closing pursuant to Section 2.2(a)(xviii) and (xix) will be excluded) minus all liabilities of the Business other than environmental liabilities. All assets and liabilities included in the Closing Balance Sheet, the Statement of Net Assets Acquired and the Statement shall be in accordance with GAAP and determined in the same way, using the same accounts, accounting methods, accounting practices, assumptions (including discount rates and actuarial assumptions), policies, valuations and estimation methodologies and judgments as used in determining the Target Amount as set forth in Schedule 2.5(c). In calculating the Closing Net Assets, no changes will be made in any account except to reflect specific identifiable events, facts and circumstances (other than any such events relating to or arising as a result of the announcement of the transactions contemplated by this Agreement or events already taken into account in establishing the Target Amount) occurring between June 30, 1997 and the Closing Date. In calculating Closing Net Assets, no changes will be made in any contract estimate at completion except to reflect specific identifiable events, facts and circumstances (other than any such events relating to or arising as a result of the announcement of the transactions contemplated by this Agreement or events already taken into account in establishing the Target Amount) occurring between June 30, 1997 and the Closing Date. The parties agree that the adjustment contemplated by this Section 2.5 is intended to show the change in Net Assets from the Target Amount, and that such change may only be measured if the calculation is done in accordance with the preceding sentence. The scope of the disputes to be resolved by the Accounting Firm is limited to whether such calculations were done in accordance with the foregoing provisions of this Section 2.5 and whether there were mathematical errors in the Statement. (d) Purchaser agrees that following the Closing it shall not take any actions which would affect preparation and audit of the Closing Balance Sheet, the Statement of Net Assets Acquired and the Statement with respect to the accounting books and records of the Business on which the Closing Balance Sheet, the Statement of Net Assets Acquired and the Statement are to be based that are not consistent with past practices. Purchaser shall cause the employees of the Business to cooperate in the preparation of the Statement, including providing customary certifications, including management representation letters, to WEC's independent auditors. 26 35 (e) During the period of time from and after the Closing Date through the resolution of any adjustment to the Purchase Price contemplated by this Section 2.5, Purchaser shall cause the employees of the Business to afford to WEC and any accountants, counsel or financial advisers retained by WEC in connection with any adjustment to the Purchase Price contemplated by this Section 2.5 on-site access at all reasonable times to all Business personnel, properties, books, contracts, records, schedules, analyses and working papers. ARTICLE 3 THE CLOSING SECTION 3.1 CLOSING DATE. The Closing shall take place at the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153, at 10:00 a.m. on a date specified by WEC that is not earlier than five (5) and not later than ten (10) days following the satisfaction or waiver of the condition to the Closing set forth in Section 6.1(a), or, if the other conditions to the Closing set forth in Article 6 shall not have been satisfied or waived by such date, as soon as practicable after such conditions shall have been satisfied or waived. SECTION 3.2 TRANSACTIONS TO BE EFFECTED AT THE CLOSING. At the Closing: (A) DELIVERIES BY SELLERS. WEC shall deliver (and cause any Selling Subsidiaries to deliver) to Purchaser such appropriately executed deeds, bills of sale, assignments, declarations, memoranda of assignment, certificates, affidavits and other instruments of transfer providing for the sale, assignment, transfer, conveyance and delivery of the Acquired Assets and the consummation of the transactions contemplated by this Agreement, in form and substance reasonably satisfactory to Purchaser and its counsel (it being understood that any such instrument shall not provide for any representations or warranties or any Liabilities that are not otherwise expressly provided for in this Agreement), together with resignations as director of each director of each Sold Subsidiary if requested by Purchaser. (B) DELIVERIES BY PURCHASER. Purchaser shall deliver to WEC (or, at WEC's direction, one or more Selling Subsidiaries) (i) by wire transfer at the Closing to an account designated in writing (at least three Business Days prior to the Closing by WEC) of immediately available funds in an amount equal to the Purchase Price and (ii) such appropriately executed assumption agreements and other instruments of assumption providing for the assumption of, and indemnification against, the Assumed 27 36 Liabilities in form and substance reasonably satisfactory to WEC and its counsel (it being understood that any such instrument shall not provide for any representations or warranties or any Liabilities that are not otherwise expressly provided for in this Agreement). (C) NOMINEE SHARES. At the Closing, or as promptly thereafter as possible, with respect to any Sold Subsidiaries as to which directors or other nominees of WEC or any of its Subsidiaries (other than one of the Sold Subsidiaries) own shares of capital stock for the purpose of satisfying requirements of Law (such shares, "Nominee Shares") , WEC shall cause the applicable Selling Subsidiary to take all necessary or appropriate steps to effect the transfer of the Nominee Shares to new directors or other nominees designated by Purchaser as, when and to the extent permitted by Law. ARTICLE 4 REPRESENTATIONS AND WARRANTIES SECTION 4.1 REPRESENTATIONS AND WARRANTIES OF WEC. WEC hereby represents and warrants to Purchaser as follows: (A) ORGANIZATION, STANDING AND POWER. WEC is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania and has the requisite corporate power and authority to own the Acquired Assets owned by it and to carry on the Business as now being conducted. Each Sold Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has the requisite corporate power and authority to own its assets and to carry on its business as now being conducted. (B) AUTHORITY. WEC has the requisite corporate power and authority to execute, deliver and perform this Agreement. Sellers have the requisite corporate power and authority to execute, deliver and perform the agreements to be entered into by them at the Closing pursuant hereto (the "SELLER ANCILLARY DOCUMENTS") and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of WEC, and, in the case of the Seller Ancillary Documents, will be authorized by all necessary corporate action on the part of the Selling Subsidiaries prior to the Closing, and do not and will not require the approval of the stockholders of WEC. This Agreement has been duly executed and delivered by WEC and constitutes, and each Seller Ancillary Document to be entered into by any of Sellers will be duly executed and delivered at the 28 37 Closing and when so executed and delivered will constitute, its legal, valid and binding obligation enforceable against it in accordance with its terms. The execution and delivery of this Agreement by WEC do not, and the execution and delivery by Sellers of the Seller Ancillary Documents, the consummation by Sellers of the transactions contemplated hereby and thereby and the compliance by Sellers with the terms hereof and thereof will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation (except, to the extent provided in any such program or plan, any acceleration of vesting under the Westinghouse Savings Program or under any Pension Plan or long-term incentive plan) or to loss of a material benefit under, or result in the creation of any Lien upon any of the Acquired Assets under, any provision of (i) the Business Corporation Law of the Commonwealth of Pennsylvania, (ii) the certificate of incorporation or by-laws (or comparable organizational documents) of any of Sellers or the Sold Subsidiaries, (iii) except as disclosed on Schedule 4.1(b), any Intellectual Property, Technology or Contract or (iv) subject to the filings and other matters referred to in the following sentence, any Law applicable to Sellers, the Sold Subsidiaries, the Acquired Assets or the Subsidiary Assets, other than, in the case of clauses (iii) and (iv) above, any such conflicts, violations, defaults, rights or Liens that, individually or in the aggregate, would not (A) reasonably be expected to materially reduce the benefits to Purchaser of the transactions contemplated by this Agreement or (B) materially impair the ability of WEC to perform its obligations under this Agreement. No consent, approval, license, permit, order or authorization of, or registration, declaration or filing with, any Governmental Authority is required to be obtained or made by or with respect to Sellers, the Sold Subsidiaries, the Acquired Assets or the Subsidiary Assets in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except as disclosed on Schedule 4.1(b) and for (i) compliance with and filings under the HSR Act, (ii) voluntary notification under the Exon-Florio Amendment, (iii) filings and approvals under foreign laws, including, without limitation, Canada and Germany, (iv) compliance with and filings under the Exchange Act, (v) consents or novations which may be required for the assignment of any Intellectual Property, Technology or Contract as contemplated in Section 5.4, (vi) compliance with, and notices and filings under, environmental permits, statutes and regulations, (vii) those that may be required solely by reason of Purchaser's (as opposed to any other Person's) participation in the transactions contemplated hereby and (viii) those the failure of which to obtain or make, individually or in the aggregate, would not (A) reasonably be expected to materially reduce the benefits to Purchaser of the transactions contemplated by this Agreement or (B) materially impair the ability of WEC to perform its obligations under this Agreement. 29 38 (C) FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. (i) WEC has previously delivered to Purchaser (A) the audited combined balance sheet and related statements of income and cash flows of "Welco" as of and for the fiscal year ended December 31, 1996, together with the notes to such financial statements; (B) the condensed unaudited balance sheet (the "Balance Sheet") and related statement of loss of the Business as of and for the six months ended June 30, 1997, together with notes to such financial statements and (C) the audited balance sheet and related statement of income as of and for the fiscal year ended December 31, 1996 of the Business and included in the combining balance sheet and combining statement of income which comprise "Welco" at such date (the financial statements described in clauses (A), (B) and (C) are collectively, the "FINANCIAL STATEMENTS"). Copies of the Financial Statements are attached hereto as Schedule 4.1(c)(i). The Financial Statements have been prepared from the books and records of WEC and its Subsidiaries relating to "Welco" and the Business and, except as described in the notes thereto or independent auditors' report thereon, or otherwise indicated in the Financial Statements, have been prepared in accordance with GAAP consistently applied and present fairly, in all material respects, the financial position, results of operations and cash flows of "Welco" and the Business as at the applicable dates and for the periods indicated, subject, in the case of the interim financial statements, to normal year-end adjustments (the principal elements of such annual year-end adjustments include revised pension and OPEB market valuations of assets and obligations and actuarial studies and deferred income tax true-ups). (ii) Except (A) as disclosed, recorded or reserved against in the Balance Sheet and the notes thereto, (B) for items set forth in Schedule 4.1(c)(ii), (C) for Liabilities incurred in the Ordinary Course of Business since the date of the Balance Sheet, (D) for Liabilities required to be incurred pursuant to this Agreement and the transactions contemplated hereby and (E) for Income Taxes, there is no material liability related to the Business and none of the Sold Subsidiaries has any material liabilities, in each case of a nature required to be reflected on a balance sheet prepared in accordance with GAAP. (iii) All Accounts Receivable reflected on the Balance Sheet and all Accounts Receivable that have arisen since the date of the Balance Sheet, (A) have arisen from bona fide sales transactions in the Ordinary Course of Business, and (B) represent valid and binding obligations due to the Sellers or Sold Subsidiaries, and are enforceable in accordance with their terms (subject to the Bankruptcy Exception). Schedule 4.1(c)(iii) lists any obligor which together with all of its Affiliates owed, as of June 30, 1997, amounts billed and uncollected by Sellers and the Sold Subsidiaries in an aggregate amount of $5,000,000 or more. All the Inventory consists of a quality and quantity 30 39 usable and salable in the Ordinary Course of Business consistent with past practice, subject to normal and customary allowances in the industry for damage and outdated items. (iv) The order backlog information of the Business at the date of the Balance Sheet set forth on Schedule 4.1(c)(iv) is true and correct in all material respects. The orders comprising the backlog of the Business reflect bona fide transactions entered into in the Ordinary Course of Business. (D) COMPLIANCE WITH APPLICABLE LAWS. Except as set forth on Schedule 4.1(d), Sellers and the Sold Subsidiaries are in compliance and have complied, in each case in all material respects, with all Laws which relate to the Business and the Acquired Assets. Except as set forth in Schedule 4.1(d), since January 1, 1996, neither Sellers nor the Sold Subsidiaries have (i) received any written notice alleging any non-compliance in any material respect with any such Laws or (ii) received any written notice of any criminal or material administrative or civil investigation or audit by any Governmental Authority relating to the Business. This Section 4.1(d) does not relate to labor and employment matters (to which Section 4.1(q) is applicable), employee benefits matters (to which Section 4.1(m) is applicable), Environmental Laws (to which Section 4.1(n) is applicable) or Tax matters (to which Section 4.1(o) is applicable). (E) LITIGATION; DECREES. Schedule 4.1(e) sets forth a list as of the date of this Agreement of all pending lawsuits, actions and proceedings that, if pending on the Closing Date, would be included in Assumed Liabilities. Except as set forth in Schedule 4.1(e), and without regard to actions or claims brought as a result of implementing the Announcement (defined in Section 5.5(d)(v), there is no lawsuit, action or proceeding pending, or, to WEC's knowledge, threatened, against any of Sellers or the Sold Subsidiaries relating to the Business which if adversely determined would reasonably be expected to materially reduce the benefits to Purchaser of the transactions contemplated by this Agreement. None of Sellers or any Sold Subsidiary is in default in any material respect under any judgment, order, injunction or decree of any Governmental Authority or arbitrator entered against any of Sellers or the Sold Subsidiaries and relating to the Business. (F) TITLE TO ACQUIRED ASSETS. Sellers have, and will transfer to Purchaser at the Closing, good and valid title to the Acquired Assets, and the Sold Subsidiaries have, and will continue at the Closing to have, good and valid title to the Subsidiary Assets, in each case free and clear of all Liens, except Permitted Liens. This Section 4.1(f) does not relate to Intellectual Property or Technology (to which Section 4.1(h) is applicable) or the Owned Real Property (to which Section 4.1(g) is applicable). 31 40 (G) REAL PROPERTY. (i) OWNED REAL PROPERTY. Schedule 1.1(e) is in all material respects a true, complete and correct list, as of the date hereof, of the street addresses and square footage of improvements on each Owned Real Property. The Owned Real Property constitutes all real property or interests in real property owned in fee by Sellers or the Sold Subsidiaries (other than any Excluded Assets) and primarily used in the operation of the Business as presently conducted. None of the Owned Real Property is Surplus Property. Each Seller and Sold Subsidiary has, and will continue at the Closing to have, good and insurable fee title to all Owned Real Property owned by it free and clear of all Liens and other encumbrances or limitations on title other than (A) Permitted Liens, (B) easements, covenants, rights-of-way and other restrictions of record, (C) any conditions that a current, accurate survey or physical inspection of any Owned Real Property may show, (D) zoning, building and other similar restrictions, (E) unrecorded easements or rights-of-way and (F) Liens that have been placed by any developer, landlord or other Person (other than Sellers or the Sold Subsidiaries) on Property (other than Owned Real Property) over which any of Sellers or the Sold Subsidiaries has easement rights, none of which items set forth in clauses (B), (C), (D), (E) or (F) above, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect and, with respect to any Significant Owned Real Property (which for purposes of this representation and warranty shall also include any Leased Real Property that (x) is the subject of a sale/leaseback or similar arrangement in which any Seller or Sold Subsidiary is the primary occupant of the property demised thereunder and (y) would constitute, were it an Owned Real Property, a Significant Owned Real Property), none of which items set forth in clauses (B), (C), (D), (E) or (F) would materially impair the continued use and operation thereof for the same uses and operations as those conducted at the present time or grant to any party any option or right to acquire or lease a material portion thereof. Except as set forth in Section 5.8, no brokerage or finders commissions shall be payable by Purchaser in connection with the conveyance of the Owned Real Property to Purchaser. No material portion of any of the Owned Real Property is leased by Sellers or the Sold Subsidiaries to any Person. (ii) LEASED REAL PROPERTY. Schedule 1.1(c) is in all material respects a true, complete and correct list of all Leased Real Property. WEC shall provide Purchaser a list of all Lessee Leases not later than 20 Business Days following the date of this Agreement. The Leased Real Property constitutes all real property leased by any Seller or Sold Subsidiary as Lessee (other than the Excluded Asset) and primarily used in the operation of the Business as presently conducted. None of the Leased Real Property is Surplus Property. With respect to each 32 41 Lessee Lease for premises larger than 25,000 square feet of rentable space (each a "MATERIAL LESSEE LEASE"): (A) each such lease is valid and subsisting and in full force and effect as against the Seller or the Sold Subsidiary therein designated and, to the best of Sellers' knowledge, as against the landlord, and has not been amended, modified or supplemented except as set forth in Schedule 1.1(c) or in a manner which would not reasonably be expected to materially reduce the benefits to Purchaser of the transactions contemplated by this Agreement; (B) no notice of a material default has been sent or received by any Seller or Sold Subsidiary under any Material Lessee Lease which remains uncured and, to the best of Sellers' knowledge, no event has occurred and is continuing which, with notice or lapse of time or both, would constitute a material default by any Seller or Sold Subsidiary under any Material Lessee Lease; and (C) the tenant is in occupancy of the space demised thereunder. (iii) SIGNIFICANT OWNED REAL PROPERTY. With respect to each Significant Owned Real Property (which for purposes of this representation and warranty shall also include any Leased Real Property that is the subject of a sale/leaseback or similar arrangement in which any Seller or Sold Subsidiary is the primary occupant of the property demised thereunder): (A) WEC has no knowledge that any condemnation or eminent domain proceedings are pending with respect to any Significant Owned Real Property; (B) each Significant Owned Real Property is an independent unit that does not rely in any material respect on any facilities located on any property not included in such Significant Owned Real Property to fulfill any municipal or governmental requirement or for the furnishing to such Significant Owned Real Property or any essential building systems or utilities, other than facilities provided to the Significant Owned Real Property pursuant to one or more valid easements; and (C) each Significant Owned Real Property has access to a dedicated, public street, either by reason of such Significant Owned Real Property abutting a dedicated,public street or by way of good and insurable appurtenant easement(s), and such access is adequate for the present use and operation thereof. No real estate tax certiorari proceedings are currently pending with respect to any Significant Owned Real Property. (iv) SUBLEASES AFFECTING LEASED REAL PROPERTY. Schedule 4.1(g)(iv) sets forth in all material respects a true, complete and correct list of all oral or written subleases (including all amendments and supplements thereto) demising space leased under a Lessee Lease (each a "Lessee Lease Sublease"). with respect to each Lessee Lease Sublease for premises larger than 15,000 square feet of rentable space (each a "Material Sublease"): (A) each such sublease is valid and subsisting and in full force and effect as against the Seller or the Sold Subsidiary therein designated and, to the best of Sellers' knowledge, as against the subtenant, and has not been 33 42 amended, modified or supplemented expect as set forth in Schedule 4.1(g)(iv); and (B) no notice of a material default has been sent or received by any Seller or Sold Subsidiary under any Material Sublease which remains uncured and, to the best of Seller's knowledge, no event has occurred and is continuing which, with notice or lapse of time or both, would constitute a material default by any Seller or Sold Subsidiary under any Material Sublease. (H) INTELLECTUAL PROPERTY AND TECHNOLOGY. Schedule 4.1(h)(i) sets forth a list, as of the date of this Agreement, of all material patents, patent applications, registered trademarks, trademark applications, registered servicemarks, servicemark applications, registered copyrights and copyright applications owned by the Sellers that relate primarily to the Business or owned by a Sold Subsidiary (except as otherwise provided by Section 5.16) and included in the Acquired Assets and the Subsidiary Assets and, to the extent indicated on such Schedule, such Intellectual Property has been duly registered in, filed in or issued by the United States Copyright Office or the United States Patent and Trademark Office, the appropriate offices in the various states of the United States and all appropriate offices of all other jurisdictions. Except as set forth on Schedule 4.1(h)(ii), a Seller or a Sold Subsidiary is the sole and exclusive owner of all material Intellectual Property (other than licenses) and material Technology, free and clear of all Encumbrances or Liens (other than Permitted Liens). Except as set forth on Schedule 4.1(h)(iii), since January 1, 1994, no Seller or Sold Subsidiary has received any written notice from any other Person challenging the right of Sellers or the Sold Subsidiaries to use any of the material Intellectual Property or material Technology or any rights thereunder. Sellers have taken measures, consistent with Sellers' corporate practice, to protect the secrecy, confidentiality and value of the Technology and to avoid infringement and misappropriation of the Intellectual Property. To Seller's knowledge and except as set forth on Schedules 4.1(h) (iii); (iv); (v) and (vi), the Intellectual Property and the Technology included in the Acquired Assets together with Purchaser's rights under the Shared Technology Agreement are all the intellectual property rights and rights in technology required for Purchaser to run the Business after Closing in the manner in which it presently is operated. Except as set forth on Schedule 4.1(h)(iv), since January 1, 1994, no Seller or Sold Subsidiary has made any claim in writing of a violation, infringement, misuse or misappropriation by others of their rights to or in connection with any material Intellectual Property or material Technology, which claim is still pending. Except as set forth on Schedule 4.1(h)(v), to WEC's knowledge, as of the date of this Agreement, there is no pending or threatened claim by any third Person of a material violation, infringement, misuse or misappropriation by any Seller or Sold Subsidiary of any material Intellectual Property or Technology owned by any third Person, or of the invalidity of any patent which is part of 34 43 Intellectual Property, reasonably likely to be adversely determined, and which if adversely determined would reasonably be expected to result (individually or in the aggregate) in a material reduction in the benefits to Purchaser of the transactions contemplated by this Agreement. Except as set forth on Schedule 4.1(h)(vi), there are no interferences or other contested proceedings, either pending or, to the knowledge of WEC, threatened, in the United States Copyright Office, the United States Patent and Trademark Office or any Governmental Authority relating to any pending application with respect to any Intellectual Property. (I) INSURANCE. Schedule 4.1(i) sets forth a list and brief description (specifying the insurer, the policy number or covering note number with respect to binders and the amount of any deductible, and the aggregate limit, if any, of the insurer's liability thereunder) of all policies or binders of fire, liability, errors and omissions, workers' compensation, vehicular, unemployment and other insurance held by or on behalf of Sellers with respect to the Acquired Assets and the Business. Such policies and binders are valid and enforceable in accordance with their terms in all material respects (subject to the Bankruptcy Exception), and, as of the date hereof, are in full force and effect. None of the Sellers is in default with respect to any material provision contained in any such policy or binder or has failed to give any material notice or present any material claim under any such policy or binder. As of the date hereof, none of Sellers has received any notice of cancellation or non-renewal of any such policy or binder. (J) CONTRACTS. Except for the Contracts listed on Schedule 4.1(j), none of Sellers or the Sold Subsidiaries is a party to or bound by any Contract (each, a "Material Contract") relating to the Business that is: (i) a Contract for the employment of any Person with an annual base salary in excess of $100,000; (ii) any collective bargaining agreement relating to Business Employees and any other Contract with any labor union (each, a "Labor Contract"); (iii) other than Contracts in the Ordinary Course of Business for the purchase or sale of products or services from or to the Business, a Contract with (A) WEC or any of its Subsidiaries, other than a Sold Subsidiary or (B) with any current or former director or officer of WEC or any of its Subsidiaries, or any Affiliate of any such Person, that will not be terminated at or prior to the Closing; (iv) other than letters of credit, bonds and similar instruments obtained in the Ordinary Course of Business, and intercompany Indebtedness that will not 35 44 constitute Assumed Liabilities, an indenture, note, loan or credit agreement or other Contract relating to (A) the borrowing of money in an amount in excess of $1,000,000 by any of Sellers or the Sold Subsidiaries or (B) the direct or indirect guarantee or assumption by any of Sellers or the Sold Subsidiaries of the obligations of any other Person (other than one of Sellers or the Sold Subsidiaries) for borrowed money in an amount in excess of $1,000,000; (v) a covenant not to compete (other than those contained in project-related