<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
SMITH INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
SMITH INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
- ---------------
(1) Set forth the amount on which the filing fee is calculated and state how
it was determined.
<PAGE> 2
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 27, 1994
---------------------
To Our Shareholders:
The annual meeting of shareholders of Smith International, Inc. (the
"Company") will be held at the Wyndham Hotel Greenspoint, 12400 Greenspoint
Drive, Houston, Texas, on Wednesday, April 27, 1994, at 10:00 a.m. (local time),
for the following purposes:
1. To elect three persons as Class II directors of the Company to hold
office for a term of three years.
2. To approve an amendment to the Smith International, Inc. 1989
Long-Term Incentive Compensation Plan to increase the number of shares
authorized thereunder from 1,000,000 to 2,500,000.
3. To approve the appointment of Arthur Andersen & Co. as auditors for
the ensuing year.
4. To transact such other business as may properly come before the
meeting and any adjournments thereof.
Provision is made on the enclosed proxy card for your direction as to the
matters set forth as items 1, 2 and 3 above. Further information concerning
these matters is set forth in the accompanying Proxy Statement.
The Board of Directors has fixed March 4, 1994, as the record date for
determining the shareholders entitled to notice of and to vote at the annual
meeting and any adjournments thereof. Only holders of record of the Company's
Common Stock, $1 par value, at the close of business on such date will be
entitled to notice of and to vote at the meeting and any adjournments thereof.
PLEASE COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE. THIS WILL ENSURE THAT YOUR SHARES ARE VOTED
IN ACCORDANCE WITH YOUR WISHES AND THAT A QUORUM WILL BE PRESENT AT THE ANNUAL
MEETING.
By Order of the Board of Directors
Neal S. Sutton
Secretary
March 25, 1994
<PAGE> 3
[LOGO] SMITH INTERNATIONAL, INC.
P.O. BOX 60086
HOUSTON, TX 77205-0068
---------------------
PROXY STATEMENT
---------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Smith International, Inc., a Delaware
corporation (the "Company"), for use at the annual meeting of shareholders to be
held at 10:00 a.m. (local time), on Wednesday, April 27, 1994, and any
adjournments thereof, for the purpose of electing three Class II directors,
reserving an additional 1,500,000 shares for the Smith International, Inc. 1989
Long-Term Incentive Compensation Plan, approving the appointment of the
independent auditors for 1994 and transacting such other business as may
properly come before the meeting. This Proxy Statement and the accompanying
proxy card are first being mailed on or about March 25, 1994 to the shareholders
of record on March 4, 1994.
Voting Rights and Vote Required. Holders of Common Stock $1 par value (the
"Common Stock") of the Company at the close of business on March 4, 1994, the
record date, are entitled to vote at the meeting. On the record date, 39,314,667
shares of Common Stock were outstanding, each share being entitled to one vote.
The presence at the annual meeting, in person or by proxy, of the holders of a
majority of the total number of shares of Common Stock on the record date
constitutes a quorum for the transaction of business by such holders at the
annual meeting. Abstensions will be counted for purposes of determining whether
a quorum is present and will be counted as voting. Broker non-votes are not
counted for purposes of voting.
In the election of directors, the nominees receiving the highest number of
votes cast will be elected. Approval of the amendment to the Smith
International, Inc. 1989 Long-Term Incentive Compensation Plan and the
appointment of the independent auditors will require the affirmative vote of the
holders of shares having a majority of the voting power of the shares present or
represented at the meeting.
Voting of Proxies. In connection with the solicitation by the Board of
Directors of proxies for the forthcoming annual meeting, the Board of Directors
has designated Douglas L. Rock and Loren K. Carroll as proxies. The shares
represented by all properly executed proxies received in time for the meeting
will be voted in accordance with the choice specified on the proxy. Unless
contrary instructions are indicated on the proxy, the shares of Common Stock
will be voted FOR election of the nominees listed below under "Election of
Directors." Where no choice is specified, the shares of Common Stock will be
voted FOR the amendment to the Smith International, Inc. 1989 Long-Term
Incentive Compensation Plan and FOR the approval of the appointment of Arthur
Andersen & Co. as the Company's independent auditors for the year ending
December 31, 1994. As to any other business that may properly come before the
meeting, the proxies will vote in accordance with their best judgment. The Board
of Directors does not presently know of any other such business.