teaming, consortium or similar agreements with respect to the project that is the subject of such agreement, customary covenants contained in distributor agreements and those covenants of which the Business is the beneficiary in employee-related agreements) (vi) a lease or similar agreement under which (A) any of Sellers or a Sold Subsidiary is a lessee of, or holds or operates, any real property owned by any third Person for an annual rent in excess of $100,000 or (B) any of Sellers or a Sold Subsidiary is a lessor of, or makes available for use by any third Person, any real property owned or held as lessee by Sellers or a Sold Subsidiary for an annual rent in excess of $250,000; (vii) a lease or similar agreement under which (A) any of Sellers or a Sold Subsidiary is lessee of, or holds or uses, any machinery, equipment, vehicle or other tangible personal property owned by any third Person for an annual rent in excess of $50,000 or (B) any of Sellers or a Sold Subsidiary is a lessor of, or makes available for use by any third Person, any tangible personal property owned (including ownership for Tax purposes) by Sellers or a Sold Subsidiary having a fair market value in excess of $50,000; (viii) a Contract (including purchase orders), involving the obligation of Sellers or a Sold Subsidiary to purchase products or services for payment by Sellers or a Sold Subsidiary of more than $1,000,000 (unless terminable by one of Sellers or a Sold Subsidiary without payment or penalty of not more than $250,000 upon no more than 60 days' notice); (ix) a Contract providing for the formation of a joint venture, long-term alliance or partnership; (x) a Contract for the sale of any of their assets or properties (other than sales orders) or for the grant to any Person of any preferential rights to purchase any of its assets or properties, in each case in an amount exceeding $250,000; 36 45 (xi) any take-or-pay or requirements Contract or any other Contract requiring any Seller or Sold Subsidiary to pay regardless of whether products or services are received; (xii) a Contract relating to the acquisition by any Seller or Sold Subsidiary of any operating business or the capital stock of any other Person; (xiii) a Contract made outside the Ordinary Course of Business relating to any Seller or Sold Subsidiary and involving an amount in excess of $1,000,000; (xiv) a material license or development agreement; (xv) a Contract (not included in the backlog described in Section 4.1(c)(iv)) with a customer for the granting of material discounts or other material concessions (other than volume discounts). The term "Material Contracts" also includes the twenty (20) largest (measured by unfilled order balance as of June 30, 1997) Contracts (including sales orders) involving the obligation of Sellers or a Sold Subsidiary to deliver products or services. Such Contracts are listed on Schedule 4.1(j)(xvi). All of the Material Contracts are (or in the case of the Material Contracts referred to in Schedule 4.1(j)(xvi), were as of June 30, 1997) valid, subsisting, in full force and effect and binding upon the Sellers or Sold Subsidiaries that are named as parties thereto and, to the best knowledge of WEC, the other parties thereto in accordance with their terms, subject to the qualifications that enforcement of the rights and remedies created thereby is subject to: (A) bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and (B) general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law) (clauses (A) and (B) being referred to herein collectively as the "BANKRUPTCY EXCEPTION") and each of the respective Sellers or Sold Subsidiaries has satisfied in full or provided for all of its liabilities and obligations thereunder requiring performance prior to the date hereof in all material respects, is not in default in any material respect under any of them, nor does any condition exist that with notice or lapse of time or both would constitute such a material default. To the best knowledge of WEC, no other party to any such Material Contract is in default in any material respect thereunder, nor does any condition exist that with notice or lapse of time or both would constitute such a material default. This paragraph does not relate to real estate matters (to which Section 4.1(g) is applicable). (K) SUFFICIENCY OF ACQUIRED ASSETS. The Acquired Assets comprise all the assets owned by Sellers that, together 37 46 with the Subsidiary Assets, and the rights of Purchaser under the Purchaser Ancillary Documents are (i) necessary for or (ii) presently used to a material extent in the conduct of the Business in all material respects as presently conducted. (L) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in the Schedules hereto or as contemplated by this Agreement, from the date of the Balance Sheet Sellers have conducted the Business in all material respects only in the Ordinary Course of Business. Except as set forth in Schedule 4.1(1), and except for changes (A) relating to or resulting from seasonal changes or that generally affect to the same extent all participants in the industries in which the Business operates, (B) relating to or resulting from the public announcement of the transactions contemplated by this Agreement, or (C) relating to the identity of the Purchaser or relating to or resulting from actions taken by Purchaser following the date of this Agreement, since the date of the Balance Sheet there has been no event or change that has had, or would reasonably be expected to have, Material Adverse Effect. (M) EMPLOYEE BENEFITS. (i) Schedule 4.1(m)(i) contains a list of each Plan and each material Benefit Arrangement in each case currently maintained or contributed to by Sellers or their Affiliates on behalf of Business Employees who are or were employed in the United States and, to the knowledge of WEC, each material Plan and Benefit Arrangement maintained or contributed to by Sellers or their Affiliates outside the United States on behalf of Business Employees who are employed outside the United States ("FOREIGN PLANS"). Each Plan, Benefit Arrangement and Foreign Plan which is currently maintained or contributed to by Sellers or their Affiliates solely on behalf of the Business (each, a "FREE-STANDING PLAN") is so indicated on Schedule 4.1(m)(i). (ii) With respect to the Westinghouse Savings Program, the Free-Standing Plans and any other Plan or Benefit Arrangement for which Purchaser is assuming liability (the "Business Plans") (but only to the extent such liability is being assumed): (A) To the "Knowledge" (as defined below) of Sellers, except as disclosed in Schedule 4.1(m)(ii)(A), there is no investigation by any Governmental Authority, termination proceeding or other claim, action or arbitration (except claims for benefits payable in the normal operation of the Plans), or suit or proceeding against or involving any Business Plan (for the purpose of this paragraph Business Plan does not include any actions under plans or otherwise to implement the Announcement as defined in Section 5.5(d)(v)) or asserting any right or claim to benefits under any Business Plan or Labor Contract which is reasonably likely to be adversely determined and which, if adversely determined, would reasonably be expected to have a Material Adverse Effect. 38 47 (B) Except as disclosed in Schedule 4.1(m)(ii)(B), (x) all contributions to Business Plans maintained in the United States that are intended to be qualified under Section 401(a) of the Code and are Pension Plans (hereinafter "BUSINESS PENSION PLANS"), which were required to be made in accordance with Section 302 of ERISA or Section 412 of the Code, have been timely made, (y) no Business Pension Plan has applied for or received a waiver of the minimum funding standards imposed by Section 412 of the Code, and (z) no Business Pension Plan subject to Section 412 has an "accumulated funding deficiency" within the meaning of Section 412(a) of the Code as of its most recent plan year. (C) Each Business Pension Plan is the subject of a favorable unrevoked determination letter issued by the IRS as to its qualified status under the Code, and, to the Knowledge of WEC, except as disclosed in Schedule 4.1(m)(ii)(C), and to Knowledge of Sellers no circumstances have occurred that would adversely affect the tax qualified status of any such Business Pension Plan and none of the Sellers and any "party in interest" (as defined in Section 3(14) of ERISA) and any "disqualified person" (as defined in Section 4975 of the Code) with respect to any Business Plan has engaged in a non-exempt "prohibited transaction" within the meaning of Section 4975 of the Code and Section 406 of ERISA. (D) Except as disclosed in Schedule 4.1(m)(ii)(D), to Knowledge of Sellers all contributions required by law or pursuant to the terms of any Business Plan have been timely made, except as would not result in a Material Adverse Effect. (E) Except as disclosed in Schedule 4.1(m)(ii)(E), to Knowledge of Sellers all Business Plans, as adopted or as they may have been amended, comply and have been operated in all material respects in accordance with applicable plan provisions and with currently applicable provisions of the Code and ERISA and other applicable Laws, except as would not result in a Material Adverse Effect. (F) Except as disclosed in Schedule 4.1(m)(ii)(F), with respect to any Business Pension Plan subject to Title IV of ERISA, to the Knowledge of Sellers, no event has occurred, or is reasonably expected to occur as a result of the transactions contemplated by this Agreement, which will result in any material liability to any such plan or to the Pension Benefit Guaranty Corporation, other than for the payment of contributions or premiums, all of which have been paid when due. (G) Except as disclosed in Schedule 4.1(m)(ii)(G), to the Knowledge of Sellers, Sellers comply in all material respects 39 48 with the applicable requirements of Section 4980B(f) of the Code with respect to each Business Plan that is a "group health plan" (as such term is defined in Section 5000(b)(1) of the Code). (H) Except as disclosed in Schedule 4.1(m)(ii)(H), neither the Westinghouse Pension Plan nor any Benefit Plan disclosed in Schedule 4.1(m)(i) which is a welfare plan (as such term is defined in Section 3(1) of ERISA) that provides for post-retirement medical or dental benefits has been amended in any material respect since September 30, 1995, that has increased the benefits provided to individual participants or beneficiaries thereunder. (I) Except as disclosed in Schedule 4.1(m)(ii)(I) or as otherwise in Section 5.5, (x) no Business Plan exists which could result in the payment of money or any other property or rights, or accelerate or provide any other rights or benefits, to any Business Employees that would not have been required but for the transactions provided herein, and (y) no Business Employee is covered by any plan, program, arrangement or understanding that would result, separately or in the aggregate, in the payment (whether in connection with the termination of employment or otherwise) of any "excess parachute payment" within the meaning of Section 280G of the Code as a result of the transactions provided herein. (J) With respect to each Business Plan, true, correct and complete copies of the applicable following documents have been delivered or made available to Purchaser: (x) all current Business Plan documents and related trust documents, and any amendment thereto; (y) Forms 5500, financial statements and actuarial reports for the most recent year (except for the last three years in the case of the Westinghouse Savings Program); (z) the most recently issued IRS determination letter; and (xx) summary plan descriptions. (K) Schedule 4.1(m)(ii)(K) sets forth the funding status of the plans described therein as of the dates set forth on such Schedule. (iii) "Knowledge" for purposes of Section 4.1(m) shall mean the knowledge of the senior management at the "major facilities" (described below) and the human resource employees at the Orlando headquarters. "Major facilities" are (i) Orlando, Florida, (ii) Charlotte, North Carolina, (iii) Hamilton, Ontario, (iv) Melbourne, Australia, and (v) Winston-Salem, North Carolina. (iv) To the Knowledge of Sellers, except as disclosed in Schedule 4.1(m)(iv), the Westinghouse Pension Plan and the Westinghouse Executive Pension Plan have been maintained and operated in accordance with their terms in all material respects. 40 49 (v) As of OCTOBER 31, 1997, Sellers and the Sold Subsidiaries employed in the Business approximately 5,460, 1,425 and 930 active business employees in the United States, Canada and all other countries, respectively. (N) ENVIRONMENTAL MATTERS. Except as disclosed on Schedule 4.1(n): (i) Sellers, in respect of the operations of the Business and the Acquired Assets, and the Sold Subsidiaries, are in compliance with all Environmental Laws, except for violations of Environmental Laws that would not, individually or in the aggregate, reasonably be expected to materially reduce the benefits to Purchaser of the transactions contemplated by this Agreement; (ii) Sellers and the Sold Subsidiaries severally hold, and are in compliance with, all Permits required under Environmental Laws for Sellers and the Sold Subsidiaries to conduct the Business, except for the absence of, or noncompliance with, such Permits that would not, individually or in the aggregate, reasonably be expected to materially reduce the benefits to Purchaser of the transactions contemplated by this Agreement; (iii) No Seller or Sold Subsidiary has entered into or agreed to any court order or decree or other administrative order or decree or is subject to any judgment, order or decree relating to compliance with any Environmental Law or to investigation or cleanup of Hazardous Substances under any Environmental Law that, individually or in the aggregate, would reasonably be expected to materially reduce the benefits to Purchaser of the transactions contemplated by this Agreement; (iv) Neither Sellers, in respect of the operations of the Business and the Acquired Assets, nor any of the Sold Subsidiaries have (A) Released, transported or disposed of any Hazardous Substance or any petroleum or petroleum product on, to, under or at any of the Premises, other than in a manner that would not, in all such cases taken individually or in the aggregate, reasonably be expected to materially reduce the benefits to Purchaser of the transactions contemplated by this Agreement; or (B) received any written notice prior to the date of this Agreement, (x) of the institution or pendency or any lawsuit, action, proceeding or investigation by any Person arising under any Environmental Law at any of the Premises which is reasonably likely to be adversely determined and which if adversely determined would reasonably be expected to materially reduce the benefits to Purchaser of the transactions contemplated by this Agreement; or (y) requiring the removal of Hazardous Substance from any of the Premises, that would reasonably be 41 50 expected to materially reduce the benefits to Purchaser of the transactions contemplated by this Agreement; (v) Purchaser has been provided with an opportunity to review true, correct and complete copies of all material environmental investigations, studies, audits, tests, reports, reviews or other analyses conducted by or on behalf of, or that are in the possession of, any Seller or Sold Subsidiary in relation to any site or facility now or, in the case of any Sold Subsidiary, previously owned, operated or leased by any of them; and (vi) None of Sellers or any Sold Subsidiary, in respect of the operations of the Business or the Acquired Assets, has agreed with any Governmental Authority pursuant to any Environmental Law to the imposition of any lien or limitation on the future use of any property that is an Acquired Asset. (O) TAXES. Except as set forth on Schedule 4.1(o): (i) Each of the Sellers and the Sold Subsidiaries has timely filed or has had filed on its behalf, after giving effect to any applicable extensions, all material Tax Returns required to be filed by applicable Law and all such Tax Returns are true, correct and complete in all material respects. Each of the Sellers and the Sold Subsidiaries has timely paid or has had paid on its behalf, after giving effect to any applicable extensions, all Taxes shown due on the Tax Returns referred to in the preceding sentence. (ii) No taxing authority has asserted in writing any material Tax deficiency that has not been paid or reserved for in accordance with GAAP with respect to the Acquired Assets, the Subsidiary Assets or the income or operations of the Business. (iii) None of the Sellers and none of the Sold Subsidiaries has requested any extension of time within which to file any non-Income Tax Return with respect to the Acquired Assets or the income or operation of the Business, which Tax Return has not since been filed. (iv) No Seller or Sold Subsidiary has executed any outstanding waivers or comparable consents regarding the application of the statute of limitations with respect to any non-Income Taxes or non-Income Tax Returns with respect to the Acquired Assets or the income or operation of the Business. (v) No material audits or other administrative proceedings or court proceedings are presently pending with regard to any Taxes or Tax Returns of any Seller (with 42 51 respect to the Acquired Assets and the income or operation of the Business) or Sold Subsidiary. There is no pending claim in writing by any authority of a jurisdiction where any of the Sellers with respect to the Acquired Assets and the income or operation of the Business or the Sold Subsidiaries has filed Tax Returns that such Seller or Sold Subsidiary is or may have been subject to taxation by that jurisdiction. (vi) No power of attorney currently in force has been granted by any Seller (with respect to the Acquired Assets or the income or operation of the Business) or Sold Subsidiary that would be binding on Purchaser with respect to taxable periods commencing on or after the Closing Date. (vii) No Seller (with respect to the Acquired Assets and the income or Operation of the Business) or Sold Subsidiary has received a tax ruling or entered into a closing agreement with any taxing authority that would have a continuing material adverse effect upon a Sold Subsidiary, the Acquired Assets or the Business, after the Closing Date. (viii) Each of the Sellers (with respect to the Acquired Assets and the income and operation of the Business) and Sold Subsidiaries has complied in all material respects with the provisions of the Code relating to the payment and withholding of Taxes, including, without limitation, the withholding and reporting requirements under Code Sections 1441 through 1464, 3401 through 3606, and 6041 and 6049, as well as similar provisions under any other Laws, and have, within the time and in the manner prescribed by Law, withheld and paid over to the proper governmental authorities all material amounts required in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party. (ix) None of the Acquired Assets or the Subsidiary Assets is property that any party to this transaction is or will be required to treat as being owned by another person pursuant to the provisions of Code Section 168 (f)(8) (as in effect prior to its amendment by the Tax Reform Act of 1986) or is "tax-exempt use property" within the meaning of Code Section 168(h). (x) No Sold Subsidiary is required to include in income any adjustment pursuant to Code Section 481 (a) by reason of a voluntary change in accounting method initiated by such Sold Subsidiary, and to the best of the knowledge of Sellers and the Sold Subsidiaries, the IRS has not proposed any such adjustment or change in accounting method. (P) SOLD SUBSIDIARIES. The authorized and outstanding capital stock of each Sold Subsidiary is as set forth on Schedule 1.1(h), 43 52 and, except as set forth on such Schedule (and except for Nominee Shares), all of such issued and outstanding shares of capital stock are owned, directly or indirectly, beneficially and of record by one of the Sellers as set forth on Schedule 1.1(h), free and clear of all Liens, except as set forth on Schedule 1.1(h). For purposes of this Section 4.1(p), "beneficial ownership" of any shares of capital stock shall mean having or sharing the power to direct or control the voting or disposition of such shares of capital stock. Except (i) for any Nominee Shares and (ii) as set forth in Schedule 1.1(h), there are no shares of capital stock of or other equity interests in any Sold Subsidiary outstanding. Except as set forth in Schedule 1.1(h), none of the shares of capital stock of or other equity interests in any Sold Subsidiary has been issued in violation of, or are subject to, any purchase option, call, right of first refusal or preemptive, subscription or similar rights under any provision of applicable law, the certificate of incorporation or by-laws (or comparable organizational documents) of any Sold Subsidiary or any Contracts. There are no outstanding warrants, options, rights, "phantom" stock rights, convertible or exchangeable securities or other agreements to or instruments (other than this Agreement) pursuant to which any Seller or any Sold Subsidiary is or may become obligated to issue, sell, purchase, return or redeem any shares of capital stock of or other equity interests in any Sold Subsidiary. (Q) LABOR MATTERS. Except as set forth in Schedule 4.1(q), (i) there is not, and since January 1, 1995, there has not been, any labor strike, work stoppage or lockout pending against any Seller in relation to the Business or against any Sold Subsidiary, (ii) there is no material unfair labor practice charge or complaint against any Seller relating to the Business or any Sold Subsidiary pending or, to the knowledge of WEC, threatened before the National Labor Relations Board or any similar body in any material foreign jurisdiction and (iii) there are no material pending or, to the knowledge of WEC, threatened union grievances against any Seller in relation to the Business or against any Sold Subsidiary. Except as disclosed on Schedule 4.1(q), each of the Sellers and the Sold Subsidiaries has complied in all material respects with its obligations related to, and is not in breach in any material respect of or in default in any material respect under, any Labor Contracts. Except as set forth in Schedule 4.1(q), to the knowledge of WEC, there are no attempts presently being made to organize any employees employed by any of the Sellers or any Sold Subsidiary. (R) TANGIBLE PROPERTY. All tangible personal property (other than Inventory), including, without limitation, equipment, furniture, leasehold improvements, fixtures, vehicles, structures, any related capitalized items and other similar tangible property, in each case owned or leased by any of the Sellers and material to its business (collectively, the "Tangible Property") is in good operating condition, subject to continued 44 53 repair and replacement in accordance with past practice. During the three years prior to the date hereof there has not been any material interruption of the operations of any of the Sellers due to inadequate maintenance of the Tangible Property. SECTION 4.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby represents and warrants to Seller as follows: (A) ORGANIZATION. STANDING AND POWER. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated and has the requisite corporate power and authority to carry on its business as now being conducted. (B) AUTHORITY. Purchaser has the requisite corporate power and authority to execute this Agreement and the agreements to be entered into by it at the Closing pursuant hereto (the "PURCHASER ANCILLARY DOCUMENTS") and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Purchaser Ancillary Documents and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Purchaser, the Closing, and will not require the approval of the stockholders of Purchaser. This Agreement has been duly executed and delivered by Purchaser and constitutes, and each Purchaser Ancillary Document will be duly executed and delivered by Purchaser at or prior to the Closing and when so executed and delivered will constitute, a legal, valid and binding obligation of Purchaser enforceable against it in accordance with its terms. The execution and delivery of this Agreement by Purchaser do not, and the execution and delivery by Purchaser of the Purchaser Ancillary Documents, the consummation by Purchaser of the transactions contemplated hereby and thereby and the compliance by Purchaser with the terms hereof and thereof will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or result in the creation of any Lien upon any of Purchaser's assets under, any provision of (i) the State of Delaware, (ii) the certificate of incorporation or by-laws (or comparable organizational documents) of Purchaser or (iii) subject to the filings and other matters referred to in the following sentence, any law, judgment, order, decree, statute, ordinance, rule or regulation applicable to Purchaser, other than, in the case of clause (iii) above, any such conflicts, violations, defaults, rights or Liens that, individually or in the aggregate, would not materially impair the ability of Purchaser to perform its obligations under this Agreement. No consent, approval, license, permit, order or authorization of, or registration, declaration or filing with, any Governmental Authority is required to be obtained or made by or with respect to Purchaser in connection with the execution and delivery of this Agreement or the consummation of the 45 54 transactions contemplated hereby, except for (i) compliance with and filings under the HSR Act, (ii) voluntary notification under the Exon-Florio Amendment, (iii) compliance with and filings under the Exchange Act, (iii) filings and approvals under foreign laws, including, without limitation, Canada and Germany, (iv) consents or novations which may be required for the assignment of any Intellectual Property, Technology or Contract as contemplated in Section 5.4, (v) compliance with, and notices and filings under, environmental permits, statutes and regulations, and (vi) those the failure of which to obtain or make, individually or in the aggregate, would not materially impair the ability of Purchaser to perform its obligations under this Agreement. (C) FINANCING. Purchaser has available cash or has existing borrowing facilities or firm commitments which, together with its available cash, are sufficient to enable it to consummate the transactions contemplated hereby. True and complete copies of any such facilities and commitments have been provided to WEC prior to the date of this Agreement. The Guarantors' financial statements provided to WEC fairly present, in all material respects, the financial position, results of operations and cash flows of each Guarantor as at the applicable dates and for the periods covered thereby. ARTICLE 5 COVENANTS SECTION 5.1 COVENANTS OF WEC RELATING TO CONDUCT OF BUSINESS. (A) ORDINARY COURSE. During the period from the date of this Agreement and continuing until the Closing, except as expressly provided in this Agreement, including the Schedules hereto, or to the extent that Purchaser shall otherwise consent, WEC shall, and shall cause the other Sellers and the Sold Subsidiaries to carry on the Business in the Ordinary Course of Business and use all reasonable efforts consistent with past practices to keep available the services of the Business's present officers and employees and preserve the Business's relationships with customers, suppliers and others having business dealings with the Business. In addition, except as contemplated by Schedule 5.1 or as otherwise provided by this Agreement, WEC shall not, and shall not permit any other Seller or Sold Subsidiary to, do any of the following with respect to the Business without the consent of Purchaser (which consent shall not be, in the case of clause (xi) below, unreasonably withheld or delayed): (i) amend the certificates of incorporation or by-laws (or comparable organizational documents) of any Sold Subsidiary; 46 55 (ii) adopt or amend any Benefit Plan or Labor Contract so as to materially increase the costs thereunder, except as required by Law or pursuant to the terms of any existing Labor Contract or other existing Contract; (iii) grant to any executive officer of any Sold Subsidiary any increase in compensation, benefits or loans or severance benefits, except in the Ordinary Course of Business or as may be required under existing contracts or agreements and except for any increases or loans the liability for which a Seller shall be solely obligated; (iv) incur or assume any liabilities, obligations, or indebtedness for borrowed money which would constitute an Assumed Liability or guarantee any such liabilities, obligations or indebtedness, in each case other than in the Ordinary Course of Business; (v) acquire by merging or consolidating with, or by purchasing a material portion of the assets of, or by any other manner, any business or any corporation, partnership, joint stock company, limited liability company, association or other business organization or division thereof; (vi) acquire any assets which are material, individually or in the aggregate, to the Business, taken as a whole, except in the Ordinary Course of Business; (vii) sell, lease or mortgage, pledge or otherwise dispose of, or grant preferential rights to, any of its assets which are material, individually or in the aggregate, to the Business taken as a whole, except for the sale of Inventory in the Ordinary Course of Business and except for the sale or factoring of Accounts Receivable; (viii) enter into any lease of real property for an annual rent in excess of $150,000 except, following good faith consultation with Purchaser, any renewals of existing leases in the Ordinary Course of Business; (ix) enter into any joint venture, partnership or other similar arrangement; (x) enter into, amend or terminate any employment agreement; (xi) knowingly waive any right of material value to the Business or settle or compromise any claim in excess of $5,000,000; 47 56 (xii) make any wage or salary increase or other compensation payable or to become payable or bonus, or increase in any other direct or indirect compensation, for or to any of its officers, employees, consultants, agents or other representatives employed in the Business, or any accrual for or commitment or agreement to make or pay the same, in each case other than in the Ordinary Course of Business or as may be required under existing contracts; (xiii) except as described in Schedule 4.1(j)(iii) or as otherwise contemplated by this Agreement, enter into any transactions with any of its Affiliates, officers, directors, employees, consultants, agents or other representatives (other than employment arrangements made in the Ordinary Course of Business), or any Affiliate, of any officer, director, consultant, employee, agent or other representative, to the extent the obligations arising from any such transaction would be an Assumed Liability; (xiv) make any payment or commitment which would constitute an Assumed Liability to pay any severance or termination payment to any Person or any of its officers, directors, employees, consultants, agents or other representatives employed in the Business, other than payments pursuant to contractual obligations in effect on the date of this Agreement; (xv) except in the Ordinary Course of Business, amend in any material respect or enter into any Contract or other agreement of a type required to be disclosed pursuant to Section 4.1(j)(v), (vii), (viii), (xi), (xiii), (xiv) and (xv); or (xvi) agree, whether in writing or otherwise, to do any of the foregoing. (B) ADVICE OF CHANGES. WEC shall promptly advise Purchaser in writing of (i) any event, condition or circumstance occurring from the date hereof through the Closing Date that would constitute a material violation or material breach of this Agreement, (ii) any event, occurrence, material transaction or other item which would have been required to have been disclosed on any Schedule delivered hereunder had such event, occurrence, transaction or item existed on the date hereof, other than items arising in the Ordinary Course of Business which would not render the representation and warranties of WEC materially misleading and (iii) any event or change that reasonably would be expected to have a Material Adverse Effect; PROVIDED, HOWEVER, that WEC shall have no Liability for breach of this Section 5.1(b) except to the extent Purchaser has actually been prejudiced by such breach. (c) Purchaser acknowledges and agrees that WEC shall not be deemed to be in breach of its representation and warranty 48 57 contained in the first sentence of Section 4.1(l) or its obligations under the first sentence of Section 5.1(a) as a result of its determination not to take the actions described in Schedule 5.1(c). If Purchaser requests that WEC take such (or similar) actions prior to the Closing and WEC agrees to take such actions, Purchaser shall bear all costs incurred by WEC and its Affiliates as a result of such actions (other than as set forth in Section 5.5(d)(vi)) by reimbursing WEC not later than 30 days following receipt of reasonably detailed evidence of the incurrence of such costs. Any such costs incurred by WEC prior to the Closing (but not reimbursed prior to the Closing) shall be reimbursed by Purchaser at the Closing. WEC agrees not to take any such action without the prior written consent of Purchaser. SECTION 5.2 ACCESS TO INFORMATION. WEC shall afford to Purchaser and its accountants, counsel and other representatives reasonable access during normal business hours during the period prior to the Closing to all the properties, books, Contracts, commitments, Tax Returns and records of the Business (other than those related solely to the Excluded Assets or Excluded Liabilities), and during such period shall furnish promptly to Purchaser any information concerning the Business (other than the Excluded Assets or Excluded Liabilities) as Purchaser may reasonably request; and shall cause its and the other Sellers' officers, employees, consultants, agents, accountants and attorneys to cooperate fully with Purchaser's representatives in connection with such review and examination and to make full disclosure to Purchaser of all material facts affecting the financial condition and business operations of the Business; PROVIDED, HOWEVER, that WEC is under no obligation to disclose to Purchaser, (i) any information the disclosure of which is restricted by Contract or applicable Law except in strict compliance with the applicable Contract or Law (it being understood that WEC shall use reasonable commercial efforts to obtain any necessary consent for disclosure under such Contract), (ii) any information as to which the attorney-client privilege, the attorney work-product doctrine or the self-evaluative privilege may be available, until a mutually satisfactory joint defense agreement has been executed by Purchaser and WEC, (iii) the medical records pertaining to any employee or former employee of the Business until after the Closing or (iv) the terms of any bid or proposal by any of the Sellers in connection with any proposed sales order. All requests for information to visit facilities or to meet with Sellers' representatives shall be directed to and coordinated with the person(s) designated to Purchaser from time to time by WEC as the PGBU Coordinator(s). Purchaser acknowledges that any information being provided to it or its representatives by Sellers pursuant to or in connection with this Agreement is subject to the terms of a confidentiality agreement between Siemens Corporation and WEC dated June 17, 1996, as amended (the "CONFIDENTIALITY AGREEMENT") (by which Siemens Parent has agreed to be bound), which terms are incorporated herein by reference. Notwithstanding anything to 49 58 the contrary contained paragraph 8 thereof, the Confidentiality Agreement, and the obligations not to use or disclose and to return on request or destroy, Confidential Information (as defined in the Confidentiality Agreement) already provided at the time of termination, shall terminate, subject to the limitations in Section 3 thereof, on the later of June 17, 1998 and the date that this Agreement terminates in accordance with its terms; PROVIDED, that, if the Closing occurs, the Confidentiality Agreement and such obligations shall terminate at the end of the Restricted Period. Nothing contained herein is intended to limit or restrict Purchaser's use or disclosure of Confidential Information concerning the Business following the Closing. No investigation by Purchaser shall diminish or obviate any other representations, warranties, covenants or agreements of WEC under this Agreement. SECTION 5.3 GOVERNMENTAL APPROVALS, ETC. (a) Each of Purchaser and WEC shall as promptly as practicable (i) but in no event later than ten (10) days following the execution and delivery of this Agreement, file with the United States Federal Trade Commission and the United States Department of Justice, the notification and report form under the HSR Act required for the transactions contemplated hereby and, thereafter, any supplemental information requested in connection therewith pursuant to the HSR Act and (ii) but in no event later than thirty (30) days following the execution and delivery of this Agreement, file with the Committee on Foreign Investment in the United States the voluntary notification under the Exon- Florio Amendment for the transactions contemplated hereby. Each of Purchaser and WEC shall as promptly as practicable comply with any other Laws of any country and the European Union which are applicable to any of the transactions contemplated hereby and pursuant to which any consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Authority or any other Person in connection with such transactions is necessary. Each of Purchaser and WEC shall furnish to the other such necessary information and reasonable assistance as the other may request in connection with its preparation of any filing, registration or declaration which is necessary under the HSR Act, the Exon-Florio Amendment or any other such Laws. Purchaser and WEC shall keep each other apprised of the status of any communications with, and any inquiries or requests for additional information from, any Governmental Authority, and shall comply promptly with any such inquiry or request. Purchaser shall use its best efforts and take all necessary action to obtain any clearance under the HSR Act or any other consent, approval, order or authorization of any Governmental Authority under United States or foreign antitrust or competition laws, necessary in connection with the transactions contemplated hereby or to resolve any objections 50 59 which may be asserted by any Governmental Authority with respect to the transactions contemplated hereby. (B) Subject to the terms and conditions of this Agreement, each party shall use its best efforts to cause the Closing to occur as promptly as practicable, including (i) as contemplated by Section 5.3(a) or 5.4, (ii) defending against any lawsuits, actions or proceedings, judicial or administrative, challenging this Agreement or the consummation of the transactions contemplated hereby, including seeking to have any preliminary injunction, temporary restraining order, stay or other legal restraint or prohibition entered or imposed by any court or other Governmental Authority that is not yet final and nonappealable vacated or reversed; provided, however, that none of Sellers or their Affiliates shall be required to make any material monetary expenditure, commence or be a plaintiff in any litigation or offer or grant any material accommodation (financial or otherwise) to any third Person. (C) Purchaser and WEC each shall use its commercially reasonable efforts to obtain as promptly as practicable all permits, licenses, franchises, approvals, consents and authorizations by or of Governmental Authorities required by Law for Purchaser to conduct the Business following the Closing and to own the Acquired Assets (each, a "Purchaser Permit"). Notwithstanding the foregoing, neither Purchaser nor WEC shall be required to expend any material sum or agree to a material concession to any Governmental Authority to obtain any such Purchaser Permit. SECTION 5.4 THIRD PARTY CONSENTS. (A) WEC and Purchaser will cooperate and use their respective commercially reasonable efforts to obtain as promptly as practicable all consents, approvals and waivers required by third Persons to transfer the Contracts, Intellectual Property, Technology, Permits and the capital stock of the Sold Subsidiaries to Purchaser in a manner that will avoid any default, conflict, or termination of rights under the Contracts, Intellectual Property, Technology and Permits. Notwithstanding anything to the contrary in this Agreement, nothing in this Section 5.4 shall (i) require Sellers or Purchaser to expend any material sum, make a material financial commitment or grant or agree to any material concession to any third Person to obtain any such covenant, approval or waiver or (ii) alter, diminish or otherwise affect Purchaser's rights under Section 6.2(c). (B) In the event that any and all consents, approvals or waivers necessary for the assignment, transfer or novation of any Contract, Intellectual Property, Technology or Permit, or any claim, right or benefit arising thereunder or resulting 51 60 therefrom, or consents relating to a change in control of any Sold Subsidiary, shall not have been obtained prior to the Closing Date, then as of the Closing, this Agreement, to the extent permitted by Law, shall constitute full and equitable assignment by Sellers to Purchaser of all of Sellers' right, title and interest in and to, and all of Sellers' obligations and liabilities under, such Contract, Intellectual Property, Technology and Permits, and, in the case of Contracts, Purchaser shall be deemed Sellers' agent for purpose of completing, fulfilling and discharging all of Sellers' liabilities under any such Contract. The parties shall take all necessary steps and actions to provide Purchaser with the benefits of such Contracts, Intellectual Property, Technology and Permits, and, in the case of Contracts, to relieve Sellers of the performance and other obligations thereunder, including entry into subcontracts for the performance thereof. Purchaser agrees to pay, perform and discharge, and indemnify Sellers against and hold Sellers harmless from, all obligations and liabilities of Sellers relating to such performance or failure to perform under such Contracts. (C) In the event Sellers shall be unable to make the equitable assignment described in Section 5.4(b), or if such attempted assignment would give rise to any right of termination, or would otherwise adversely affect the rights of Sellers or Purchaser under such Contract, Intellectual Property or Technology, or would not assign all Sellers' rights thereunder at the Closing, Sellers and Purchaser shall continue to cooperate and use all reasonable efforts to provide Purchaser with all such rights. To the extent that any such consents and waivers are not obtained, or until the impediments to such assignment are resolved, Sellers shall use all reasonable efforts (without the expenditure, in the aggregate, of any material sum) to (i) provide to Purchaser, at the request of Purchaser, the benefits of any such Contract, to the extent related to the Business, or of any such Intellectual Property or Technology, (ii) cooperate in any lawful arrangement designed to provide such benefits to Purchaser and (iii) enforce, at the request of and for the account of Purchaser, any rights of Sellers arising from any such Contract, Intellectual Property or Technology against any third Person including the right to elect to terminate in accordance with the terms thereof upon the advice of Purchaser. To the extent that Purchaser is provided the benefits of any Contract, Intellectual Property or Technology referred to herein (whether from Sellers or otherwise), Purchaser shall perform at the direction of Seller and for the benefit of any third Person the obligations of Sellers thereunder or in connection therewith, and Purchaser agrees to pay, perform and discharge, and indemnify Sellers against and hold Sellers harmless from, all obligations and liabilities of Sellers relating to such performance or failure to perform (but only to the extent such obligations or liabilities arise solely from acts of Purchaser after the Closing Date) and in the event of a failure of such indemnity, Sellers 52 61 shall cease to be obligated under this Agreement in respect of the Contract, Intellectual Property or Technology which is the subject of such failure. SECTION 5.5 (A) EMPLOYEE MATTERS. (i) CONTINUATION OF EMPLOYMENT. Purchaser shall offer employment to each employee of the Business (including any individual whose principal place of employment is on the Premises, who primarily renders services on behalf of the Business and whose compensation cost is borne primarily by the Business) and each employee of STC as described in Section 5.25 who is actively at work, on vacation or on short-term disability leave on the Closing Date (a "BUSINESS EMPLOYEE"). Each employee or former employee who primarily rendered services on behalf of the Business (or to STC as described in Section 5.25), is not a Business Employee and who is not actively at work on the Closing Date due to leave of absence, long-term disability leave, military leave or layoff, and who in the case of an employee on long-term disability was last actively employed within two years of the Closing Date, and in the case of an employee on a leave of absence or layoff was last employed within five years of the Closing Date and in each case has recall rights ("RECALL RIGHTS") under the work rules of the Business, a collective bargaining agreement or applicable law (collectively, "INACTIVE EMPLOYEES"), shall be offered active employment by Purchaser pursuant to the Recall Rights and shall be deemed an employee of Purchaser as of the Closing Date. Upon such offer and acceptance and commencement of active employment, each such Inactive Employee shall be considered a Business Employee effective as of the first date of return to work. WEC shall deliver a schedule to Purchaser of anticipated Business Employees and Inactive Employees with their designated status as of the Closing Date, 30 days before the Closing Date. Such schedule shall be updated by WEC as soon as practical after the Closing Date. Any employee of Sellers or their Affiliates who is not otherwise a Business Employee but who is offered and accepts employment by Purchaser, pursuant to mutual agreement with the Sellers, during the six months following the Closing Date shall be deemed to be a Business Employee as of the date of actual employment with the Purchaser. (ii) CONTINUATION OF COMPENSATION AND BENEFITS. Notwithstanding the more specific provisions set forth in this Section 5.5, Purchaser shall provide compensation and benefit plans and arrangements which in the aggregate are comparable (but in no event taking into account any equity-based compensation and opportunity to invest in securities of WEC under the Westinghouse Stock Plan or the Westinghouse Savings Program, provided that with respect to Business Employees, the match formula under the 53 62 Westinghouse Savings Program shall be considered when determining comparability) to the compensation, Plans and Benefit Arrangements in effect for Business Employees on the date of this Agreement for a period of not less than two years following the Closing Date (the "BENEFITS MAINTENANCE PERIOD") (or, in the case of Business Employees who are subject to a collective bargaining agreement, the period required therein). Notwithstanding the above, with respect to Business Employees who are executives, long-term incentives shall be comparable to such plans offered to similarly situated executives of Purchaser in the United States. Purchaser shall deliver to WEC no later than 15 days prior to the Closing Date a letter from an independent consulting firm reasonably acceptable to WEC stating that the compensation, benefits and benefit arrangements offered by Purchaser to the Business Employees pursuant to this Section are comparable in the aggregate to the compensation, Plans and Benefit Arrangements currently provided by the Sellers to the Business Employees. (B) ACCRUED VACATION. Purchaser shall credit each Business Employee with the unused vacation days and any personal and sickness days accrued in accordance with the vacation and personnel policies and Labor Contracts of Sellers or their Affiliates in effect as of the Closing Date. (C) UNION REPRESENTATION. Purchaser agrees to (i) with respect to any collective bargaining agreement that does not relate solely to Business Employees, recognize each union which at the Closing Date represents any of the Business Employees as the collective bargaining representatives of such employees as of the Closing Date, and provide such employees with comparable wages and benefits as those in effect on the date of this Agreement, and (ii) with respect to any collective bargaining agreement that relates solely to Business Employees and former employees of the Business, assume the collective bargaining agreements. (D) PENSION PLAN. (i) Effective as of the Closing Date, Purchaser shall establish a defined benefit pension plan intended to qualify under Section 401(a) of the Code for the benefit of Business Employees (the "PURCHASER PENSION PLAN") that contains terms and conditions that are substantially identical with respect to all substantive provisions to those of the Westinghouse Pension Plan as in effect as of the Closing Date (the "WEC PENSION PLAN") and that credits compensation (with respect to the calendar year which includes the Closing Date) and service for purposes of eligibility (including early retirement eligibility and any early retirement supplemental benefit), and vesting which was credited under the WEC Pension Plan, provided, however, that the Purchaser Pension Plan will include provisions which are consistent with (ii) through (iv) below and will be administered during the Benefits Maintenance Period so that the aggregate of the benefits under the WEC Pension Plan and the 54 63 Purchaser Pension Plan are the same with respect to Business Employees as if the Business Employees continued employment with Sellers. (ii) Purchaser shall continue the Purchaser Pension Plan without adverse effect to the Business Employees for a period not less than the Benefits Maintenance Period. (iii) The WEC Pension Plan shall retain liability with respect to Business Employees for their accrued benefit calculated as of the Closing Date, subject to adjustment as follows. WEC shall take appropriate action to cause the WEC Pension Plan to provide (x) credit for employment of Business Employees with the Purchaser or its Affiliates solely for purposes of calculating vesting credit and eligibility for early retirement benefits ("Eligibility Service," as defined in the WEC Pension Plan), and (y) except as provided in (d)(iv) below, the early retirement supplement under Section 5 for Business Employees under the terms of the WEC Pension Plan shall be equal to the lesser of - (A) the early retirement supplement calculated under the terms of the WEC Pension Plan, or as it may be reduced by WEC after the Benefits Maintenance Period, but only to the extent such a change applies to all WEC employees with the same benefit, as multiplied by a fraction, the numerator of which is the participant's years of Credited Service (as defined in the WEC Pension Plan) under the WEC Pension Plan as of the Closing Date, and the denominator of which is the sum of the numerator and the participant's years of employment with the Purchaser and its Affiliates from the Closing Date until the participant's retirement or termination of employment with the Purchaser and its Affiliates, or (B) the comparable early retirement supplement calculated under the terms of the Purchaser Pension Plan as in effect on the participant's retirement or termination of employment from the Purchaser and its Affiliates (prior to reduction for the portion of the supplement to be paid from the WEC Pension Plan) (if the Purchaser Pension Plan has no such supplement after the Benefits Maintenance Period the amount calculated under this subparagraph (B) shall be zero (0)) multiplied by a fraction, the numerator of which is the employee's years of Credited Service under the WEC Pension Plan as of the Closing Date, and the denominator of which is the sum of the numerator and the participant's years of employment with the Purchaser and its Affiliates from the Closing Date until the participant's termination of employment with the Purchaser and its Affiliates. Notwithstanding the foregoing, the WEC Pension Plan shall not recognize employment with the Business after the Purchaser and 55 64 its Affiliates have sold or divested the Business, or a portion thereof (whether by asset or stock sale, merger or spin-off (each a "Disposition")), with respect to the Business Employees who are transferred or terminated in connection with such a sale or divestiture. (iv) The Purchaser Pension Plan shall be solely responsible for (and the WEC Pension Plan shall not provide for) (A) any early retirement supplement that becomes payable with respect to a Business Employee retiring after the Closing Date that is the result of a "Pension Event" as defined in subsection (v) below, (B) any benefits pursuant to Section 19 of the WEC Pension Plan and the corresponding provision of the Purchaser Pension Plan, in excess of the benefits that would otherwise be payable if those sections did not apply, with respect to a Business Employee who retires or terminates employment with the Purchaser and its Affiliates after the Closing Date, and (C) any other early retirement subsidy or supplement with respect to Business Employees that is not described in (iii) above. (v) Purchaser shall indemnify WEC for any actuarial losses (as defined below) with respect to the WEC Pension Plan resulting from any Business Employee commencing the receipt of benefits prior to their Normal Retirement Date (as defined in the WEC Pension Plan) and that is attributable to (A) a Disposition, (B) a closing of a plant or plants by Purchaser or a reduction in the number of Business Employees employed by the Purchaser and its Affiliates as a result of action requiring the filing of a notice under the Worker Adjustment and Retraining Notification Act, as in effect on the Closing Date (the "WARN ACT") (or which would require the filing of a WARN Act notice if any actions taken within a 6-month period occurred on the same date (a "WARN Event")), or (C) any action of the Purchaser or its Affiliates that provides an incentive to Business Employees to terminate or retire prior to their Normal Retirement Date including, but not limited to, an early retirement window program or a change in plan design which reduces prospective benefits for Business Employees who are eligible to retire under the WEC Pension Plan. Purchaser shall notify WEC of the occurrence of any of the events described in (A) through (C) above (each of which is a "PENSION EVENT") within 30 days after such event, and shall cooperate with WEC in providing data to WEC to enable the determination of actuarial losses. Actuarial losses shall be determined by the enrolled actuary for the WEC Pension Plan (the "WEC Actuary") with respect to each Pension Event and is measured by the difference (positive or negative) between the accumulated benefit obligation for all of the Business Employees affected by the Pension Event using (1) immediate commencement of benefits under actual forms of benefit payment elected and (2) projected commencement of benefits, both based on the assumptions described in Schedule 5.5(d), other than lump sums elected under (1) above, which shall be valued at the actual value distributed. Notwithstanding any other provision in this Agreement to the contrary, this indemnity shall survive the Closing Date without limitation. 