Revocability of Proxy. The giving of the enclosed proxy does not preclude
the shareholder from voting in person at the meeting should the shareholder so
desire. The proxy may be revoked at any time prior to the exercise thereof by
delivering to the Secretary of the Company a written revocation thereof, by duly
executing a proxy bearing a later date or by attending the meeting and voting in
person.
I. ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation provides that the Board
of Directors shall be divided into three classes, designated as Class I, Class
II and Class III. The Board of Directors presently consists of seven directors,
two in Class I, three in Class II and two in Class III, whose terms of office
expire with the 1996, 1994 and 1995 annual meetings, respectively, and until
their successors are elected and qualified.
<PAGE> 4
At each annual meeting, directors are chosen for three-year terms to
succeed those in the class whose term expires at that annual meeting. The Board
is actively seeking to enlarge the number of directors and is presently
considering a number of potential candidates.
At the 1994 annual meeting, shareholders will elect three Class II
directors to serve until the 1997 annual meeting of shareholders and until their
respective successors are elected and qualified. The Board of Directors has
nominated three persons for election as Class II directors; all of whom, Messrs.
Bailar, Rock and Rollins, presently serve as Class II directors of the Company.
The Board of Directors presently knows of no reason why any of the nominees
for election as directors will not be available for election or, if elected,
will be unable to serve as a director, but if any nominee should be unavailable
for election or, if elected, unable to serve as a director, the proxies reserve
the right to substitute a nominee of their choice and to vote for such other
person in the place and stead of any nominee unable to serve.
A brief biography of each nominee for election as a director and each other
director whose term continues after the 1994 annual meeting of the Company,
including the number of shares of Common Stock of the Company beneficially
owned, directly or indirectly, by him as of March 4, 1994, based upon
information furnished by each Director, is presented below:
NOMINEES
Directors to be elected to Class II for term expiring in 1997:
<TABLE>
<S> <C>
BENJAMIN F. BAILAR, 59, was elected to the Board of Directors on
- --------------------- February 24, 1993 and is the Chairman of the Audit Committee of the
Board of Directors. Mr. Bailar is the Dean and H. Joe Nelson, III
Professor of Administration of Jesse H. Jones Graduate School of
Picture Administration of Rice University and has held this position since
September 1, 1987. Mr. Bailar is also a director of Dana Corporation,
- --------------------- Transco Energy Company, First Interstate Bank of Texas and the U.S.
Can Company.
DOUGLAS L. ROCK, 47, is the Chairman of the Board of Directors and a
- --------------------- member of the Executive Committee of the Board. He was elected
Chairman of the Board of Directors on February 26, 1991. Mr. Rock has
been with the Company since 1974 and has been Chief Executive Officer,
Picture President and Chief Operating Officer since March 31, 1989. He was
appointed President and Chief Operating Officer in December 1987.
- --------------------- During his career with the Company, Mr. Rock has held the positions of
President of the Company's Smith Tool division from 1985 to 1987,
President of the Company's Drilco division from 1982 to 1985, Senior
Vice President of Operations from 1980 to 1982. Mr. Rock is also a
director of Lomas Financial Corporation, the Petroleum Equipment
Suppliers Association (PESA) and Junior Achievement of Southeast
Texas, Inc.
</TABLE>
2
<PAGE> 5
<TABLE>
<S> <C>
H. MOAK ROLLINS, 72, was elected to the Board on April 13, 1987 and is
- --------------------- a member of the Audit Committee of the Board of Directors. He served
as Chief Executive Officer and Chairman of the Board of the Company
from December 1987 until April 1988. Mr. Rollins was a Commissioner of
Picture the Public Utility Commission of Texas ("PUC") from 1979 to March 1983
and was Chairman of the PUC from February 1982 to March 1983. From
- --------------------- September 1983 to December 1987, Mr. Rollins was President and a
Director of FINANCO, Inc., a financial consulting firm. He rejoined
FINANCO, Inc. from July 1, 1988 to December 31, 1991 as a Vice
President and Director. Since that time, Mr. Rollins has been an
independent consultant in financial analysis.
</TABLE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
ELECTION OF THE ABOVE NOMINEES.