56 65 (vi) WEC shall indemnify Purchaser, with such payment treated as a purchase price adjustment, for the actuarial cost to Purchaser (valued using the assumptions in Schedule 5.5(d)) under the Purchaser Pension Plan and Purchaser Executive Plan (as defined below) attributable to the termination of Business Employees prior to the later of December 31, 1998 or one year following the Closing Date (the "Termination Date") pursuant to the formulation provided in the October 10, 1997 announcement (the "Announcement") by WEC ("ANNOUNCEMENT TERMINATIONS") under the provision of the Purchaser Pension Plan comparable to Section 19 of the WEC Pension Plan and under a special provision to be included in the Purchaser Pension Plan containing the same benefit provisions of the draft amendment described in Schedule 5.5(d)(vi) and which provision shall be included in the Purchaser Pension Plan through the Termination Date; provided, however, in no event shall such indemnified amount exceed $12,784,000, as reduced by any actuarial losses relating to the WEC Pension Plan arising from Announcement Terminations prior to the Closing Date. (E) SAVINGS PLAN. (i) Effective as of the Closing Date, Purchaser shall adopt or have in effect a defined contribution plan that includes a qualified cash or deferred arrangement within the meaning of Section 401(k) of the Code ("PURCHASER'S 401(K) PLAN") which provides benefits to Business Employees participating in the Westinghouse Savings Program (the "WEC SAVINGS PROGRAM") as of the Closing Date and contains provisions similar to the provisions of the WEC Savings Program to the extent required by Section 411(d)(6) of the Code for account balances to be transferred from the WEC Savings Program. Each Business Employee who was participating in the WEC Savings Program as of the Closing Date shall become a participant in Purchaser's 401(k) Plan as of the Closing Date. Business Employees shall receive credit for all service with Sellers and their Affiliates for purposes of eligibility and vesting under Purchaser's 401(k) Plan to the extent credited under the WEC Savings Program. Effective as of the Closing Date, WEC shall fully vest the account balances of Business Employees under the WEC Savings Program and make all applicable contributions under the WEC Savings Program otherwise provided for in the plan year in which the Closing occurs with respect to compensation earned by Business Employees prior to the Closing Date, without regard to any provision of the WEC Savings Program requiring a minimum number of hours of service, or employment on any particular date, if the applicable Business Employees would have qualified for a contribution if they had remained employed with Sellers. (ii) On the Closing Date, Purchaser shall provide WEC with (A) either a copy of a favorable IRS determination letter to the effect that Purchaser's 401(k) Plan is qualified under Section 401(a) of the Code or an opinion of Purchaser's 57 66 counsel, reasonably satisfactory to WEC, to such effect and (B) an opinion of Purchaser's counsel, reasonably satisfactory to WEC, that the Purchaser's 401(k) Plan will satisfy Section 411(d)(6) of the Code with respect to account balances to be transferred to the Purchaser's 401(k) Plan from the WEC Savings Program pursuant to (iii) below. (iii) As soon as reasonably practicable after the Closing Date and receipt of the documentation described in (ii) above, WEC shall cause to be transferred from the WEC Savings Program to Purchaser's 401(k) Plan assets having a fair market value equal to the aggregate value of the account balances in the WEC Savings Program as of the date of transfer (such transfer to be in (x) shares of common stock of Seller to the extent of shares in the WEC Common Stock Fund applicable to Business Employees, (y) in notes evidencing loans to Business Employees from their account balances, (3) in cash, and (xx) to the extent of the account balances of the Business Employees in the WEC Savings Program allocable to the Fixed Income Fund, in investment instruments which approximate from a quality and interest rate perspective assets held by the fund, but subject to the applicable fiduciary requirements of the Purchaser's 401(k) Plan relating to quality and interest rate considerations) and all qualified domestic relations orders (within the meaning of Section 414(p) of the Code) with respect to Business Employees, and Purchaser shall cause the Purchaser's 401(k) Plan to accept the receipt of such transfers and the liabilities relating thereto. (iv) Sellers represent, warrant and covenant that after the Closing and at the time of the transfer of assets to the Purchaser's 401(k) Plan, the WEC Savings Program will be qualified under Section 401(a) and (k) of the Code and, to the extent pertinent to the qualified status of the Purchaser's 401(k) Plan as relevant to asset transfers as provided herein, for all prior periods, and will not be disqualified retroactively to any such time or for any such period. Sellers and Purchaser shall cooperate in making, and shall make, all appropriate filings required under the Code and ERISA, and the regulations thereunder, and shall further cooperate to ensure that the transfers described in this Section 5.5(e) satisfy the applicable requirements of Sections 401(k), 414(l) 411(d)(6) and 401(a)(12) of the Code and the regulations thereunder. (v) Purchaser's 401(k) Plan shall maintain a WEC common stock fund, in accordance with applicable law, for Business Employees who so elect, for a period of not less than two years following the Closing. No new investments in WEC common stock shall be required to be permitted after the Closing Date. 58 67 (F) WELFARE BENEFITS. (i) Effective as of the Closing Date, Purchaser shall establish employee welfare benefit plans, including but not limited to medical and dental, disability, group life, travel and accident, and accidental death and dismemberment insurance plans, which (x) provide continuous coverage to Business Employees and their eligible spouses and dependents, (y) credit service with Sellers or their Affiliates for purposes of eligibility and benefit levels, and (z) for medical and dental benefits, waive any pre-existing condition limitations and credit the amount of any copayments and deductibles incurred during the calendar year of the Closing. (ii) Purchaser shall be responsible for all employee welfare benefit plan claims (whether for insurance, benefits or otherwise) with respect to Business Employees and Inactive Employees and their eligible spouses and dependents, whether incurred prior to or after the Closing Date. Sellers shall pay or cause to be paid medical, dental and other welfare benefit claims incurred but not paid in the ordinary course, prior to the Closing Date with respect to Business Employees and Inactive Employees and Purchaser shall reimburse and indemnify the Sellers for the amount of such Payments. (iii) As of the Closing Date Purchaser shall adopt a plan or plans providing retiree medical and other retiree welfare benefits for Business Employees and their eligible spouses and dependents (such plans and their successors the "PURCHASER FAS 106 PLANS") that is substantially similar to such plan or plans maintained by WEC in the U.S. immediately prior to the Closing Date for its domestic Business Employees, their eligible spouses and dependents (the "WEC FAS 106 PLANS") so that during the Benefits Maintenance Period the combination of the Purchaser FAS 106 Plans and the WEC FAS 106 Plans provide the same benefit and the same cost sharing as if such Business Employees continued under the WEC FAS 106 Plans as in effect on the Closing Date. The Purchaser FAS 106 Plans will provide that the benefits payable under such plans will be offset by the benefits provided under the WEC FAS 106 Plans, as to be amended as described in subsection (iv) below. During the Benefits Maintenance Period, Purchaser shall continue without adverse change the Purchaser FAS 106 Plans. (iv) WEC shall establish a new plan to provide FAS 106 coverage or amend the WEC FAS 106 Plans effective as of the Closing Date to provide that WEC obligations under such plans with respect to Business Employees shall be limited in each calendar year, commencing with the Closing Date, to the amounts set forth on Schedule 5.5(f)(iv) of the Disclosure Schedule (the "OPEB Schedule"), as described below. WEC may amend the WEC FAS 106 Plans after the Benefits Maintenance Period to conform to the provisions of the Purchaser FAS 106 Plans after the Benefits Maintenance Period. Such payment obligations shall be cumulative so that if a scheduled payment is not made in full in any year 59 68 because the aggregate benefit payment required is less than the scheduled payment, the balance not paid out shall be carried forward to the next year. Such payments represent the accrued obligations of WEC as calculated under FAS 106, for post-retirement benefit obligations other than pensions as of the Closing Date with respect to Business Employees, their eligible spouses and dependents under the WEC FAS 106 Plans (the "FAS 106 OBLIGATION"). Such payments under the WEC FAS 106 Plans, as adjusted as described below, shall be the only obligation of WEC to Business Employees their eligible spouses and dependents (or to the Purchaser) with respect to post-retirement benefits other than pensions. Purchaser shall indemnify WEC for any liability to Business Employees, their eligible spouses and dependents for all post-retirement benefits other than pension (including retiree medical and retiree life) other than obligations of WEC under the WEC FAS 106 Plans as described in this subsection (iv) and subsection (v). The payment obligations of WEC under the OPEB Schedule shall be actuarially adjusted downwards in the event of an "actuarial gain" (as defined below) arising from any of the following events (a "FAS 106 EVENT") (whether applicable to some or all of the Business Employees): (A) a change in the benefit design (including but not limited to any reduction of benefit levels or reduction or freezing of the employer portion of benefit costs) or plan termination by the Purchaser of the Purchaser FAS 106 Plans applicable to Business Employees, their eligible spouses and dependents (e.g. in the event of a termination of the Purchaser FAS 106 Plans, the OPEB Schedule shall be reduced to zero (0)), (B) an increase in the contribution rate paid (other than an increase proportionate to an increase in overall plan costs or an increase provided by plan provisions) by Business Employees, their eligible spouses and dependents instituted by the Purchaser under the Purchaser FAS 106 Plans, (C) the enactment of legislation which reduces or eliminates the requirement of the Purchaser to provide retiree benefits under the Purchaser FAS 106 Plans, (D) a Disposition, (E) a closing of a plant or plants by Purchaser, or (F) a WARN Event. Such adjustment shall be made as of the January 1 following the calendar year in which the FAS 106 Event occurs. Actuarial gain, for purposes of this Section 5.5(f)(iv), shall be determined by the WEC Actuary as of the Closing Date, for the purpose of calculating the FAS 106 Obligation. Such gain shall be determined with respect to the WEC FAS 106 Plans as if the FAS 106 Event applied to the WEC FAS 106 Plans to the same extent and as of the same date they apply to the Purchaser FAS 106 Plans and shall be measured by the difference between the OPEB Schedule (or as subsequently modified pursuant to this Section 5.5(f)(iv)) (the "EXISTING SCHEDULE") and the OPEB Schedule that would have been determined as of the Closing Date to reflect the FAS 106 Liability, if the FAS 106 Event were known as of the Closing Date (the "REVISED SCHEDULE"). To determine whether the change from the Existing Schedule to the Revised Schedule would result in an actuarial gain, the scheduled payments under each schedule (whether resulting in a gain or a loss) shall be discounted back 60 69 to the first day of the calendar year in which the FAS 106 Event occurred, utilizing the discount rate utilized by WEC as of December 31, 1997 to determine its APBO for FAS 106 purposes (the "Discount Rate") In no event shall any actuarial losses in connection with the Purchaser FAS 106 Plans (other than arising as a result of a FAS 106 Event which results in a net actuarial gain) offset any actuarial gains as calculated under this Section 5.5(f)(iv). If the result of discounting the scheduled payments would result in the Revised Schedule having a lower present value obligation than the Existing Schedule, the Revised Schedule shall be substituted for the Existing Schedule as the OPEB Schedule. In no event shall the OPEB Schedule ever be increased. Any payment made by WEC hereunder that exceeds a payment obligation for any year based on a Revised Schedule, shall be utilized to reduce a future payment obligation under the Revised Schedule. (v) The Purchaser and WEC shall cooperate with each other so that, to the maximum extent practicable, benefits shall be paid and administered under the WEC FAS 106 Plans and the Purchaser FAS 106 Plans as applicable to Business Employees, through the third-party service provider to be selected by Purchaser, subject to consent of WEC, not to be unreasonably withheld. Any expenses allocable to WEC under such arrangement (other than actuarial fees) shall reduce WEC's payment obligation under the WEC FAS 106 Plans as reflected by the OPEB Schedule on a dollar-for-dollar basis. Purchaser shall notify WEC within thirty days after any Event and shall cooperate with WEC in providing data to determine any adjustments in the OPEB Schedule. (vi) Subject to the requirements of applicable law and any contractual restrictions, WEC shall cause the transfer to a trust established by Purchaser satisfying the requirements of Section 501(C)(9) of the Code of the funds allocable to Business Employees in a trust qualified under Section 501(C)(9) of the Code maintained by WEC (the Retiree Health Care Security Fund) for the purpose of funding retiree medical obligations for Business Employees. The trust to be established by the Purchaser shall have terms substantially similar to the terms of the WEC Trust. (G) SEVERANCE OBLIGATIONS. Purchaser shall provide severance and separation benefits to Business Employees and Inactive Employees during the Benefits Maintenance Period (or, in the case of Business Employees who are subject to a collective bargaining agreement, the period required therein) that are comparable to benefits provided under the Involuntary Separation Program of WEC as set forth in Schedule 5.5(g), which arrangement shall credit service with the Sellers or their Affiliates for purposes of determining the amount of severance or other separation benefits. Purchaser shall indemnify and hold Sellers and their Affiliates harmless from any claims made by any Business Employee or Inactive Employee for severance or other separation benefits arising on or after the Closing Date, including any such claim arising on account of the transactions contemplated hereby. 61 70 (H) EXECUTIVE COMPENSATION. (i) Effective as of the Closing Date, Purchaser shall adopt and establish a plan for the benefit of Business Employees that contains terms and conditions (including but not limited to eligibility requirements) that are substantially similar to those of the Westinghouse Executive Pension Plan in effect as of the Closing Date (the "WEC EXECUTIVE PLAN") and which provides credit for prior service and compensation under the WEC Executive Plan for purposes of eligibility and benefit accrual (the "PURCHASER EXECUTIVE PLAN"), provided, however, that the Purchaser Executive Plan will include provisions which are consistent with (ii) through (iv) below and will have its benefits offset by the benefits provided under the WEC Executive Plan, the WEC Pension Plan and the Purchaser Pension Plan. The Purchaser Executive Plan shall be administered so that the aggregate of the benefits under the WEC Executive Plan and the Purchaser Executive Plan are the same with respect to Business Employees as if the Business Employees were covered under the WEC Executive Plan and continued employment with Sellers. (ii) Purchaser shall continue the Purchaser Executive Plan without adverse effect, including provisions therein relating to early retirement and compensation increases, for a period not less than the Benefits Maintenance Period. (iii) The WEC Executive Plan shall retain liability, if any, for benefits earned to the Closing Date with respect to Business Employees, to be calculated pursuant to appropriate action to be taken by WEC with respect to the WEC Executive Plan to cause the WEC Executive Plan to take into consideration (i) credit for employment of Business Employees with the Purchaser and its Affiliates solely for purposes of calculating eligibility for the payment of benefits, (ii) that the Average Annual Compensation and Executive Benefit Service (both as defined in the WEC Executive Plan) will be determined and frozen as of the Closing Date, and (iii) that the Purchaser and its Affiliates will be considered a Designated Entity (as defined in the WEC Executive Plan) solely for purposes of determining eligibility for the payment (including suspension of payment) of benefits. Notwithstanding the foregoing, the WEC Executive Plan shall not recognize employment with the Business after the Purchaser and its Affiliates have sold or divested the Business, or a portion thereof as a result of a Disposition with respect to the Business Employees who are transferred or terminated in connection with such a sale or divesture. (iv) The Purchaser Executive Plan shall be solely responsible for (and the WEC Executive Plan shall not provide for) (x) any benefit that becomes payable with respect to Business Employees retiring after the Closing Date that is the 62 71 result of any reduction in force, mass layoff or plant closing by the Purchaser or its Affiliates (i.e. the benefit would not be payable absent such an event) or (y) any other early retirement subsidy or supplement that is not described in (iii) above. (v) Purchaser shall indemnify WEC for any actuarial losses (based on the same actuarial assumptions and methods used for purposes of determining actuarial losses under Section 5.5(d)(v)) with respect to the WEC Executive Plan resulting from any Business Employee commencing the receipt of benefits prior to their Normal Retirement Date (as defined in the WEC Pension Plan) and that is attributable to a Pension Event. Purchaser shall cooperate with WEC in providing data to WEC to enable the determination of actuarial losses. Notwithstanding any other provision in this Agreement to the contrary, this indemnity shall survive the Closing Date without limitation. (I) COOPERATION. The parties agree to furnish each other with such information concerning employees and employee benefit plans, and to take all such other action, as is necessary and appropriate to effect the transactions contemplated by this Agreement and to cooperate with each other in addressing inquiries and mitigating any MEPPA withdrawal liability to the extent of any available information. (J) WARN ACT. Purchaser agrees to provide any required notice under the WARN Act and any similar statute, and otherwise to comply with any such statute with respect to any "plant closing" or "mass layoff" (as defined in the WARN Act) or similar event affecting Business Employees and occurring on or after the Closing. (K) COBRA. Purchaser shall assume all responsibility for COBRA notices and coverage for employees and former employees (and their eligible dependents) of the Business. (L) WORKERS COMPENSATION. Effective as of the Closing Date, Purchaser shall take all necessary and appropriate action to adopt a workers compensation program providing such workers compensation benefits as are provided under Sellers' Workers Compensation Program for the Business Employees and Inactive Employees covered by such program ("PURCHASER'S WORKERS COMPENSATION PROGRAM"). Purchaser's Workers Compensation Program shall be responsible for all claims for benefits which are payable from and after the Closing Date with respect to employees and former employees of the Business and that are payable under the terms and conditions of Purchaser's Workers Compensation Program or the Seller's Workers Compensation Program. (M) MULTIEMPLOYER PLANS. (i) Sellers shall indemnify Purchaser for any liability or expense attributable to a withdrawal by Sellers or their Affiliates from a multiemployer plan under Section 4001(a)(3) of ERISA (a "Multiemployer Plan") that occurred prior to the Closing date. 63 72 (ii) Purchaser shall indemnify Sellers for any liability or expense attributable to any withdrawal by Purchaser or its affiliates from a Multiemployer Plan occurring during the five year period following the Closing Date. (N) INTERNAL REVENUE SERVICE FORMS. WEC and Purchaser agree that pursuant to the "Alternative Procedure" provided in Section 5 of Revenue Procedure 96-60, 1996-53, I.R.B. 24, with respect to preparing, filing and furnishing the Internal Revenue Service Forms W-2, W-3, 941 and W-5, (i) WEC and Purchaser shall report, on a "predecessor-successor" basis as set forth therein, (ii) WEC shall be relieved from furnishing Forms W-2 to the Business Employees and (iii) Purchaser shall assume the obligations of WEC to furnish such forms to the Business Employees for the full calendar year in which the Closing occurs. (O) FOREIGN EMPLOYMENT MATTERS. (i) EMPLOYMENT. Without limiting the generality of Section 5.5(a), Purchaser shall, or shall cause a Sold Subsidiary to, assume or retain and be responsible for the employment (including any employment contracts) of the Business Employees who are employed outside the United States (the "FOREIGN BUSINESS EMPLOYEES"), and Purchaser shall take any and all actions necessary or appropriate to continue the employment of the Foreign Business Employees and to have Purchaser or any Sold Subsidiary assume or retain all Liabilities relating to their employment (including, but not limited to, any employment Contracts listed in Schedule 4.1(j)(i)) under local laws and practices without Sellers or any of their Affiliates having any liability to any such employees for severance, redundancy, termination, payment in lieu of notice, indemnity or other payments to any of such employees by reason of, or as a result of, the actions contemplated by this Section 5.5. (ii) CANADIAN PLANS. Prior to the Closing Date, the Canadian Consolidated Salaried Pension Plan and Hourly Pension Plan (the "Canadian Plans"), shall be transferred to a Sellers Affiliate other than a Sold Subsidiary. Unless the Purchaser and Sellers mutually agree to do otherwise prior to the Closing Date, the accrued pension benefits of the Canadian Plans attributable to (x) the Sellers' active employees who are Business Employees, and (y) the deferred vested and retired employees of the Business (which (x) and (y) together are "Canadian Business Participants") and a pro-rata portion of the assets of the Canadian Plans attributable to Canadian Business Participants, shall be transferred, in accordance with applicable law, to a pension plan (or plans) maintained by the Purchaser that has been established and qualified or registered with applicable federal and provincial authorities. The amount of 64 73 liabilities and assets transferred shall be calculated by the Sellers using the actuarial assumptions utilized in the last actuarial valuations for the Canadian Plans, and the actuarial calculation of such amounts (but not the assumptions therein) shall be subject to the review for accuracy by the Purchaser's actuary. It is understood that there will be no purchase price adjustment (up or down), pursuant to Section 2.5, relating to assets and liabilities of the Canadian Plans for which the Seller will retain. (iii) FREE-STANDING PLANS. Notwithstanding the foregoing provisions of this Section 5.5 effective as of the Closing Date, Purchaser shall assume and be responsible for all liabilities and obligations under the Free-Standing Plans. Sellers shall take all action necessary and appropriate to establish Purchaser as successor to Sellers as to all rights, assets, duties, liabilities and obligations under or with respect to such Free-Standing Plans. (iv) FOREIGN PLANS. Except for the Free-Standing Plans and the Canadian Plans: (A) Effective as of the Closing Date, and as soon as necessary or practicable thereafter, Purchaser or a Sold Subsidiary shall establish and qualify or register with applicable regulatory authorities employee benefit plans for, or shall extend existing Purchaser or Sold Subsidiary employee benefit plans, programs, policies and arrangements to, the Foreign Business Employees which are in accordance with local Law and which provide benefits, for not less than the Benefits Maintenance Period, to the Foreign Business Employees on terms and conditions which are substantially similar in the aggregate to those provided to Foreign Business Employees by Sellers or their Affiliates immediately prior to the Closing Date. (B) As of the Closing Date, Purchaser or a Sold Subsidiary shall (i) establish and adopt one or more foreign pension plans or shall extend one or more existing Purchaser or Sold Subsidiary pension plans (each, a "NEW FOREIGN RETIREMENT PLAN") which shall provide retirement benefits for each of the Foreign Business Employees and, to the extent applicable, former employees who were employed by a Sold Subsidiary in a foreign jurisdiction and who, as of the Closing Date, are not employed by the Sellers or any of their Affiliates (the Foreign Business Employees and such former foreign employees, collectively, the "FOREIGN PLAN PARTICIPANTS") on substantially similar terms and conditions to those provided to Foreign Plan Participants by the Sellers or their Affiliates (other than a Sold Subsidiary) under each applicable Foreign Plan that is a retirement plan (a "FOREIGN RETIREMENT PLAN") as in effect immediately prior to the Closing Date, and (ii) establish and adopt any 65 74 necessary trust funds or other funding vehicles to hold assets or reserves of New Foreign Retirement Plans which are attributable to the Foreign Plan Participants. Purchaser or a Sold Subsidiary shall take all action necessary to qualify or register each New Foreign Retirement Plan and any related trusts with all applicable regulatory authorities. Subject to Section 5.5(o)(v), effective as of the Closing Date, Purchaser or a Sold Subsidiary shall extend coverage under the applicable New Foreign Retirement Plan to each such Foreign Plan Participant to the extent that each such Foreign Plan Participant shall then, or at some later date, satisfy the eligibility and participation requirements of such New Foreign Retirement Plan. (C) Effective as of the Closing Date, Purchaser shall assume the obligation of Sellers under the Belgium retiree medical program with respect to former employees of the Business and active employees of the Business. (D) Except as otherwise specifically provided in this Section 5.5(o), effective as of the Closing Date, each Foreign Plan Participant who is an active participant in any Foreign Retirement Plan shall cease to be an active participant thereunder, and all Foreign Plan Participants shall become eligible to participate in an applicable New Foreign Retirement Plan in accordance with the applicable provisions of this Section 5.5(o) and the terms and conditions of such plan. (v) DELAYED FOREIGN EMPLOYEES. Notwithstanding the foregoing provisions of this Section 5.5(o), Foreign Employees whose names are listed in Schedule 5.5(o)(v) and whose employment by Purchaser or any Sold Subsidiary will be delayed beyond the Closing Date due to applicable foreign law (including, without limitation, due to the requirement that Purchaser establish separate legal entities as employer) ("DELAYED FOREIGN EMPLOYEES") will continue on a payroll of the Sellers or their Affiliates and will continue to participate in each of Sellers or their Affiliates' employee benefit plans in which they are participating immediately prior to the Closing Date until the applicable date on which they first become eligible to become employed by Purchaser or any Sold Subsidiary (the "DELAYED TRANSFER DATE"). Purchaser will offer, or cause a Sold Subsidiary to offer, employment on the applicable Delayed Transfer Date to each such Delayed Foreign Employee then in employment, and on and as of the applicable Delayed Transfer Date, each such Delayed Foreign Employee then in employment will become a Business Employee for all purposes of the Agreement. Purchaser will promptly reimburse WEC for 100% of the payroll, benefits (including statutory benefits, severance and other termination benefits) and other costs and expenses directly or indirectly relating to Delayed Foreign Employees consistent with past practice within 15 days following receipt of each written 66 75 notification (including reasonable substantiation of costs and expenses) from WEC or any of its Affiliates of such payroll, benefits and other costs and expenses. (P) RETAINED LIABILITIES. WEC shall retain liability and responsibility for all benefits payable under (x) the WEC Pension Plan (but, with respect to Business Employees, as limited under Section 5.5(d)), (y) the WEC Executive Pension Plan (but, with respect to Business Employees, as limited under Section 5.5(h)), (3) the WEC FAS 106 Plans with respect to employees and former employees of the Business other than Business Employees and, with respect to Business Employees, only to the extent provided in Section 5.5(f), (xx) the WEC Savings Program (other than with respect to assets and liabilities to be transferred to the Purchaser's 401(k) Plan under Section 5.5(e)) and (yy) the WEC Long-Term Incentive Plan. (Q) ACTUARIAL DETERMINATIONS AND PAYMENTS. (i) The calculations of actuarial losses under subsections (d)(v) and (h)(v), actuarial gains under subsection (f)(iv) and the indemnification amount under subsection (d)(vi) shall be performed by the WEC Actuary as soon as practicable after WEC receives notice from Purchaser or WEC otherwise becomes aware of a Pension Event, a FAS 106 Event or Announcement Terminations. Purchaser shall provide WEC with sufficient data to enable the determination of any actuarial losses and/or actuarial gains or Announcement Terminations within the 30 days following a Pension Event, a FAS 106 Event or Announcement Terminations. (ii) No later than 60 days after the receipt by WEC of both the notice from Purchaser that a Pension Event, a FAS 106 Event or Announcement Terminations has occurred and sufficient data to make a determination has been delivered, WEC will deliver to Purchaser the results of the determination of the actuarial loss or actuarial gain or actuarial liability in the case of a calculation under Section 5.5(d)(vi) (each a "Determination"), respectively, and all reasonably necessary supporting information in order to permit Purchaser's actuary to verify the Determination. Each Determination will be conclusive and binding on the parties unless Purchaser, within the 30-day period after the delivery of such results and supporting information, notifies WEC in writing that it disputes the calculation, specifying the nature of the dispute and the basis therefor (the "Notice"). (iii) Actuaries retained by WEC and Purchaser shall attempt in good faith to reach agreement to resolve all of the disputes set forth in the Notice within 30 days after the Notice is given by Purchaser to WEC. If actuaries retained by WEC and Purchaser cannot resolve all disputes with respect to a Determination within such 30-day period, WEC and Purchaser shall jointly select a third, impartial actuary from a nationally recognized actuarial firm to resolve the dispute (the same such actuary shall resolve all concurrent Determinations). If the 67 76 parties cannot jointly select a third, impartial actuary within 15 days after the end of such 30-day period, the President of the Conference of Consulting Actuaries shall select an impartial actuary. The cost of the impartial actuary shall be shared equally by WEC and Purchaser. (iv) Promptly, but no later than 60 days after his or her selection, an impartial actuary selected under (iii) above shall review the results of the Determination calculation, the supporting information with respect to the Determination and the Notice, and shall reach his or her own decision as to the issues in dispute and the determination of the actuarial gain or actuarial loss or actuarial cost, as the case may be (which determination shall be equal to or between the respective amounts asserted by WEC and Purchaser). Such determination shall be final and conclusive for all purposes. (v) Within 30 days after a final determination of any actuarial loss under Sections 5.5(d)(v) or 5.5(h)(v), Purchaser shall make any applicable indemnification payments under such Sections. (vi) Within 30 days after a final determination of any actuarial cost under Section 5.5(d)(vi) WEC shall make any applicable indemnification payments under such Sections. (vii) All indemnification payments under (v) and (vi) above shall be treated as purchase price adjustments for tax purposes. (viii) Within 30 days after a final determination of any actuarial gain under Section 5.5(f)(v) WEC shall substitute a Revised Schedule in place of the Existing Schedule. (ix) The Purchaser and Sellers shall pay the costs of their own actuaries. SECTION 5.6 COLLECTION OF RECEIVABLES. From and after the Closing, Purchaser shall have the right and authority to collect for its own account, and WEC shall not, and shall cause each of its Subsidiaries not to, directly or indirectly, interfere with or affect any of Purchaser's efforts to collect, all accounts receivable and other items that are included in the Acquired Assets and to endorse with the name of any of Sellers, any checks or drafts received with respect to any such accounts receivable or other items and WEC agrees promptly to deliver or cause to be delivered to Purchaser any cash or other property received directly or indirectly by any of Sellers with respect to such receivables and other items, including any amounts payable as interest. SECTION 5.7 EXPENSES. Whether or not the Closing takes place, and except as otherwise specifically provided in this 68 77 Agreement, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs or expenses. SECTION 5.8 BROKERS OR FINDERS. Each of Purchaser and WEC represents, as to itself and its Affiliates, that no agent, broker, investment banker or other Person is or will be entitled to any broker's or finder's fee or any other commission or similar fee in connection with any of the transactions contemplated by this Agreement, except, as to WEC and its Affiliates, Evercore Partners Inc. and J.P. Morgan Securities Inc. whose fees and expenses will be paid by WEC and, as to Purchaser and its Affiliates, Goldman, Sachs & Co. whose fees and expenses will be paid by Purchaser, and each of Purchaser and WEC respectively agrees to indemnify and hold the other harmless from and against any and all claims, liabilities or obligations with respect to any other fees, commissions or expenses asserted by any Person on the basis of any act or statement alleged to have been made by such party or its affiliate. SECTION 5.9 LICENSE AGREEMENT. (a) On the Closing Date, WEC and Purchaser shall enter into a Shared Technology Agreement in the form of Exhibit E hereto, wherein (i) WEC shall retain a nonexclusive, world-wide, royalty-free, perpetual license in order to use to satisfy WEC's obligations to divested businesses, and in the continuing businesses of WEC and the successors or assigns of such business, the Intellectual Property and Technology included in the Acquired Assets or the Subsidiary Assets, with the right to grant sublicenses of the same or lesser scope to licensees of Westinghouse's own corresponding and/or complementary intellectual property and technology and (ii) WEC shall grant to Purchaser nonexclusive, worldwide, paid-up, royalty-free, perpetual license to use any intellectual property and technology of Sellers pertinent to the Business as conducted by WEC as of the Closing Date and any natural extensions or evolution thereof with the right to grant sublicenses of the same or lesser scope to licensees of Purchaser's own corresponding and/or complementary intellectual property and technology. (b) On the Closing Date, WEC shall grant to Purchaser and its Affiliates, pursuant to a Trademark and Trade Name License Agreement substantially in the form of Exhibit I hereto, certain licenses to the names and marks "Westinghouse" and "Circle W". SECTION 5.10 CERTAIN INFORMATION. After the Closing, upon reasonable written notice, Purchaser and WEC shall furnish or cause to be furnished to each other and their respective accountants, counsel and other representatives access, during normal business hours, to such information (including records pertinent to the Business), personnel and assistance relating to the Business as is reasonably necessary for financial reporting 69 78 and accounting matters, the preparation and filing of any returns, reports or forms, the defense of, prosecution of, or response required under, or pursuant to, any lawsuit, action or proceeding (including any proceeding involving WEC and any environmental matters related to the Acquired Assets) or in order to enable the parties to comply with their respective obligations under this Agreement. Purchaser and WEC shall also furnish or cause to be furnished to each other and their respective accountants, counsel and other representative's access, during normal business hours, to such information for any other reasonable business purpose. Purchaser and WEC shall, and shall cause their Affiliates to, retain until ten (10) years after the Closing Date all such records pertinent to the Business which are owned by such Person immediately after the Closing (excluding any Excluded Assets); after the end of such period, before disposing of any such records, the applicable party shall give notice to such effect to the other, and shall give the other, at the other's cost and expense, a reasonable opportunity to remove and retain all or any part of such records as the other may select. Cooperation with respect to Tax matters shall be governed by Section 5.14(k). SECTION 5.11 BULK TRANSFER LAWS. Purchaser hereby waives compliance by Sellers with the provisions of any so-called "bulk transfer law" of any jurisdiction in connection with the sale of the Acquired Assets to Purchaser. SECTION 5.12 ADDITIONAL AGREEMENTS. Subject to the provisions of Section 5.4, each of Purchaser and WEC will use all reasonable efforts to facilitate and effect the implementation of the transfer of the Acquired Assets to Purchaser and the assumption of the Assumed Liabilities by Purchaser and, for such purpose but without limitation, each of Purchaser and WEC promptly will at and after the Closing execute and deliver or cause to be executed and delivered to the other party such assignments, deeds, bills of sale, assumption agreements, consents and other instruments of transfer or assumption as Purchaser or its counsel or WEC or its counsel may reasonably request as necessary or desirable for such purpose (it being understood that any such assignment, deed, bill of sale, assumption agreement, consent or other instrument of transfer or assumption shall not provide for any representations or warranties or any obligations or liabilities that are not otherwise expressly provided for in this Agreement). At any time and from time to time after the Closing Date at the request of Purchaser, and without further consideration, WEC will, and will cause the other Sellers to, execute and deliver such other instruments of sale, transfer, conveyance, assignment and confirmation and take such other action as Purchaser may reasonably deem necessary or desirable in order to transfer, convey and assign more effectively to Purchaser, the Acquired Assets, to put Purchaser in actual possession and operating control of the Business and to assist Purchaser in exercising all rights with respect thereto. 70 79 SECTION 5.13 CERTAIN UNDERSTANDINGS. Purchaser acknowledges that none of Sellers or any other Person has made any representation or warranty, express or implied, as to the accuracy or completeness of any information regarding the Business, the Acquired Assets or other matters not included in this Agreement or the Schedules hereto and none of Sellers or any other Person will be subject to any liability to Purchaser or any other person resulting from the distribution to Purchaser, or Purchaser's use of, any such information, including any information, documents or material made available to Purchaser in certain "data rooms" or in any other form in expectation of the transactions contemplated hereby. Purchaser acknowledges that, should the Closing occur, Purchaser will acquire the Acquired Assets without any representation or warranty as to merchantability or fitness for any particular purpose, in an "as is" condition and on a "where is" basis, except as otherwise expressly represented or warranted herein. SECTION 5.14 ALLOCATION; TAX MATTERS. (A) Schedule 5.14(a) sets forth the allocation of the consideration hereunder for Tax purposes. Prior to the Closing, Purchaser and WEC shall agree upon the allocation of the consideration hereunder for Tax purposes among the Acquired Assets and the assets held by any Sold Subsidiary with respect to which a Section 338 Election is made, in accordance with Schedule 5.14(a), and shall set forth such allocation on a statement (the "ALLOCATION STATEMENT"). After the Closing, from time to time, Purchaser and WEC shall agree upon revisions to the Allocation Statement to reflect any adjustments to the consideration. Purchaser and WEC shall report the Tax consequences of the transactions contemplated by this Agreement in a manner consistent with the Allocation Statement, as it may be revised from time to time and shall not take any position inconsistent therewith in any examination of any Tax Return, in any refund claim or in any litigation or investigation, except as required by Law. (B) Purchaser and WEC shall file and cause to be filed all Tax Returns and execute such other documents as may be required by any taxing authority, in a manner consistent with the Allocation Statement, as it may be revised from time to time. WEC shall prepare an initial draft of Internal Revenue Service Form 8594 pursuant to Section 1060 of the Code relating to the transactions contemplated by this Agreement based on the Allocation Statement, as it may be revised from time to time, and deliver such form to Purchaser. Purchaser and WEC shall attempt in good faith to agree on a final version of such form and shall file, or cause the filing of, such form with each relevant taxing authority. 71 80 (C) With respect to the purchase of the capital stock of Sold Subsidiaries that are U.S. corporations and members of Sellers' "affiliated group" (within the meaning of the Code Section 1504), (i) Purchaser and WEC agree to jointly make the election pursuant to Section 338(h)(10) of the Code and any comparable election under state and local law ("SECTION 338 ELECTIONS") with respect to each of the Sold Subsidiaries listed on Schedule 5.14(c), (ii) at Purchaser's request, Purchaser and WEC shall jointly make Section 338 Elections as to any other Sold Subsidiary designated by Purchaser in writing and delivered to WEC prior to the Closing, (iii) Purchaser and WEC shall cooperate with each other to take all actions necessary to effect and preserve timely Section 338 Elections made pursuant to this Section 5.14(c) in accordance with Treasury Regulation Section 1.338(h)(10) (and any comparable provisions of state and local law and any successor provisions thereto) and shall not take any position inconsistent with treating the purchases of the capital stock of such corporations as Section 338 Elections and (iv) no Section 338 Election shall be made as to any other such Sold Subsidiary. Unless prohibited by applicable Law, WEC and Purchaser shall cause the Sold Subsidiaries to end their taxable years as of the Closing Date in states that do not recognize an election comparable to the election under Section 338(h)(10) of the Code. (D) WEC and Purchaser shall allocate between themselves all transfer, documentary, sales, use, registration, stamp, value-added and other similar taxes (including all applicable real estate transfer taxes and real property gains taxes), including any penalties, interest and additions to tax, incurred in connection with the transactions contemplated hereby ("TRANSFER TAXES") as follows: (i) with respect to all Transfer Taxes incurred in Florida and North Carolina, WEC and Purchaser shall equally share all Transfer Taxes, up to an amount not to exceed $ 7,000,000 (the "Estimated Transfer Tax Amount"), after which WEC shall be responsible and shall indemnify Purchaser and its Affiliates for all Transfer Taxes in excess of the Estimated Transfer Tax Amount and (ii) WEC and Purchaser shall equally share all Transfer Taxes incurred in all other jurisdictions. Notwithstanding the foregoing, Purchaser shall be responsible and shall indemnify Seller and its Affiliates for the excess of (i) any Transfer Taxes imposed by reason of the acquisition by Purchaser of the stock of the subsidiaries of Westinghouse Electric S.A. over (ii) the Transfer Taxes that would have been imposed had Purchaser acquired the stock of Westinghouse Electric S.A.. WEC and Purchaser shall reimburse one another, as the case may be, for their respective share of the Transfer Taxes paid by the other party within five (5) days of written request for such payment. WEC and Purchaser shall cooperate in timely making and filing all Tax Returns as may be required to comply with the provisions of any Transfer Tax Laws. To the extent legally able to do so, Purchaser shall deliver to 72 81 WEC exemption certificates satisfactory in form and substance to WEC with respect to Transfer Taxes if such delivery would reduce the amount of Transfer Taxes that would otherwise be imposed. (E) WEC shall terminate and shall cause the termination by the Closing of any agreements, arrangements or practices relating to Taxes between WEC or any of its Affiliates (other than any Investment), on the one hand, and any Investment, on the other hand. (F) At the Closing, WEC shall deliver to Purchaser duly executed certificates certifying that the transactions contemplated hereby are exempt from withholding under Section 1445 of the Code. (G) With respect to Income Taxes, and to the extent permitted by Law, Purchaser shall not, and shall cause each Sold Subsidiary not to, carry back any item of income, loss, credit or deduction from any period beginning after the Closing Date to any period including or ending prior to the Closing Date. (H) WEC shall file any amended consolidated, combined or unitary Income Tax Returns that include any Sold Subsidiary for taxable years ending on or prior to the Closing Date which are required as a result of examination adjustments made by any taxing authority as finally determined. For those jurisdictions in which separate Income Tax Returns are filed by any Sold Subsidiary, any required amended Income Tax Returns resulting from such examination adjustments, as finally determined, shall be prepared by WEC and furnished to such Sold Subsidiary, for signature and filing at least ten days prior to the due date for filing such returns. (I) (i) WEC shall file or cause to be filed the United States consolidated federal Income Tax Return of WEC and, where applicable, all other consolidated, combined or unitary state or local Income Tax Returns for the taxable periods of each Selling Subsidiary and each Sold Subsidiary that is a U.S. corporation ending on or prior to the Closing Date ("PRE-CLOSING INCOME TAX RETURNS") and (ii) WEC shall also file and shall cause each Selling Subsidiary and each Sold Subsidiary to file all other Tax Returns with respect to the Acquired Assets or the income or operations of the Business required to be filed (including any extensions) on or prior to the Closing Date. WEC shall prepare or shall cause to be prepared all state and local Pre-Closing Income Tax Returns required to be filed by any Sold Subsidiary on a separate return basis and with respect to those Tax Returns that have not been filed by the Closing Date (A) WEC shall provide Purchaser with a copy of such Tax Returns at least 30 days prior to the due date for filing such Tax Returns (including any extensions) and (B) after reviewing and approving such Tax Returns (which approval shall not be unreasonably withheld), 73 82 Purchaser shall file or shall cause such Tax Returns to be filed. WEC shall pay or cause to be paid all Income Taxes relating to the Pre-Closing Income Tax Returns. (J) (i) Purchaser shall timely prepare and file (or cause to be prepared and filed) all Tax Returns required by Law for all Taxes covering the Acquired Assets or the Sold Subsidiaries for periods ending after the Closing Date and which include a period prior to the Closing Date ("STRADDLE PERIOD TAX RETURNS"). Purchaser shall not prepare any Straddle Period Tax Returns on a basis inconsistent with the methodology used in prior taxable years (except as otherwise required by Law) if the result would be to increase the amount of Taxes for which WEC is responsible under this Agreement. To the extent any Straddle Period Tax Return relates to Income Taxes, (A) Purchaser shall provide WEC with a copy of such Tax Returns at least 30 days prior to the due date for filing such Tax Returns (including extensions), (B) after WEC's review and approval of such Tax Returns (which approval shall not be unreasonably withheld), Purchaser shall file or cause such Tax Returns to be filed and (C) not later than 5 days before the due date for the payment of Income Taxes with respect to such Tax Returns, WEC shall pay to Purchaser an amount equal to WEC's allocable portion of the Seller's Straddle Period Taxes (as defined below) determined in accordance with the method described in clause (ii) below. Purchaser shall timely prepare and file (or cause to be prepared and filed) all Tax Returns required by Law for all Taxes covering the Acquired Assets or the Sold Subsidiaries for periods beginning after the Closing Date (the "POST-CLOSING TAX RETURNS") and Purchaser shall timely pay or cause to be paid all Taxes relating to Post- Closing Tax Returns (ii) For purposes of this Agreement, Seller's allocable portion of Taxes with respect to the Straddle Period Tax Returns ("SELLER'S STRADDLE PERIOD TAXES") shall be: (A) In the case of any real or personal property Tax relating to the Acquired Assets or the Subsidiary Assets, an amount equal to the Tax for the entire taxable period multiplied by a fraction the numerator of which is the number of days in the period for which such taxes are paid ending on the Closing Date and the denominator of which is the number of days in the entire taxable period; and (B) In the case of any other Tax, the amount that would be payable if the taxable year ended on the Closing Date. (K) WEC and Purchaser shall each provide the other with such assistance as may be reasonably requested (including making employees reasonably available to provide information or testimony) in connection with the preparation of any Tax Return, any Tax Controversy (as defined in Section 5.14(l)(ii)), or the determination of liability for Taxes with respect to the Acquired 74 83 Assets or the income or operations of the Business. Purchaser shall complete WEC's standard tax packages relating to Tax Returns that WEC is responsible for filing pursuant to Section 5.14(i) and deliver them to WEC within 90 days of Purchaser's receipt from WEC and shall, and shall cause its Affiliates to, cooperate with WEC in preparing and pursuing any claims for refunds or credits of Income Taxes (including refunds or credits relating to investment tax credits, research credits and credits for prepayments of Income Taxes). At Purchaser's request and expense, WEC shall file claims prepared by Purchaser for refunds of Taxes assumed by Purchaser pursuant to Section 2.3(a)(viii) and promptly pay over the amount recovered to Purchaser (without any interest, other than interest paid by the applicable taxing authority with respect to such refund); PROVIDED, HOWEVER, that Purchaser shall promptly reimburse WEC to the extent that such refund is reclaimed by a taxing authority (without any interest, other than interest due to the applicable taxing authority with respect to such reclamation). WEC and Purchaser each shall, and shall cause their Affiliates to, retain until seven years after the Closing Date all Tax Returns, schedules, work papers and other records that are owned by such Person immediately after the Closing and that relate to the Business or the Acquired Assets; after the end of such period, before disposing of any such Tax Returns, schedules, work papers or other records, each shall give notice to such effect to the other, and shall give the other, at the other's cost and expense, a reasonable opportunity to remove and retain all or any part of such Tax Returns, schedules, work papers or other records as the other may select. (L) (i) Purchaser shall, in the event that Purchaser receives notice (whether orally or in writing) of any examination, claim, proposed settlement, proposed adjustment or related matter with respect to any Taxes for which Purchaser may be indemnified hereunder (the "WEC TAX CONTROVERSIES") promptly notify WEC thereof, PROVIDED, HOWEVER, that failure to give such notification shall not affect the indemnification provided hereunder except to the extent WEC shall have been actually prejudiced as a result of such failure (except that WEC shall not be liable for any expenses incurred during the period in which the Purchaser failed to give such notice). WEC shall be entitled at its sole discretion and expense to handle, control and compromise or settle the WEC Tax Controversies, and shall reasonably inform Purchaser of the progress of the WEC Tax Controversies, provided, however in the event Purchaser waives its right to indemnification with respect to any WEC Tax controversy relating to Taxes other than Income Taxes, Purchaser may assume at its expense the sole discretion to handle, control compromise or settle such controversy. (ii) WEC shall, in the event WEC receives notice (whether orally or in writing) of any examination, claim, proposed settlement, proposed adjustment or related 75 84 matter with respect to Taxes attributable to the Business (other than WEC Tax Controversies) (the "PURCHASER TAX CONTROVERSIES," and together with the WEC Tax Controversies, the "TAX CONTROVERSIES"), promptly notify Purchaser thereof, PROVIDED, HOWEVER, that failure to give such notification shall not affect the indemnification provided hereunder except to the extent Purchaser shall have been actually prejudiced as a result of such failure (except that the Purchaser shall not be liable for any expenses incurred during the period in which Seller failed to give such notice). Purchaser shall be entitled at its sole discretion and expense to handle, control and compromise or settle the Purchaser Tax Controversies, and shall reasonably inform WEC of the progress of the Purchaser Tax Controversies. SECTION 5.15 SUPPLIES. Purchaser shall not use any signs or stationery, purchase order forms, packaging or other similar paper goods or supplies, or advertising and promotional materials, product, training and service literature and materials, or computer programs or like materials (collectively, the "SUPPLIES"), that state or otherwise indicate thereon that the Business is a division or unit of WEC or, except in compliance with any license agreement contemplated by Section 5.9(b), contain any trademarks, servicemarks, trade names or corporate or business names, derived from or including the words "Westinghouse Electric Corporation", "Westinghouse" or "Circle W" (in logotype design or any other style or design) in whole or in part; PROVIDED, that to the extent any Supplies included in the Acquired Assets so indicate, Purchaser may, for a period of 180 days after the Closing Date, use such Supplies after first crossing out or marking over such statement or indication or trademark, servicemark, trade name or corporate or business name and otherwise clearly indicating on such Supplies that the Business is no longer a division or unit of WEC. Purchaser shall not reorder or produce any Supplies which state or otherwise indicate thereon that the Business is a division or unit of Seller or contain any such trademarks, servicemarks, trade names or corporate or business names. SECTION 5.16 TRANSFER OF ASSETS OF SOLD SUBSIDIARIES. On or prior to the Closing Date, WEC shall cause the Sold Subsidiaries to transfer, without consideration, any Subsidiary Assets not relating primarily to the Business to WEC or Subsidiaries of WEC other than the Sold Subsidiaries or to any third party designated by WEC. After the Closing, Purchaser will cooperate with WEC to transfer without consideration any Subsidiary Assets not relating primarily to the Business to WEC or Subsidiaries of WEC or to any third party designated by WEC and WEC shall reimburse Purchaser for its reasonable expenses incurred in connection therewith. 