DIRECTORS CONTINUING IN OFFICE
Directors of Class III to continue in office until 1995:
<TABLE>
<S> <C>
JAMES R. GIBBS, 49, was elected to the Board of Directors on December
- --------------------- 12, 1990, and is the Chairman of the Compensation and Benefits
Committee and a member of the Audit Committee of the Board of
Directors. Mr. Gibbs was President and Chief Operating Officer of
Picture Wainoco Oil Corporation from January 1, 1987 to April 1, 1992, at
which time he assumed the position of President and Chief Executive
- --------------------- Officer. He joined Wainoco Oil Corporation in February 1982 as Vice
President of Finance and Administration, and was appointed Executive
Vice President in September 1985. Mr. Gibbs is a director of Wainoco
Oil Corporation.
JERRY W. NEELY, 57, is the Chairman of the Executive Committee and a
- --------------------- member of the Compensation and Benefits and Audit Committees of the
Board of Directors. He has held a number of positions with the Company
from 1965 to 1987. He was elected Chairman of the Board in 1977 and
Picture served in that capacity until December 1987. Since that time, Mr.
to come Neely has been a private investor. Mr. Neely is also a member of the
Board of Trustees of the University of Southern California.
- ---------------------
</TABLE>
3
<PAGE> 6
Directors of Class I to continue in office until 1996:
<TABLE>
<S> <C>
G. CLYDE BUCK, 56, was elected to the Board of Directors on December
- --------------------- 10, 1992 and is a member of the Compensation and Benefits Committee of
the Board of Directors. Mr. Buck has had extensive experience in
energy-related matters. He received a B.A. in economics from Williams
Picture College and a M.B.A. from Harvard and is currently a Managing Director
in the Houston corporate finance office of the investment banking firm
- --------------------- of Rauscher Pierce Refsnes, Inc., a position he has held since 1983.
LOREN K. CARROLL, 50, was elected to the Board of Directors on
- --------------------- November 12, 1987 and is a member of the Executive Committee of the
Board of Directors. Mr. Carroll joined the Company in December 1984 as
Vice President and Chief Financial Officer; in January 1988 he was
Picture appointed Executive Vice President and Chief Financial Officer and
served in that capacity until March 1989. Mr. Carroll was President of
- --------------------- Geneva Business Services and a Director of the Geneva Companies, an
investment banking firm, from March 1989 until October 1992 when he
rejoined the Company as Executive Vice President and Chief Financial
Officer. On March 16, 1994, Mr. Carroll was additionally named the
President and Chief Executive Officer of M-I Drilling Fluids Company,
L.L.C., a company in which the Company holds a 64% interest. From 1965
to 1984, Mr. Carroll was with the international public accounting firm
of Arthur Andersen & Co. and was a managing partner from 1980 to
December 1984.
</TABLE>
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
The table below sets forth the ownership as of March 4, 1994 of the
Company's Common Stock by (i) each of the Company's directors, (ii) each
executive officer named in the Summary Compensation Table below and (iii) all
directors and executive officers of the Company as a group. Except as otherwise
indicated, the persons listed below have sole voting power and investment power
over the shares beneficially held by them:
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
----------------------
NUMBER OF PERCENT
NAME SHARES OF CLASS
----------------------------------------------------------------- --------- --------
<S> <C> <C>
Benjamin F. Bailar(1)............................................ 2,400 *
G. Clyde Buck(1)................................................. 400 *
Loren K. Carroll(2)(3)........................................... 75,107 *
Bryan L. Dudman(2)(3)............................................ 40,530 *
James R. Gibbs(1)................................................ 700 *
D. Barry Heppenstall(2)(3)....................................... 47,509 *
Jerry W. Neely(1)................................................ 356,302 *
Douglas L. Rock(2)(3)............................................ 97,083 *
H. Moak Rollins(1)............................................... 140,600 *
Neal S. Sutton(2)................................................ 14,220 *
All directors and executive officers as a group (12
persons)(1)(2)(3).............................................. 781,561 1.99%
</TABLE>
- ---------------
* Less than 1%.
(1) The shares shown as beneficially owned by Messrs. Buck, Bailar, Rollins,
Gibbs and Neely include 200 shares to be issued to each such outside
director on or about April 27, 1994, pursuant to the Smith International,
Inc. Stock Plan for Outside Directors.
4
<PAGE> 7
(2) Includes shares issuable upon exercise of stock options exercisable within
60 days of the date of this proxy statement as follows: Mr. Carroll:
20,000; Mr. Dudman: 33,595; Mr. Heppenstall: 40,096; Mr. Rock: 76,750; Mr.