76 85 SECTION 5.17 CREDIT SUPPORT. Purchaser acknowledges that in the course of the conduct by the Sold Subsidiaries of their business, WEC and its Subsidiaries (other than the Sold Subsidiaries) have entered into and expect to continue to enter into various arrangements (i) in which guaranties (including guaranties of performance under contracts or agreements), letters of credit or other credit arrangements, including surety and performance bonds, were issued by or for the account of WEC and its Subsidiaries (other than the Sold Subsidiaries) or (ii) in which WEC and its Subsidiaries (other than the Sold Subsidiaries) are the primary or secondary obligors on debt instruments or financing or other contracts or agreements, in any such case to support or facilitate business transactions of the Sold Subsidiaries. Such arrangements by such parties are hereinafter referred to as the "CREDIT SUPPORT ARRANGEMENTS." Schedule 5.17 sets forth a list of all Credit Support Arrangements existing as of the date hereof. Purchaser will use commercially reasonable best efforts to (i) obtain replacement Credit Support Arrangements which will be in effect at the Closing or (ii) repay, or cause the repayment of, all debt and other obligations to which such Credit Support Arrangements relate (and cause the cancellation of such Credit Support Arrangements) or arrange for itself or one of its Subsidiaries (including the Sold Subsidiaries) to be substituted as the obligor thereon as of the Closing Date. In the event that notwithstanding the foregoing sentence Credit Support Arrangements remain outstanding following the Closing, Purchaser will continue to use commercially reasonable best efforts to take the actions described in clauses (i) and (ii) of the preceding sentence and will indemnify WEC and its Subsidiaries (other than the Sold Subsidiaries) for all losses, liabilities, claims, damages and expenses suffered or incurred by WEC and its Subsidiaries (other than the Sold Subsidiaries) arising from the existence of Credit Support Arrangements following the Closing. SECTION 5.18 NON-COMPETITION. (A) COVENANTS AGAINST COMPETITION. WEC acknowledges that (i) WEC is one of a limited number of Persons who have been active in the industry of the Business; (ii) WEC's Business is international in scope; (iii) WEC's ownership of the Business has brought it in close contact with certain confidential information regarding the Business not generally available; and (iv) Purchaser would not purchase the Acquired Assets but for the agreements and covenants of WEC contained in this Section 5.18. Accordingly, WEC covenants and agrees that: (i) WEC shall not in the United States of America or elsewhere in the world, directly or indirectly, for a period commencing on the Closing Date and terminating on the fifth anniversary of the Closing Date (the "RESTRICTED PERIOD"), nor during the Restricted Period shall it cause or permit any of its Subsidiaries to (A) engage in the Business or in any business that competes with any of the Business 77 86 for WEC's or such Subsidiaries' direct or indirect account; (B) render any material assistance to any Person (other than Purchaser) engaged in such business; or (C) become interested in any such Person (other than Purchaser) as a partner, shareholder, principal, agent, trustee, consultant or in any other similar relationship or capacity; PROVIDED, HOWEVER, that notwithstanding the foregoing WEC may own, directly or indirectly, solely as an investment, securities of any Person which are traded on any national securities exchange or NASDAQ if WEC (i) is not a controlling Person or, or a member of a group which controls such Person and (ii) does not, directly or indirectly, own 2% or more of any class of securities of such Person. (ii) During and after the Restricted Period, WEC shall (and shall cause each of its Subsidiaries to) keep secret and retain in strictest confidence, and not use for the benefit of itself or others except in connection with the business and affairs of Purchaser and its Affiliates, all confidential information with respect to the Business and the Acquired Assets, or learned by WEC directly or indirectly from Purchaser, including, without limitation, information with respect to (A) prospective business activities, (B) sales figures, (C) profit or loss, gross margin or similar information, and (D) customers, clients, suppliers, sources of supply and customer lists (the "CONFIDENTIAL INFORMATION"), and shall not disclose such Confidential Information to anyone outside of Purchaser and its Affiliates except with Purchaser's express written consent or as required by Law or upon written advice of counsel and except for Confidential Information which (i) is at the time of receipt or thereafter becomes publicly known through no wrongful act of or (ii) is received from a third party not under an obligation to keep such information confidential and without breach of this Agreement. (iii) During the Restricted Period, neither WEC nor Purchaser shall, directly or indirectly, knowingly solicit or encourage to leave the employment of Purchaser or WEC, any employee of Purchaser or WEC, as the case may be. Notwithstanding the foregoing, nothing contained in the Agreement shall impair, impede, prevent, inhibit, limit or restrict WEC or any of its Affiliates (or any successor or assign of any of them) in any manner or respect whatsoever from (i) the continuing operation of (x) the Government Operations Business, (y) the Energy Systems Business or (z) the Process Control Division, including, without limitation, the business of bidding, selling, installing and/or servicing of electrical power plants, whether alone or in partnership, joint venture, combination or other arrangement, with suppliers or manufacturers of goods or services competitive with the Business, provided WEC's scope is primarily related to the goods and services which it has 78 87 typically provided under (x), (y) and (z) or (ii) selling or otherwise transferring the Government Operations Business, the Energy Systems Business or the Process Control Division or any portion thereof to any Person, whether or not such Person or any of its Affiliates is engaged in a business competitive with the Business. (B) RIGHTS AND REMEDIES UPON BREACH. If WEC breaches, or threatens to commit a breach of, any of the provisions of Section 5.18(a) (the "RESTRICTIVE COVENANTS") , Purchaser shall have the following rights and remedies (upon compliance with any necessary prerequisites imposed by law upon the availability of such remedies) , each of which rights and remedies shall be independent of the other and severally enforceable and shall not be affected by the provisions of Article VIII, and all of which rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to Purchaser under Law or in equity: (i) The right to have the Restrictive Covenants specifically enforced (without posting any bond) by any court having equity jurisdiction, including, without limitation, the right to an entry against WEC of restraining orders and injunctions (preliminary, mandatory, temporary and permanent) against violations, threatened or actual, and whether or not then continuing, of such covenants, it being acknowledged and agreed that any such breach or threatened breach may cause irreparable injury to Purchaser and that money damages may not provide adequate remedy to Purchaser. (ii) The right and remedy to require WEC to account for and pay over to Purchaser all compensation, profits, monies, accruals, increments or other benefits (collectively, "BENEFITS") derived or received by such person as a result of any transactions constituting a breach of any of the Restrictive Covenants, and such person shall account for and pay over such Benefits to Purchaser. (C) SEVERABILITY OF COVENANTS. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect, without regard to the invalid portions. (D) BLUE-PENCILLING. If any court determines that any of the Restrictive Covenants, or any part thereof, is unenforceable because of the duration of such provision or the area covered thereby, such court shall have the power to reduce the duration or area of such provisions and, in its reduced form, such provision shall then be enforceable and shall be enforced. 79 88 SECTION 5.19 POST-CLOSING AGREEMENTS. During the period prior to the Closing, WEC and Purchaser agree to negotiate in good faith and enter into the following agreements: (A) TRANSITIONAL SERVICES. At the Closing, WEC and Purchaser shall enter into a mutually acceptable agreement (the "Transitional Services Agreement"), whereby WEC will provide to Purchaser certain transitional services which are currently provided to the Business by WEC. (B) FACILITIES. Sellers and Purchaser shall enter into mutually acceptable arrangements relating to the use of (i) facilities and equipment by Business Employees currently located in Sellers' facilities other than the Premises and (ii) facilities and equipment by employees of WEC currently located in the Premises and who are not Business Employees. (C) FIELD SALES OFFICES. Sellers and Purchaser shall enter into mutually acceptable arrangements, including sublease arrangements and arrangements with respect to the provision and use of personnel and Tangible Property, with respect to the conduct of the Energy Systems Business at the field sales offices included in the Premises. SECTION 5.20 REMOVAL OF EXCLUDED ASSETS AND LIABILITIES FROM SOLD SUBSIDIARIES. The parties acknowledge that certain Excluded Assets and Excluded Liabilities may be held by, or be obligations of, certain of the Sold Subsidiaries. Sellers will at the request of Purchaser use their best efforts either (i) to transfer the Acquired Assets held by any such Subsidiary directly to Purchaser (in which event Seller will retain the Sold Subsidiary) or (ii) to transfer out of any such Subsidiary, or otherwise appropriately protect Purchaser from, any Excluded Assets and Excluded Liabilities held by any such Subsidiary. SECTION 5.21 GUARANTEE AGREEMENT. Concurrent with the execution of this Agreement, the Guarantors are executing the Guarantee Agreements in the form of Exhibits G-1, G-2 and G-3 hereto (the "GUARANTEE AGREEMENT"). SECTION 5.22 STEAM GENERATOR AGREEMENT. On the Closing Date, WEC and Purchaser shall enter into an agreement substantially on the terms described in Exhibit H hereto (the "STEAM GENERATOR AGREEMENT") relating to the Settlement Agreements and related matters. SECTION 5.23 POST CLOSING HIRING OF EMPLOYEES. If within the period ending one (1) year after the Closing Date, Purchaser or any of its Affiliates hires any employee of WEC or its Subsidiaries (other than Business Employees), Purchaser shall reimburse WEC for any severance and other related termination costs paid by WEC or its Subsidiaries to or on account of such employment with WEC or any of its Subsidiaries during such one (1) year period. 80 89 SECTION 5.24 INSTRUMENTATION AND CONTROL MATTERS. At the Closing, WEC and Purchaser shall enter into supply agreements, substantially on the terms described in Exhibit B hereto, pursuant to which WEC (or its successors) will provide to Purchaser goods and services related to the Business. SECTION 5.25 SCIENCE AND TECHNOLOGY CENTER. WEC operates a Science and Technology Center in Churchill, Pennsylvania ("STC"), which provides research and development support to the Business. The Acquired Assets shall include all Fixtures and Equipment and, subject to the provisions of Section 2.2(c), Contracts owned by Sellers on the Closing Date and used or held for use primarily in the portion of the STC which primarily provides research and development support to the Business or to the performance of those programs ("STC PROGRAMS") (a) set forth on Schedule 5.25 or (b) entered into or undertaken in the Ordinary Course of Business between the date of this Agreement and the Closing Date which relate primarily to the Business. The provisions of Section 5.5 shall be applicable to all STC employees (other than any employee in the Information Technology Group) who primarily render services on behalf of the Business or on behalf of any of the STC Programs. On the Closing Date, WEC shall sublease to Purchaser that portion of the premises at the STC primarily related to the Business and the STC Programs pursuant to a mutually acceptable sublease. Purchaser and WEC agree that the terms of the sublease shall not be materially more restrictive to Purchaser than the terms of the master lease with respect to the STC are to WEC. WEC agrees to provide Purchaser with a copy of the master lease with respect to the STC. On the Closing Date, subject to Section 2.2(c), Purchaser shall assume all Liabilities associated with the STC Programs. Seller shall transfer and Buyer shall accept and assume all of Seller's rights, interests and liabilities in the Solid Oxide Fuel Cell ("SOFC") program, subject to Department of Energy approval and consent, and unless otherwise qualified by the Shared Technology Agreement. The following contracts are part of the rights and liabilities of Sellers with respect to the SOFC programs: 1. DOE Cooperative Agreement; 2. Southern California Edison Agreement of July, 1997; 3. Gas Research Institute Agreement; 81 90 4. Praxair Agreement of December 31, 1996; and 5. Solid Oxide Fuel Cell Commercialization Association Agreement. SECTION 5.26. BUSINESS RELATIONSHIPS WITH SELLER. WEC and Purchaser acknowledge that the Business has had relationships with other businesses within Sellers which have not been documented by a formal written agreement. In particular, the Business has been involved with the Energy Systems Business Unit, Process Control Division, Westcom and the Science and Technology Center. The parties agree that, except for specific provisions in the Agreement and the Seller Ancillary Documents which expressly provide for any different treatment, (a) any such pre-existing relationships will be documented by Sellers prior to the Closing, and shall be maintained on such documented basis by Purchaser after the Closing; and (b) all Contracts between Sellers or a Sold Subsidiary and their customers involving products or services of the Business shall be completed by Purchaser or its designated Subsidiary after the Closing in accordance with the Contract terms. ARTICLE 6 CONDITIONS PRECEDENT SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION. The obligation of Purchaser to purchase the Acquired Assets and the obligation of WEC to (and to cause the Selling Subsidiaries to) sell, assign, transfer, convey and deliver the Acquired Assets to Purchaser shall be subject to the satisfaction prior to the Closing of the following conditions: (A) CERTAIN WAITING PERIODS. Any waiting period under the HSR Act and the Exon-Florio Amendment applicable to any of the transactions contemplated hereby shall have expired or been earlier terminated. (B) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order, preliminary or permanent injunction or other legal restraint or prohibition preventing the consummation of the transactions contemplated by this Agreement shall be in effect; PROVIDED, HOWEVER, that each of Purchaser, and, subject to the proviso in Section 5.3(b), WEC shall have used its best efforts to prevent the entry of any such order, injunction or other restraint or prohibition and to appeal as promptly as possible any such order, injunction or other restraint or prohibition that may be entered. (C) GOVERNMENTAL ACTION. There shall not be any pending suit, action or proceeding by any Governmental Authority 82 91 challenging or seeking to restrain or prohibit the consummation of the transactions contemplated by this Agreement in any material respect or seeking to obtain any damages from Sellers, Purchaser or the Sold Subsidiaries which would reasonably be expected to have a Material Adverse Effect or otherwise be materially adverse to Sellers or Purchaser. SECTION 6.2 CONDITIONS TO OBLIGATION OF PURCHASER. The obligation of Purchaser to purchase the Acquired Assets is subject to the satisfaction at and as of the Closing of each of the following conditions: (A) REPRESENTATIONS AND WARRANTIES. The representations and warranties of WEC set forth in this Agreement shall be true and correct in all respects as of the date of this Agreement and, except for those made as of a particular date, as of the Closing as though made at and as of the Closing, except for (i) changes permitted or contemplated by this Agreement and (ii) such failures of representations and warranties to be true and correct that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Purchaser shall have received a certificate signed by an authorized officer of WEC to such effect. (B) PERFORMANCE OF OBLIGATIONS OF WEC. WEC shall have performed or complied in all material respects with all obligations, conditions and covenants required to be performed or complied with by it under this Agreement at or prior to the Closing (other than the covenant set forth in Section 5.1(b)), and Purchaser shall have received a certificate signed by an authorized officer of WEC to such effect. Notwithstanding the foregoing, WEC shall be deemed to have performed or complied in all material respects with its covenants contained in Section 5.1 so long as the failure so to perform or comply has not had, and would not reasonably be expected to have, a Material Adverse Effect. (C) MATERIAL PERMITS. Except as set forth on Schedule 6.2(c), Purchaser and the Sold Subsidiaries shall have, on the Closing Date, all permits, licenses, franchises, approvals, consents and authorizations by or of Governmental Authorities required by Law for Purchaser to conduct the Business and to acquire and own the Acquired Assets, and such Permits shall be in full force and effect, except (i) where (assuming compliance by WEC with the provisions of Sections 5.3(c) and 5.4) the failure to have any such Permits or of any such Permits to be in full force and effect would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; PROVIDED, HOWEVER, that this condition shall be inapplicable to the extent Purchaser shall have failed to comply with its obligations under Section 5.4 to use commercially reasonable efforts to obtain the consent of Governmental Authorities to the 83 92 assignment of any Seller's or Sold Subsidiary's Permits or under Section 5.3(c) to secure its own permits, licenses, franchises, approvals, consents and authorizations by or of Governmental Authorities in lieu of any Permits held by any Seller or Sold Subsidiary. (D) OPINION OF WEC'S COUNSEL. Purchaser shall have received an opinion or opinions dated the Closing Date of counsel to WEC, in form and substance reasonably satisfactory to Purchaser. (E) CONVEYANCING DOCUMENTS. Sellers shall have executed and delivered such deeds, bills of sale, assignments and other instruments, each satisfactory in form and substance to Purchaser, as shall be necessary or appropriate to convey the Acquired Assets in accordance with this Agreement. SECTION 6.3 CONDITIONS TO OBLIGATION OF WEC. The obligation of WEC to (and to cause the Selling Subsidiaries to) sell, assign, transfer, convey, and deliver the Acquired Assets is subject to the satisfaction at and as of the Closing of each of the following conditions: (A) REPRESENTATIONS AND WARRANTIES. The representations and warranties of Purchaser set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Closing as though made at and as of the Closing, and WEC shall have received a certificate signed by an authorized officer of Purchaser to such effect. (B) PERFORMANCE OF OBLIGATIONS OF PURCHASER. Purchaser shall have performed or complied in all material respects with all obligations, conditions and covenants required to be performed or complied with by it under this Agreement at or prior to the Closing, and WEC shall have received a certificate signed by an authorized officer of Purchaser to such effect. (C) OPINION OF PURCHASER'S COUNSEL. WEC shall have received an opinion or opinions dated the Closing Date of counsel to Purchaser and the Guarantors in form and substance reasonably satisfactory to WEC. (D) GUARANTEE AGREEMENTS. The Guarantee Agreements shall be in full force and effect, and the Guarantors shall have complied with all of their obligations thereunder. 84 93 ARTICLE 7 TERMINATION, AMENDMENT AND WAIVER SECTION 7.1 TERMINATION. (A) Notwithstanding anything to the contrary in this Agreement, this Agreement may be terminated and the transactions contemplated hereby abandoned at any time prior to the Closing: (i) by mutual written consent of WEC and Purchaser; (ii) by WEC if any of the conditions set forth in Section 6.1 or 6.3 shall have become incapable of fulfillment, and shall not have been waived by WEC; (iii) by Purchaser if any of the conditions set forth in Section 6.1 or 6.2 shall have become incapable of fulfillment, and shall not have been waived by Purchaser; or (iv) by WEC or Purchaser if the Closing does not occur on or prior to December 31, 1998; PROVIDED, HOWEVER, that the party seeking termination pursuant to clause (ii), (iii) or (iv) is not in breach in any material respect of any of its representations, warranties, covenants or agreements contained in this Agreement. (B) In the event of termination by WEC, on the one hand, or Purchaser, on the other hand, pursuant to this Section 7.1, written notice thereof shall forthwith be given to the other party and the transactions contemplated by this Agreement shall be terminated, without further action by any party. If the transactions contemplated by this Agreement are terminated as provided herein: (i) Purchaser shall return all documents and other material received from Sellers relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to WEC; and (ii) all confidential information received by Purchaser with respect to Business and the other operations of Sellers shall be treated in accordance with the Confidentiality Agreement, which shall remain in full force and effect notwithstanding the termination of this Agreement. 85 94 (C) If this Agreement is terminated and the transactions contemplated hereby are abandoned pursuant to this Section 7.1 for any reason other than a termination by Purchaser pursuant to this Section 7.1 as a result of a failure to satisfy any condition set forth in Section 6.2(a) or (b) (which failure shall not have been cured within twenty (20) business days following WEC's receipt of written notice of such failure from Purchaser) , Purchaser shall pay to WEC on demand a termination fee of $30,000,000, by wire transfer to an account designated in writing by WEC of immediately available funds. (D) If this Agreement is terminated and the transactions contemplated hereby are abandoned as described in this Section 7.1, this Agreement shall become null and void and of no further force and effect, except for the provisions of (i) Section 5.2 relating to the obligation of Purchaser to keep confidential certain information and data obtained by it from Seller, (ii) this Agreement relating to expenses (including Sections 5.7 and 5.14(d)), (iii) Section 5.8 relating to finder's fees and broker's fees, (iv) this Section 7.1 and (v) Article 9. Nothing in this Section 7.1 shall be deemed to release either party from any liability for any breach by such party of the terms and provisions of this Agreement or to impair the right of either party to compel specific performance by the other party of its obligations under this Agreement. SECTION 7.2 AMENDMENTS AND WAIVERS. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. By an instrument in writing Purchaser, on the one hand, or WEC, on the other hand, may waive compliance by the other party with any term or provision of this Agreement, that such other party was or is obligated to comply with or perform. 86 95 ARTICLE 8 INDEMNIFICATION SECTION 8.1 INDEMNIFICATION BY WEC. 87 96 (A) WEC hereby agrees to indemnify Purchaser and its Affiliates and their respective officers, directors, employees, stockholders, agents and representatives against, and agrees to hold them harmless from, any Losses, as incurred, to the extent arising from, relating to or otherwise in respect of (i) any breach of any representation or warranty of WEC contained in this Agreement (other than those contained in clauses (i), (ii) and (iv)(A) Section 4.1(n)), determined (except in respect of (A) of Sections 4.1(c)(i), 4.1(j)(xiv), 4.1(j)(xv) and 4.1(l) and (B) representations and warranties relating to the "material" impairment of the ability of a party to perform its obligations under this Agreement) without regard to any materiality qualification or exception in any representation or warranty giving rise to the claim for indemnity hereunder), (ii) any breach of any covenant of any of Sellers contained in this Agreement or in any Seller Ancillary Document, (iii) any Liability of any Seller which is not an Assumed Liability and any Liability of any Sold Subsidiary which is an Excluded Liability, (iv) any Indebtedness that is not included on the Statement or (v) any Environmental Liability which is not an Excluded Liability; PROVIDED, HOWEVER, that (A) WEC shall not have any Liability under clause (i) above unless the aggregate of all Losses relating thereto for which WEC would, but for this proviso, be liable under clause (i) above exceeds an amount equal to $50,000,000, and then only to the extent of any such excess, (B) WEC shall not have any Liability under clause (i) above in excess in the aggregate of the Purchase Price, (C) for purposes of calculating Losses under clauses (i) and (ii) above, WEC shall not have any Liability for any Loss in respect of such breaches if the aggregate amount of such Loss relating to a single claim (or group of claims relating to the same event or transaction) does not exceed $5,000, (D) WEC shall not have any Liability under this Section 8.1 to the extent the Liability arises as a result of the operation of the Business or the Acquired Assets after the Closing or any action taken or omitted to be taken by Purchaser or any of its Affiliates, and (E) in respect of any Losses under clause (v) above, (w) for aggregate Losses of less than $100 million ("FIRST-TIER ENVIRONMENTAL LOSSES"), WEC shall pay 25% of such Losses, (x) for aggregate Losses of $100 million or more but less than $200 million ("SECOND-TIER ENVIRONMENTAL LOSSES"), WEC shall pay 75% of such Losses, (y) for aggregate Losses of $200 million or more but less than $300 million ("THIRD-TIER ENVIRONMENTAL LOSSES"), WEC shall pay 50% of such Losses and (z) for aggregate Losses of $300 million or more ("FOURTH-TIER ENVIRONMENTAL LOSSES"), (1) if such Losses result from a Remedial Action that is not imposed by an order of a Governmental Authority pursuant to an Environmental Law, WEC shall pay 50% of such Losses, and (2) WEC shall pay 100% of all other Losses. Notwithstanding the foregoing provisions, if and to the extent Purchaser incurs Losses in respect of Special Environmental Liabilities arising out of or in respect of the conduct of the Business by any Seller or Sold Subsidiary prior to the Closing, WEC shall pay the first $5,000,000 of such Losses. 88 97 The balance of all such Losses shall be treated in the same way as all other Losses in respect of Environmental Liabilities are treated in clause (v) above. With respect to the Environmental Liabilities for which WEC has Liability pursuant to this Section 8.1(a) and to the extent that such Liability involves the implementation of a Remedial Action, (i) in no event shall WEC's Liability extend to Remedial Action that seeks to meet or address cleanup criteria applicable to real property other than criteria applicable to real property used for purposes substantially consistent with the purposes for which the Premises were used by the Business prior to the Closing and (ii) WEC shall have the right to review and provide Purchaser with written comments in advance of (A) the Purchaser's selection of consultants and contractors designated to perform the Remedial Action and (B) the development of the scope of work for, and type of, the Remedial Action to be implemented. Purchaser shall review and reasonably and in good faith consider WEC's comments. Purchaser shall provide all plans, reports and submissions to any Governmental Authority regarding any such Remedial Action in draft form to WEC a reasonable time prior to transmission of such items to such Governmental Authority and Purchaser shall review and reasonably and in good faith consider any of WEC's comments on such plans, reports and submissions. WEC and its representatives shall have the opportunity to be present and participate at any meetings with Governmental Authorities. Notwithstanding the foregoing, from and after the time, if any, as clause (E)(z) of the second preceding paragraph becomes applicable or could reasonably be expected to become applicable prior to completion of any specific Remedial Action, all determinations with respect to Remedial Actions (including those contemplated by the first sentence of the immediately preceding paragraph) shall be made jointly by WEC and Purchaser acting reasonably and in good faith. All such determinations shall be made (1) with a view towards achieving solutions that involve reasonable and customary Remedial Actions that can be implemented efficiently and cost-effectively, (2) with due regard to avoiding undue interference with the ongoing business operations of Purchaser (or its successor in interest) at the Premises and (3) in accordance with Environmental Laws. If, in such circumstances, (X) WEC and Purchaser do not agree as to whether Remedial Action or any significant portion of a Remedial Action is imposed by an order of a Governmental Authority pursuant to an Environmental Law, the parties shall submit such dispute to arbitration pursuant to Section 8.9(a) or (Y) WEC and Purchaser do not agree with respect to the scope of work for, and the type of, the Remedial Action to be implemented, each of WEC and Purchaser shall submit to the other a written proposal with respect thereto; if the parties are unable to agree how to proceed, either party may submit such dispute to arbitration pursuant to Section 8.9(b). 89 98 (B) Purchaser acknowledges and agrees that, following the Closing, its sole and exclusive remedy with respect to any and all claims relating to the subject matter of this Agreement (except as provided in Section 5.14) shall be pursuant to the indemnification provisions set forth in this Section 8.1. In furtherance of the foregoing, Purchaser hereby waives, to the fullest extent permitted under Law, any and all rights, claims and causes of action it may have against Sellers, their Affiliates and their respective officers, directors, employees, stockholders, agents and representatives arising under or based upon any Law or otherwise (except pursuant to the indemnification provisions set forth in this Article 8). SECTION 8.2 INDEMNIFICATION BY PURCHASER. Purchaser hereby agrees to indemnify Sellers, their Affiliates and their respective officers, directors, employees, stockholders, agents and representatives against, and agrees to hold them harmless from, any Losses, as incurred, to the extent arising from, relating to or otherwise in connection with (i) any breach of any representation or warranty of Purchaser contained in this Agreement, (ii) any breach of any covenant of Purchaser contained in this Agreement or in any Purchaser Ancillary Document (iii) subject to Section 8.1(a), any Assumed Liabilities, (iv) subject to Section 8.1(a), all Liabilities of the Sold Subsidiaries, (v) any Liability under the WARN Act or similar statute arising from the actions of Purchaser on or after the Closing, (vi) any Liability under any Credit Support Arrangement following the Closing or (vii) subject to Section 8.1(a), the operation of the Business or the Acquired Assets, or any actions or omissions of Purchaser, its Affiliates, agents, contractors or subcontractors in connection therewith, after the Closing. SECTION 8.3 CHARACTERIZATION OF INDEMNIFICATION PAYMENTS. All amounts paid by WEC or Purchaser, as the case may be, under this Article VIII shall be treated as adjustments to the Purchase Price for all Tax purposes. SECTION 8.4 LOSSES NET OF INSURANCE; TAX LOSS AND BENEFITS; NO CONSEQUENTIAL DAMAGES. The amount of any Loss shall be (a) net of any amounts recovered or recoverable by the indemnified party under insurance policies or Government Contracts (it being understood that if any amount is recovered or recoverable by Purchaser under any insurance policy or Government Contract, it shall not be subject to indemnification by WEC under this Article 8) with respect to such Loss, (b), (i) increased to take account of any net Tax cost incurred by the indemnified party by reason of the receipt of any indemnity payment being treated for Tax purposes as other than an adjustment to the Purchase Price (grossed-up for such increase) and (ii) reduced to take account of any net Tax benefit realized by the indemnified party in respect of the taxable year in which such Loss is 90 99 incurred or paid and, with respect to a Tax benefit arising in a year subsequent to the year in which the Loss is paid or incurred, the indemnified party shall pay to the indemnifying party the amount of such Tax benefit at the time such Tax benefit is actually realized, arising from the incurrence or payment of any such Loss and (c) to avoid double-counting, determined after giving effect to any reserves on the books of the Business as of the Closing Date in respect of any matter if and to the extent such reserve reduced Closing Net Assets. In computing the amount of any such Tax cost or Tax benefit, the indemnified party shall be deemed to recognize all other items of income, gain, loss, deduction or credit before recognizing any item arising from the receipt of any indemnity payment hereunder or the incurrence or payment of any indemnified loss, liability, claim, damage or expense. Notwithstanding anything to the contrary contained herein, no indemnification shall be provided for under this Article 8 in respect of any indirect, special, consequential or "business interruption" damages. SECTION 8.5 TERMINATION OF INDEMNIFICATION. The obligations to indemnify and hold harmless any party, (a) pursuant to clause (a)(i) of Section 8.1 and clause (a)(i) of Section 8.2, shall terminate when the applicable representation or warranty terminates pursuant to Section 9.3 and pursuant to clause (a)(v) of Section 8.1 shall terminate on the eighth anniversary of the Closing Date; PROVIDED, HOWEVER, that such obligations to indemnify and hold harmless shall not terminate with respect to any item as to which the Person to be indemnified shall have, before the expiration of the applicable period, previously made a claim by delivering a notice pursuant to Section 8.6 or 8.7 (stating in reasonable detail the basis of such claim) to the party to be providing the indemnification and (b) pursuant to the other clauses of Sections 8.1 and 8.2 shall not terminate. Notwithstanding anything to the contrary in this Agreement, for purposes of Purchaser's entitlement to any indemnification provided for under Section 8.1(a)(v) of this Agreement, any notice required to be given by Purchaser to WEC hereunder need only specify in reasonable detail that a state of facts or condition exists that gives rise to an Environmental Liability. SECTION 8.6 PROCEDURES RELATING TO THIRD PARTY CLAIMS (OTHER THAN TAX CONTROVERSIES). (A) In order for a Person (the "INDEMNIFIED PARTY"), to be entitled to any indemnification provided for under this Agreement in respect of, arising out of or involving a claim made by any Person against the indemnified party (other than a Tax Controversy, procedures for which are specified in Section 5.14(k)) (a "THIRD PARTY CLAIM"), such indemnified party must notify the indemnifying party in writing, and in reasonable 91 100 detail, of the Third Party Claim within 20 Business Days after receipt by such indemnified party of written notice of the Third Party Claim; PROVIDED, HOWEVER, that failure to give such notification shall not affect the indemnification provided hereunder except to the extent the indemnifying party shall have been actually prejudiced as a result of such failure. Thereafter, the indemnified party shall deliver to the indemnifying party, promptly after the indemnified party's receipt thereof, copies of all notices and documents (including court papers) received by the indemnified party relating to the Third Party Claim. (B) If a Third Party Claim is made against an indemnified party, the indemnifying party will be entitled to participate in the defense thereof and, if it so chooses, to assume the defense thereof with counsel selected by the indemnifying party. If the indemnifying party so elects to assume the defense of a Third Party Claim, the indemnifying party will not be liable to the indemnified party for any legal expenses subsequently incurred by the indemnified party in connection with the defense thereof. If the indemnifying party assumes such defense, the indemnified party shall have the right to participate in the defense thereof and to employ counsel, at its own expense, separate from the counsel employed by the indemnifying party, it being understood that the indemnifying party shall control such defense. The indemnifying party shall be liable for the fees and expenses of counsel employed by the indemnified party for any period during which the indemnifying party has not assumed the defense thereof (other than during any period in which the indemnified party shall have failed to give notice of the Third Party Claim as provided above). If the indemnifying party chooses to defend or prosecute a Third Party Claim, all the parties hereto shall cooperate in the defense or prosecution thereof. Such cooperation shall include the retention and (upon the indemnifying party's request) the provision to the indemnifying party of records and information which are reasonably relevant to such Third Party Claim, and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. If the indemnifying party chooses to defend or prosecute any Third Party Claim, the indemnified party will agree to any settlement, compromise or discharge of such Third Party Claim which the indemnifying party may recommend, which involves no order for non-monetary relief, will not result in the indemnified party being bound by principles of RES JUDICATA or collateral estoppel in defending other similar claims and which by its terms obligates the indemnifying party to pay the full amount of the liability in connection with such Third Party Claim or, if such settlement, compromise or discharge does not require full payment of such liability, the indemnified party shall have the right to consent to such settlement, compromise or discharge, which consent may not be unreasonably withheld. Whether or not the indemnifying party shall have assumed the defense of a Third 92 101 Party Claim, the indemnified party shall not admit any liability with respect to, or settle, compromise or discharge, such Third Party Claim without the indemnifying party's prior written consent (which consent shall not be unreasonably withheld) SECTION 8.7 PROCEDURES RELATING TO NON-THIRD PARTY CLAIMS. In order for an indemnified party to be entitled to any indemnification provided for under this Agreement in respect of a claim that does not involve a Third Party Claim or Tax Controversy being asserted against or sought to be collected from such indemnified party, the indemnified party shall deliver notice of such claim with reasonable promptness to the indemnifying party. The failure by any indemnified party so to notify the indemnifying party shall not relieve the indemnifying party from any liability which it may have to such indemnified party under this Agreement, except to the extent that the indemnifying party shall have been actually prejudiced by such failure. SECTION 8.8 JOINT DEFENSE AGREEMENT. On the Closing Date, WEC and Purchaser shall enter into a Joint Defense Agreement substantially in the form set forth in Exhibit F and on such additional terms as shall be mutually agreeable. SECTION 8.9 ARBITRATION OF ENVIRONMENTAL LIABILITIES. (a) Any dispute arising out of whether a Remedial Action covered by Section 8.1(a)(E)(z) of this Agreement is imposed by an order of a Governmental Authority pursuant to Environmental Law shall be settled by arbitration in accordance with the Commercial Rules of the American Arbitration Association. Any party may commence arbitration hereunder by delivering notice to the other party or parties to the dispute, claim or controversy. The arbitration panel shall consist of three arbitrators. Within ten (10) days after delivery of the notice of commencement of arbitration referred to above, the Purchaser and WEC shall each appoint one arbitrator, and the two arbitrators so appointed shall within 10 days of their appointment designate a third arbitrator within ten days of their appointment. If the arbitrators designated by the parties to the arbitration are unable or fail to agree upon the third arbitrator, the third arbitrator shall be designated by the American Arbitration Association under its rules. The arbitrators will be bound by the substantive law of the State of New York, but will not be bound by the laws of evidence and procedure customary in courts of law. The arbitrators shall be required to submit a written statement of their findings and conclusions. The award of the arbitrators shall be final, binding and conclusive on the parties; provided that, where a remedy for breach is prescribed hereunder or limitations on remedies are prescribed, the arbitrators shall be bound by such restrictions. Judgment upon the award may be entered in any court having jurisdiction thereof. The arbitration proceedings shall be conducted in New York, New York. Unless otherwise 93 102 determined by the arbitrator (which determination shall be final and binding on the Purchaser and WEC), each party shall pay its own expenses of arbitration and the expenses of the arbitrators shall be shared equally by the Purchaser, on the one hand, and WEC involved in such arbitration, on the other hand. (b) Any dispute as to the scope of work for or the type of Remedial Action to be implemented in Section 8.1(a)(E)(z) shall be submitted to "baseball arbitration" for final resolution without right of appeal as follows: (i) the arbitrator will be a mutually agreed nationally recognized environmental consulting firm; (ii) WEC and the Purchasers shall each submit to the arbitrator their respective versions of the scope of work for the Remedial Action and documentation supporting that determination; (iii) the arbitrator will choose one version in its entirety. The arbitrator shall not be allowed to compromise between the two versions or combine parts of the two versions to reach an intermediate version. (iv) the party whose version is not selected by the arbitrator shall pay all expenses of the arbitrator; and (v) the version selected by the arbitrator shall be the scope of work for purposes of the Remedial Action to be performed. ARTICLE 9 GENERAL PROVISIONS SECTION 9.1 NOTICES. All notices and other communications hereunder shall be in writing (including telecopy or similar writing) and shall be sent, delivered or mailed, addressed or telecopied: (a) if to Purchaser, to c/o Siemens Corporation 1301 Avenue of the Americas New York, New York 10019 Attention: General Counsel Telecopy No.: (212) 258-4490 94 103 with copies to: Siemens Aktiengesellschaft KWU Power Generation Group Freyeslebenstrasse 1 D-91058 Erlangen Germany Attention: Adolf Huttl, President Telecopy No. : 011-49-9131-18-7173 and to: Siemens Aktiengesellschaft Legal Department ZFR3 Werner-von-Siemens-Strasse 50 D-91052 Erlangen Germany Attention: Counsel for Power Generation Group Telecopy No. : 011-49-9131-7-29011 (b) if to Seller, to Office of General Counsel Westinghouse Electric Corporation Westinghouse Building 11 Stanwix Street Pittsburgh, PA 15222 Telecopy No. : (412) 642-5224 with copies to: Office of General Counsel CBS Inc. 51 West 52nd Street New York, New York 10019 Telecopy No. : (212) 975-3744 and Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Attention: Howard Chatzinoff, Esq. Telecopy No. : (212) 310-8007 Each such notice or other communication shall be given (i) by hand delivery, (ii) by nationally recognized courier service or (iii) by telecopy, receipt confirmed. Each such notice or communication shall be effective (i) if delivered by hand or by nationally recognized courier service, when delivered at the address specified in this Section 9.1 (or in accordance with the latest unrevoked direction from such party) and (ii) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section 9.1 (or in accordance with the latest unrevoked direction from such party), and confirmation is received. 95 104 SECTION 9.2 INTERPRETATION. The Exhibits and Schedules are a part of this Agreement as if fully set forth herein. When a reference is made in this Agreement to a Section, Schedule or Exhibit, such reference shall be to a Section of, or a Schedule or Exhibit to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. For purposes of any indemnification provision in this Agreement, the word "EXPENSES" shall mean out-of-pocket expenses, and shall not include any allocations of internal salaries and other expenses. Whenever the words "INCLUDED," "INCLUDES" or "INCLUDING" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." Whenever the word "MATERIAL" is used in this Agreement (except when used with respect to the Purchaser), it shall mean material to the Business or financial condition of the Business, taken as a whole. Whenever the phrase "REASONABLY LIKELY TO BE ADVERSELY DETERMINED" is used in this Agreement, it shall not require a determination that it is more likely than not. Except as otherwise provided in Section 4.1(m)(iii), whenever reference is made to "KNOWLEDGE OF SELLER," it shall mean the actual knowledge of the Persons named on Schedule 9.2. SECTION 9.3 SURVIVAL OF REPRESENTATIONS. The representations and warranties contained in this Agreement shall survive the Closing solely for purposes of Article 8 and shall terminate at the close of business 18 months following the Closing Date, PROVIDED, that (i) the representations and warranties contained in Sections 4.1(a), 4.1(b), 4.1(f) and 4.1(g) (but only to the extent Section 4.1(g) relates to matters of title) shall survive indefinitely; (ii) the representations and warranties contained in Section 4.1(o) (to the extent Section 4.1(o) relates to Taxes other than Income Taxes) shall survive, as to any such Tax, until the 60th day following the expiration of the statute of limitations applicable to such Tax; and (iii) the representations and warranties contained in (x) clauses (i), (iii) and (iv)(A) of Section 4.1(n) and (y) Section 4.1(o), to the extent that such representations and warranties relate to Income Taxes, shall terminate on the Closing Date. SECTION 9.4 SEVERABILITY. If any provision of this Agreement (or any portion thereof) or the application of any such provision (or any portion thereof) to any Person or circumstance shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision hereof (or the remaining portion thereof) or the application of such provision to any other persons or circumstances. 96 105 SECTION 9.5 COUNTERPARTS. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered (including by telecopy) to the other party. SECTION 9.6 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement, the Guarantee Agreements and the Confidentiality Agreement (a) constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and except as provided in Article 8, are not intended to confer upon any Person other than the parties hereto (and the Selling Subsidiaries) and their successors and permitted assigns any rights or remedies hereunder. SECTION 9.7 GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and to be performed entirely in the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflict of laws. SECTION 9.8 MEDIATION; CONSENT TO JURISDICTION. (A) Any dispute among the parties arising out of or in connection with this Agreement or any other agreement, instrument or other document delivered pursuant to this Agreement, or any alleged breach hereof or thereof (other than (i) a dispute arising under or with respect to Section 5.18 or the confidentiality obligations set forth in the third sentence of Section 5.2) or (ii) a dispute in respect of which there is a reasonable likelihood of irreparable harm (as to which a party may seek a temporary restraining order or injunctive relief) shall be submitted for discussion and possible resolution by senior officers or designated spokesperson of each such party. (B) If within a period of 15 days after submission of a matter in accordance with clause (a) hereof the respective senior officers and designated spokespersons are unable to agree upon a resolution, any party may within 15 days after the aforesaid 15-day period elect to utilize a non-binding resolution procedure whereby each party presents its case at a hearing held in New York, New York before a neutral advisor, who shall be selected from the Center for Public Resources' Judicial Panel. The parties shall bear their respective costs incurred in connection with this procedure including the fees and expenses of the neutral advisor. Prior to the hearing, the parties and the neutral advisor shall use their best efforts to agree on a set of ground rules for the hearing. At the closing of the hearing, the senior executive officers of the respective parties shall meet and attempt to resolve the matter. Only after the foregoing procedure has been exhausted shall either party resort to litigation as the final adjudication of the dispute. 97 106 (C) Each of Purchaser and WEC irrevocably submits to the non-exclusive jurisdiction of (i) the Supreme Court of the State of New York, New York County, and (ii) the United States District Court for the Southern District of New York located in the Borough of Manhattan in the City of New York, for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. Each of the Purchaser and WEC further agrees that service of any process, summons, notice or document by U.S. registered mail to such party's respective address set forth in Section 9.1 or, in the case of Purchaser, to its agent for service of process shall be effective service of process for any action, suit or proceeding in New York with respect to any matters to which it has submitted to jurisdiction as set forth above. Each of Purchaser and WEC irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (x) the Supreme Court of the State of New York, New York County, or (y) the United States District Court for the Southern District of New York, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. SECTION 9.9 PUBLICITY. From the date of this Agreement through the Closing, neither WEC, on the one hand, nor Purchaser, on the other hand, shall issue or cause the publication of any press release or other public announcement with respect to the transactions contemplated by this Agreement without the consent of the other party, which consent shall not be unreasonably withheld, except as such release or announcement may be required by Law or the rules or regulations of a national securities exchange in the United States, in which case the party required to make the release or announcement shall, to the extent practicable, allow the other party reasonable time to comment on such release or announcement in advance of its issuance. SECTION 9.10 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any party hereto without the prior written consent of the other party, except that, so long as any such assignment would not delay or impede the consummation of the transactions contemplated hereby. Purchaser may so assign to any one or more Affiliates of Purchaser the right to acquire part or all of the assets or Liabilities of the Business hereunder; PROVIDED, HOWEVER, that any such assignment shall not release Purchaser from any obligation or liability hereunder (including any right or obligation under Article 8). Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. 98 107 SECTION 9.11 RELEASE OF CERTAIN GUARANTORS. WEC hereby irrevocably and unconditionally waives and releases all rights and claims that it or any Seller may hereafter have that any Guarantor, other than Siemens Corporation, is or has been at any time subject to the jurisdiction of the Federal, state or local courts of the United States arising out of any claims or disputes related to this Agreement or the transactions contemplated hereby. SECTION 9.12 WAIVER OF JURY TRIAL; TRIAL COSTS. Each of Purchaser and the Sellers, for themselves and their respective Affiliates, hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to the actions of Purchaser and the Sellers or their respective Affiliates pursuant to this Agreement in the negotiation, administration, performance or enforcement thereof. The party in whose favor a final judgment is rendered shall be entitled to reasonable costs and reasonable attorneys' fees. 99 108 IN WITNESS WHEREOF, WEC and Purchaser have caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above. WESTINGHOUSE ELECTRIC CORPORATION By: /s/ Fredric G. Reynolds ---------------------------------- Name: Fredric G. Reynolds Title: Chief Financial Officer SIEMENS POWER GENERATION CORPORATION By: /s/ Adolf Huttl ---------------------------------- Name: Adolf Huttl Title: Chairman By: /s/ Albert Hoser ---------------------------------- Name: Albert Hoser Title: President and CEO 100 EX-12.A 11 CBS CORPORATION 1 EXHIBIT 12(a) CBS CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
YEAR ENDED DECEMBER 31, 1997 1996 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------- ($ in millions) Income (loss) before income taxes and minority interest $ (59) $(292) $ 128 $ (6) $ 26 Less: Equity in income (loss) of 50 percent or less owned affiliates 9 10 15 (3) (2) Add: Fixed charges 410 421 188 30 59 - --------------------------------------------------------------------------------------------------------------- Earnings as adjusted $ 342 $ 119 $ 301 $ 27 $ 87 - --------------------------------------------------------------------------------------------------------------- Fixed charges: Interest expense $ 386 $ 401 $ 184 $ 26 $ 55 Rental expense 24 20 4 4 4 - --------------------------------------------------------------------------------------------------------------- Total fixed charges $ 410 $ 421 $ 188 $ 30 $ 59 - --------------------------------------------------------------------------------------------------------------- Ratio of earnings to fixed charges (a) (a) 1.6x (a) 1.5x - ---------------------------------------------------------------------------------------------------------------
(a) Additional income before income taxes and minority interest necessary to attain a ratio of 1.00x for 1997, 1996, and 1994 would be $68 million, $302 million, and $3 million, respectively. CBS CORPORATION 59
EX-12.B 12 CBS CORPORATION 1 EXHIBIT 12(b) CBS CORPORATION COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
YEAR ENDED DECEMBER 31, 1997 1996 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------- ($ in millions) Income (loss) before income taxes and minority interest $(59) $(292) $ 128 $ (6) $ 26 Less: Equity in income (loss) of 50 percent or less owned affiliates 9 10 15 (3) (2) Add: Combined fixed charges and preferred dividends 446 493 312 162 136 - --------------------------------------------------------------------------------------------------------------- Earnings as adjusted $378 $ 191 $ 425 $ 159 $ 164 - --------------------------------------------------------------------------------------------------------------- Combined fixed charges and preferred dividends Interest expense $386 $ 401 $ 184 $ 26 $ 55 Rental expense 24 20 4 4 4 Pre-tax earnings required to cover preferred dividend requirements (b) 36 72 124 132 77 - --------------------------------------------------------------------------------------------------------------- Total combined fixed charges and preferred dividends $446 $ 493 $ 312 $ 162 $ 136 - --------------------------------------------------------------------------------------------------------------- Ratio of earnings to combined fixed charges and preferred dividends (a) (a) 1.4x (a) 1.2x - ---------------------------------------------------------------------------------------------------------------
(a) Additional income before income taxes and minority interest necessary to attain a ratio of 1.00x for 1997, 1996, and 1994 would be $68 million, $302 million, and $3 million, respectively. (b) Dividend requirement divided by 100% minus the statutory income tax rate. CBS CORPORATION 60
EX-21 13 CBS CORPORATION 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT Subsidiary companies of the Registrant are listed below. With respect to the companies named, all voting securities are owned directly or indirectly by the Registrant, except where otherwise indicated.
INCORPORATED OWNED BY UNDER IMMEDIATE NAME LAWS OF PARENT - ---------------------------------------------------------------------------------------------------- Bay County Energy Systems, Inc. Delaware 100.00 CBS Cable Networks, Inc. Delaware 100.00 Network Enterprises, Inc. Tennessee 100.00 country.com, Inc. Delaware 100.00 O & W Corporation Tennessee 100.00 Country Music Television, Inc. Tennessee 100.00 Outdoor Entertainment, Inc. Tennessee 100.00 Thunder, Inc. Delaware 100.00 TNN Productions, Inc. Delaware 100.00 World Sports Enterprises Tennessee 51.00 CBS Communications Services, Inc. Delaware 100.00 CBS Mass Media Corporation Delaware 100.00 Central Fidelity Insurance Company Vermont 100.00 Communities IP Holdings, Inc. Delaware 100.00 Communities LP Holdings, Inc. Delaware 100.00 Delaware Resource Beneficiary, Inc. Delaware 100.00 Delaware Resource Lessee Trust (Business Trust) Delaware 99.00 Dutchess Resource Management, Inc. Delaware 100.00 Fauske And Associates, Inc. Illinois 100.00 Corporate Fleet Leasing Company, Inc. Delaware 100.00 Group W Broadcasting, Inc. Delaware 100.00 Group W Broadcasting, L.P. Delaware 100.00 Group W Television Stations, Inc. Delaware 100.00 Group W Television Stations L.P. Delaware 100.00 Group W/CBS Television Stations Partners Delaware 100.00 KUTV, L.P. Delaware 88.00 KUTV Holdings, Inc. Delaware 100.00 KUTV Real Estate Company, L.L.C. Delaware 100.00 KUTV Associates Delaware 100.00 Home Team Sports Limited Partnership Delaware 65.70 Infinity Broadcasting Corporation (1) Delaware 100.00 TDI Worldwide, Inc. Delaware 100.00 Transportation Displays Incorporated Delaware 100.00 TDI International, Inc. Delaware 100.00 LDI Limited England 100.00 TDI Advertising Ltd. England 100.00 TDI Transit Advertising Ltd. England 100.00 TDI Buses Limited England 100.00 Outdoor Images Limited England 100.00 TDI (BP) Limited England 100.00 Metrobus Advertising Limited England 100.00
CBS CORPORATION 61 2
INCORPORATED OWNED BY UNDER IMMEDIATE NAME LAWS OF PARENT - ---------------------------------------------------------------------------------------------------- TDI (FB) Limited England 100.00 TDI Metro, Ltd. Ireland 51.00 Metro Poster Advertising Ltd. Ireland 100.00 The Audio House, Inc. California 100.00 UCGI, Inc. Delaware 100.00 TMRG, Inc. Delaware 100.00 PCI Energy Services, Inc. Illinois 100.00 Peak FSC, Ltd. Bermuda 100.00 PN Services Inc. Washington 100.00 Powerserve International, Inc. Delaware 100.00 Rocky Mount Town Associates Limited Partnership Delaware 100.00 Safe Sites of Colorado L.L.C. Delaware 65.00 Station Holdings B, Inc. Delaware 51.00 Tube Mill, Inc. Alabama 100.00 Waste Resource Energy, Inc. Delaware 100.00 WCC FSC I, INC. Delaware 100.00 WCC FSC III, INC. US Virgin Islands 100.00 WCC FSC IV, Inc. US Virgin Islands 100.00 WCC FSC V, Inc. Bermuda 100.00 WCC FSC VIII, Inc. US Virgin Islands 100.00 WCC FSC IX, Inc. US Virgin Islands 100.00 WCC Project Corp. Delaware 100.00 WEPREC Power Pointe Corporation Georgia 100.00 Wesdyne International, Inc. Delaware 100.00 Wesgen, Inc. Delaware 100.00 West Valley Nuclear Service Company, Inc. Delaware 100.00 Westinghouse Beverage Group, Inc. Delaware 100.00 Westinghouse Canada, Inc. Canada 100.00 Westinghouse CBS Holding Company, Inc. Delaware 100.00 CBS Broadcasting Inc. New York 100.00 Amadea Film Productions, Inc. Texas 100.00 Aspenfair Music, Inc. California 100.00 Beverlyfax Music, Inc. California 100.00 Black Rock Enterprises, Inc. New York 100.00 Caroline Film Productions, Inc. California 100.00 CBS Broadcast International of Canada, Ltd. Canada 100.00 CBS Broadcast Services, Ltd. England 100.00 CBS News Communications Inc. New York 100.00 CBS Overseas Inc. New York 100.00 CBS Worldwide, Inc. Delaware 100.00 Clareanne Film Productions, Inc. California 100.00 Columbia Television, Inc. New York 100.00 Erica Film Productions, Inc. California 100.00 Merlot Film Productions, Inc. California 100.00 Nicki Film Productions, Inc. California 100.00 Radford Productions, Ltd. England 100.00 Radford Studio Center, Inc. California 100.00 Station Holdings B Inc. Delaware 100.00
CBS CORPORATION 62 3
INCORPORATED OWNED BY UNDER IMMEDIATE NAME LAWS OF PARENT - ---------------------------------------------------------------------------------------------------- Westinghouse Electric Company, S.A. Delaware 100.00 Westinghouse Electric Corporation Pennsylvania 100.00 Westinghouse Energy Systems--Japan, Inc. Delaware 100.00 Westinghouse Energy Systems, Inc. Delaware 100.00 Westinghouse Sistemas Energeticos Espana, Inc. Delaware 100.00 Westinghouse Energy Systems Europe S.A. Belgium 10.00 Westinghouse Hanford Company Delaware 100.00 Westinghouse Holdings Corporation Delaware 100.00 Westinghouse Electric S.A. Switzerland 100.00 ISCOSA Industries And Maintenance Ltd. Saudi Arabia 75.00 Modelpol, SP Poland 79.32 Energoserwis S.A. Poland 55.00 Servicios Westinghouse De Chile, Ltda. Chile 99.00 Servicios Westinghouse de Mexico S.A. de C.V. Mexico 99.00 Westinghouse China Investment Company Ltd. China 100.00 Westinghouse Czech Republic s.r.o. Czech Republic 100.00 Westinghouse Electric (Asia) S. A., Zug Switzerland 100.00 Westinghouse Electric (Asia-Pacific) Holdings, Ltd. Singapore 100.00 Group W Yarra Broadcast Pte. Ltd. Singapore 51.00 Westinghouse Electric Singapore Ltd. Singapore 100.00 Westinghouse Electric (China) S.A., Zug Switzerland 100.00 Westinghouse Electric Australasia Limited Australia 100.00 Westinghouse Electric Europe Coordination Center, S.A. Belgium 99.92 Westinghouse Electric GES MBH Austria 100.00 Westinghouse Electric GmbH, Birsfelden Switzerland 100.00 Westinghouse Electric Korea Ltd. South Korea 100.00 Westinghouse Electric Limited England 100.00 Westinghouse Electric Chonburi Project Company Limited England 100.00 Westinghouse Electric Poland Limited Poland 100.00 Westinghouse Electric S.P.A. Italy 100.00 Westinghouse Electric Spain, S.L. Spain 100.00 Westinghouse Electrique France, S.A. France 100.00 Westinghouse Energy Systems Europe, SA. Belgium 90.00 Westinghouse Irish Holdings, Limited Ireland 100.00 Westinghouse Reinvestment Company LLC Delaware 100.00 Westinghouse Saudi Arabia Ltd. Saudi Arabia 90.00 WESTRON Ukraine 60.00 Westinghouse International Atomic Power S.A. Switzerland 100.00 Westinghouse International Technology Corporation Delaware 100.00 Westinghouse Investment Corporation Delaware 100.00 Westinghouse World Investment Corporation Delaware 100.00 Westinghouse Foreign Sales Corporation Barbados 100.00 Westinghouse Industry Products International Company, Inc. Delaware 100.00 Westinghouse Electric Pvt. Limited Mauritius 100.00 Westinghouse Electric Private Limited India 100.00
CBS CORPORATION 63 4
INCORPORATED OWNED BY UNDER IMMEDIATE NAME LAWS OF PARENT - ---------------------------------------------------------------------------------------------------- Westinghouse Industry Services International Company, Inc. Delaware 100.00 Westinghouse do Brasil Comercio e Servicos Ltda. Brazil 100.00 Westinghouse Industry Services Asia Private, Ltd. Singapore 100.00 Westinghouse Industry Services Thailand Ltd. Thailand 100.00 Westinghouse Saudi Arabia, Ltd. Saudi Arabia 10.00 Westinghouse International Service Company, Limited Delaware 100.00 Westinghouse Project Company Colombia 100.00 Westinghouse Operating Services Company Delaware 100.00 Westinghouse PRI, Inc. Delaware 100.00 Westinghouse Savannah River Company, Inc. Delaware 100.00 Westinghouse Safety Management Solutions, Inc. Delaware 100.00 Westinghouse Security Electronics, Inc. California 100.00 Westinghouse Staffing Services, Inc. Delaware 100.00 Westinghouse Technology Services S.A. Spain 100.00 Westinghouse Wireless Communications Products, SRL De CV Mexico 100.00 WPIC Corporation Delaware 100.00 York Resource Energy Systems, Inc. Delaware 100.00 - ----------------------------------------------------------------------------------------------------
(1) Infinity Broadcasting Corporation is the parent company of 48 wholly-owned subsidiaries which consist primarily of radio station operations, all of which are incorporated in the United States. Companies not shown by name, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. CBS CORPORATION 64
EX-23.A 14 CBS CORPORATION 1 EXHIBIT 23(a) CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in each prospectus constituting part of the Registration Statements on Form S-3 (Nos. 33-30729, 33-41417, and 33-41475), and on Form S-8 (Nos. 2-92085, 33-44044, 33-45365, 33-46779, 33-51445, 33-51579, 33-53815, 33-53819, 33-62043, 33-62045, 333-12583, 333-12589, 333-12591, 333-13219, 333-30127, 333-23661, 333-23663, and 333-37497) of CBS Corporation of our report dated January 28, 1998 appearing on page 24 of this Form 10-K. We also consent to the incorporation by reference of our report on the financial statement schedule, which appears on page 55 of this Form 10-K. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP Pittsburgh, Pennsylvania March 24, 1998 CBS CORPORATION 65 EX-23.B 15 CBS CORPORATION 1 EXHIBIT 23(b) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in each prospectus constituting part of the Registration Statements on Form S-3 (Nos. 33-30729, 33-41417, and 33-41475), and on Form S-8 (Nos. 2-92085, 33-44044, 33-45365, 33-46779, 33-51445, 33-51579, 33-53815, 33-53819, 33-62043, 33-62045, 333-12583, 333-12589, 333-12591, 333-13219, 333-30127, 333-23661, 333-23663, and 333-37497) of CBS Corporation of our report dated February 12, 1996 except for the restatements discussed in notes 1 and 7, for which the dates are March 31, 1996, November 13, 1996, and September 30, 1997, appearing on page 25 of this Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page 56 of this Form 10-K. /s/ Price Waterhouse LLP Price Waterhouse LLP Pittsburgh, Pennsylvania March 24, 1998 CBS CORPORATION 66 EX-24 16 CBS CORPORATION 1 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or officer of CBS CORPORATION, a Pennsylvania corporation (the "Corporation"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the fiscal year ended December 31, 1997, hereby constitutes and appoints Michael H. Jordan, Mel Karmazin, Fredric G. Reynolds, Louis J. Briskman and Carol V. Savage, his/her true and lawful attorneys-in-fact and agents, and each of them, with full power to act without the others, for him/her and in his/her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K and any and all amendments thereto, with power where appropriate to affix the corporate seal of said Corporation thereto and to attest said seal, and to file said Form 10-K and any and all other documents in connection therewith, with the Securities Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has duly signed this Power of Attorney this 20th day of March, 1998. ---- /S/ FRANK C. CARLUCCI ---------------------------- 2 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or officer of CBS CORPORATION, a Pennsylvania corporation (the "Corporation"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the fiscal year ended December 31, 1997, hereby constitutes and appoints Michael H. Jordan, Mel Karmazin, Fredric G. Reynolds, Louis J. Briskman and Carol V. Savage, his/her true and lawful attorneys-in-fact and agents, and each of them, with full power to act without the others, for him/her and in his/her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K and any and all amendments thereto, with power where appropriate to affix the corporate seal of said Corporation thereto and to attest said seal, and to file said Form 10-K and any and all other documents in connection therewith, with the Securities Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has duly signed this Power of Attorney this 20th day of March, 1998. ---- /S/ ROBERT E. CAWTHORN ------------------------------ 3 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or officer of CBS CORPORATION, a Pennsylvania corporation (the "Corporation"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the fiscal year ended December 31, 1997, hereby constitutes and appoints Michael H. Jordan, Mel Karmazin, Fredric G. Reynolds, Louis J. Briskman and Carol V. Savage, his/her true and lawful attorneys-in-fact and agents, and each of them, with full power to act without the others, for him/her and in his/her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K and any and all amendments thereto, with power where appropriate to affix the corporate seal of said Corporation thereto and to attest said seal, and to file said Form 10-K and any and all other documents in connection therewith, with the Securities Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has duly signed this Power of Attorney this 20th day of March, 1998. ---- /S/ MARTIN C. DICKINSON ------------------------------ 4 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or officer of CBS CORPORATION, a Pennsylvania corporation (the "Corporation"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the fiscal year ended December 31, 1997, hereby constitutes and appoints Michael H. Jordan, Mel Karmazin, Fredric G. Reynolds, Louis J. Briskman and Carol V. Savage, his/her true and lawful attorneys-in-fact and agents, and each of them, with full power to act without the others, for him/her and in his/her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K and any and all amendments thereto, with power where appropriate to affix the corporate seal of said Corporation thereto and to attest said seal, and to file said Form 10-K and any and all other documents in connection therewith, with the Securities Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has duly signed this Power of Attorney this 20th day of March, 1998. ---- /S/ GEORGE H. CONRADES ------------------------------ 5 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or officer of CBS CORPORATION, a Pennsylvania corporation (the "Corporation"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the fiscal year ended December 31, 1997, hereby constitutes and appoints Michael H. Jordan, Mel Karmazin, Fredric G. Reynolds, Louis J. Briskman and Carol V. Savage, his/her true and lawful attorneys-in-fact and agents, and each of them, with full power to act without the others, for him/her and in his/her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K and any and all amendments thereto, with power where appropriate to affix the corporate seal of said Corporation thereto and to attest said seal, and to file said Form 10-K and any and all other documents in connection therewith, with the Securities Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has duly signed this Power of Attorney this 20th day of March, 1998. ---- /S/ WILLIAM H. GRAY III ------------------------------ 6 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or officer of CBS CORPORATION, a Pennsylvania corporation (the "Corporation"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the fiscal year ended December 31, 1997, hereby constitutes and appoints Michael H. Jordan, Mel Karmazin, Fredric G. Reynolds, Louis J. Briskman and Carol V. Savage, his/her true and lawful attorneys-in-fact and agents, and each of them, with full power to act without the others, for him/her and in his/her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K and any and all amendments thereto, with power where appropriate to affix the corporate seal of said Corporation thereto and to attest said seal, and to file said Form 10-K and any and all other documents in connection therewith, with the Securities Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has duly signed this Power of Attorney this 17th day of March, 1998. ---- /S/ MICHAEL H. JORDAN ------------------------------ 7 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or officer of CBS CORPORATION, a Pennsylvania corporation (the "Corporation"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the fiscal year ended December 31, 1997, hereby constitutes and appoints Michael H. Jordan, Mel Karmazin, Fredric G. Reynolds, Louis J. Briskman and Carol V. Savage, his/her true and lawful attorneys-in-fact and agents, and each of them, with full power to act without the others, for him/her and in his/her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K and any and all amendments thereto, with power where appropriate to affix the corporate seal of said Corporation thereto and to attest said seal, and to file said Form 10-K and any and all other documents in connection therewith, with the Securities Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has duly signed this Power of Attorney this 20th day of March, 1998. ---- /S/ MEL KARMAZIN ------------------------------ 8 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or officer of CBS CORPORATION, a Pennsylvania corporation (the "Corporation"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the fiscal year ended December 31, 1997, hereby constitutes and appoints Michael H. Jordan, Mel Karmazin, Fredric G. Reynolds, Louis J. Briskman and Carol V. Savage, his/her true and lawful attorneys-in-fact and agents, and each of them, with full power to act without the others, for him/her and in his/her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K and any and all amendments thereto, with power where appropriate to affix the corporate seal of said Corporation thereto and to attest said seal, and to file said Form 10-K and any and all other documents in connection therewith, with the Securities Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has duly signed this Power of Attorney this 20th day of March, 1998. ---- /S/ JAN LESCHLY ------------------------------ 9 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or officer of CBS CORPORATION, a Pennsylvania corporation (the "Corporation"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the fiscal year ended December 31, 1997, hereby constitutes and appoints Michael H. Jordan, Mel Karmazin, Fredric G. Reynolds, Louis J. Briskman and Carol V. Savage, his/her true and lawful attorneys-in-fact and agents, and each of them, with full power to act without the others, for him/her and in his/her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K and any and all amendments thereto, with power where appropriate to affix the corporate seal of said Corporation thereto and to attest said seal, and to file said Form 10-K and any and all other documents in connection therewith, with the Securities Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has duly signed this Power of Attorney this 20th day of March, 1998. ---- /S/ DAVID K. P. LI ------------------------------ 10 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or officer of CBS CORPORATION, a Pennsylvania corporation (the "Corporation"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the fiscal year ended December 31, 1997, hereby constitutes and appoints Michael H. Jordan, Mel Karmazin, Fredric G. Reynolds, Louis J. Briskman and Carol V. Savage, his/her true and lawful attorneys-in-fact and agents, and each of them, with full power to act without the others, for him/her and in his/her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K and any and all amendments thereto, with power where appropriate to affix the corporate seal of said Corporation thereto and to attest said seal, and to file said Form 10-K and any and all other documents in connection therewith, with the Securities Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has duly signed this Power of Attorney this 20th day of March, 1998. ---- /S/ DAVID T. McLAUGHLIN ------------------------------ 11 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or officer of CBS CORPORATION, a Pennsylvania corporation (the "Corporation"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the fiscal year ended December 31, 1997, hereby constitutes and appoints Michael H. Jordan, Mel Karmazin, Fredric G. Reynolds, Louis J. Briskman and Carol V. Savage, his/her true and lawful attorneys-in-fact and agents, and each of them, with full power to act without the others, for him/her and in his/her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K and any and all amendments thereto, with power where appropriate to affix the corporate seal of said Corporation thereto and to attest said seal, and to file said Form 10-K and any and all other documents in connection therewith, with the Securities Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has duly signed this Power of Attorney this 20th day of March, 1998. ---- /S/ RICHARD R. PIVIROTTO ------------------------------ 12 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or officer of CBS CORPORATION, a Pennsylvania corporation (the "Corporation"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the fiscal year ended December 31, 1997, hereby constitutes and appoints Michael H. Jordan, Mel Karmazin, Fredric G. Reynolds, Louis J. Briskman and Carol V. Savage, his/her true and lawful attorneys-in-fact and agents, and each of them, with full power to act without the others, for him/her and in his/her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K and any and all amendments thereto, with power where appropriate to affix the corporate seal of said Corporation thereto and to attest said seal, and to file said Form 10-K and any and all other documents in connection therewith, with the Securities Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has duly signed this Power of Attorney this 20th day of March, 1998. ---- /S/ FREDRIC G. REYNOLDS ------------------------------ 13 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or officer of CBS CORPORATION, a Pennsylvania corporation (the "Corporation"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the fiscal year ended December 31, 1997, hereby constitutes and appoints Michael H. Jordan, Mel Karmazin, Fredric G. Reynolds, Louis J. Briskman and Carol V. Savage, his/her true and lawful attorneys-in-fact and agents, and each of them, with full power to act without the others, for him/her and in his/her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K and any and all amendments thereto, with power where appropriate to affix the corporate seal of said Corporation thereto and to attest said seal, and to file said Form 10-K and any and all other documents in connection therewith, with the Securities Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has duly signed this Power of Attorney this 20th day of March, 1998. ---- /S/ RAYMOND W. SMITH ------------------------------ 14 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or officer of CBS CORPORATION, a Pennsylvania corporation (the "Corporation"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the fiscal year ended December 31, 1997, hereby constitutes and appoints Michael H. Jordan, Mel Karmazin, Fredric G. Reynolds, Louis J. Briskman and Carol V. Savage, his/her true and lawful attorneys-in-fact and agents, and each of them, with full power to act without the others, for him/her and in his/her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K and any and all amendments thereto, with power where appropriate to affix the corporate seal of said Corporation thereto and to attest said seal, and to file said Form 10-K and any and all other documents in connection therewith, with the Securities Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has duly signed this Power of Attorney this 20th day of March, 1998. ---- /S/ PAULA STERN ------------------------------ 15 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or officer of CBS CORPORATION, a Pennsylvania corporation (the "Corporation"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the fiscal year ended December 31, 1997, hereby constitutes and appoints Michael H. Jordan, Mel Karmazin, Fredric G. Reynolds, Louis J. Briskman and Carol V. Savage, his/her true and lawful attorneys-in-fact and agents, and each of them, with full power to act without the others, for him/her and in his/her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K and any and all amendments thereto, with power where appropriate to affix the corporate seal of said Corporation thereto and to attest said seal, and to file said Form 10-K and any and all other documents in connection therewith, with the Securities Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has duly signed this Power of Attorney this 20th day of March, 1998. ---- /S/ ROBERT D. WALTER ------------------------------ 16 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or officer of CBS CORPORATION, a Pennsylvania corporation (the "Corporation"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the fiscal year ended December 31, 1997, hereby constitutes and appoints Michael H. Jordan, Mel Karmazin, Fredric G. Reynolds, Louis J. Briskman and Carol V. Savage, his/her true and lawful attorneys-in-fact and agents, and each of them, with full power to act without the others, for him/her and in his/her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K and any and all amendments thereto, with power where appropriate to affix the corporate seal of said Corporation thereto and to attest said seal, and to file said Form 10-K and any and all other documents in connection therewith, with the Securities Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has duly signed this Power of Attorney this 20th day of March, 1998. ---- /S/CAROL V. SAVAGE ------------------------------ 17 Exhibit 24 EXTRACT FROM MINUTES OF MEETING OF THE BOARD OF DIRECTORS OF CBS CORPORATION HELD ON JANUARY 28, 1998 ----------------------- RESOLVED, that the Chief Executive Officer of the Company, its President, its Executive Vice President and Chief Financial Officer, its Senior Vice President and General Counsel, its Principal Accounting Officer, its Vice President and Treasurer, and its Vice President, Secretary and Associate General Counsel are, and each of them with full power to act without the others hereby is, authorized to prepare, or cause to be prepared, and to execute the Company's Annual Report on Form 10-K for the year ended December 31, 1997 and the Company's Quarterly Reports on Form 10-Q for 1998, as well as any and all other reports or documents to be filed by the Company and/or its subsidiaries with the Securities and Exchange Commission, and any and all amendments thereto, on behalf of and as attorneys for the Company and/or its subsidiaries, and to file said Forms 10-K and 10-Q and other reports or documents, and any and all amendments thereto, with all exhibits thereto and any and all other documents in connection therewith, with the Securities and Exchange Commission on behalf of, and as attorneys for, the Company and/or its subsidiaries. ----------------------- I, CAROL L. McADAMS, Assistant Secretary of CBS Corporation, DO HEREBY CERTIFY that the foregoing is a true and correct copy of a resolution adopted at a meeting of the Board of Directors of said Company held on January 28, 1998, at which meeting a quorum was present and which resolution is still in full force and effect. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of said Company. Dated: March 20, 1998 /s/ Carol L. McAdams ------------------------- Assistant Secretary EX-27 17 CBS CORPORATION
5 1,000,000 YEAR YEAR YEAR DEC-31-1997 DEC-31-1996 DEC-31-1995 JAN-01-1997 JAN-01-1996 JAN-01-1995 DEC-31-1997 DEC-31-1996 DEC-31-1995 8 129 108 0 0 0 971 810 593 35 27 20 0 0 (1) 1,975 1,902 1,365 1,481 1,355 1,185 415 338 191 16,715 17,052 14,258 1,549 2,382 1,899 3,236 5,147 7,222 0 4 4 0 0 0 718 609 426 7,362 5,118 1,024 16,715 17,052 14,258 5,363 4,143 1,074 5,363 4,143 1,074 3,483 2,786 427 3,483 2,786 427 1,631 1,303 487 0 0 0 386 401 184 (59) (292) 128 73 (71) 75 (131) (221) 47 680 409 (57) 0 (93) 0 0 0 0 549 95 (10) .84 .12 (.25) .84 .12 (.25)
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