Sutton: 14,220; and all directors and executive officers as a group:
191,371.
(3) Includes shares held in the Company's 401(k) Retirement Plan as follows: Mr.
Carroll: 2,407; Mr. Dudman: 6,913; Mr. Heppenstall: 3,076; and Mr. Rock:
20,333.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission, the New York Stock Exchange and the Pacific Stock
Exchange initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors and
greater than ten percent shareholders are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company, during the fiscal year ended December 31, 1993
all Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
CERTAIN INFORMATION CONCERNING THE BOARD OF DIRECTORS AND COMMITTEES OF THE
BOARD
The Board of Directors has an Audit Committee, consisting of Messrs.
Bailar, Gibbs, Neely and Rollins and a Compensation and Benefits Committee
consisting of Messrs. Gibbs, Buck and Neely. The Board of Directors does not
have a Nominating Committee. The Audit Committee reviews the financial
statements of the Company, the Company's internal auditing program, internal
controls system and the quality and depth of its internal accounting staff and
meets with representatives of the Company's independent public accountants and
with its internal auditors. The Audit Committee reviews all professional
services performed by the Company's independent public accountants in order to
assure the continued independence of such accountants. During 1993, the Audit
Committee held three meetings.
The Compensation and Benefits Committee reviews the compensation and
benefits programs of the Company, salary and benefits matters pertaining to
executive officers and the management and operations of the Company's retirement
benefit plans. During 1993, this committee held three meetings.
During 1993, the Board of Directors held six meetings. Each of the
directors attended at least 75% of the meetings of the Board of Directors and of
all committees on which they served.
The Company pays a retainer of $4,000 per calendar quarter plus $1,500 for
each meeting attended to all directors who are not employed by the Company. In
addition, the Company pays the Chairmen of the Audit Committee and the
Compensation and Benefits Committee a quarterly retainer of $750, pays the other
members of those committees a quarterly retainer of $500, and pays all members
of each committee named and of any other committee on which they sit $750 for
each meeting attended. No such retainer or other fee is payable to a director
who is a full-time employee of the Company. Members of more than one committee
receive fees for each committee on which they serve. Directors are reimbursed
for all expenses, including travel and lodging expenses, related to their duties
as directors and committee members.
Effective January 1, 1984 all non-employee directors became eligible to
participate in the Company's Directors' Retirement Plan. Under the plan each
director who has at least ten years of service as a non-employee director and
who retires at age 70 or thereafter, is entitled to receive an annual retirement
benefit of $20,000 for life. After the director's death his surviving spouse
will receive an annual benefit of $10,000 for life under certain conditions. The
Board of Directors may at its discretion provide for early commencement of
benefits to a director who retires between ages 55 and 70 with ten years of
service or to the surviving spouse of a director with ten years of service who
dies between ages 65 and 70. The plan is funded from the general assets of the
Company. Mr. A. M. Birnie resigned as a member of the Board of Directors on
April 13, 1984, Mr. Basil P. Kantzer resigned on October 22, 1985, Mr. James W.
Roche resigned on September 1, 1987, and
5
<PAGE> 8
Messrs. Robert L. Flynne, E.O. Rodeffer and Harold H. Smith resigned on November
12, 1987. Messrs. Birnie, Kantzer, Roche, Flynne, Rodeffer and Smith are
presently receiving benefits under the Directors' Retirement Plan. Messrs.
Carroll and Rock are not eligible to participate.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Gibbs, Buck and Neely are members of the Company's Compensation and
Benefits Committee. During 1993, neither Mr. Gibbs, Mr. Buck or Mr. Neely were
officers or employees of the Company or any of its subsidiaries, and neither had
any relationship with the Company requiring disclosure by the Company under Item
404 of Regulation S-K.
EXECUTIVE COMPENSATION
The following table sets forth annual and long-term compensation for
services in all capacities to the Company for the fiscal years ended December
31, 1991, 1992 and 1993, of the Company's Chief Executive Officer and its other
four most highly compensated executive officers (the "Named Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------------------------
PAYOUTS
AWARDS ----------
ANNUAL ----------------------- LONG TERM
COMPENSATION RESTRICTED SECURITIES INCENTIVE
----------------- OTHER ANNUAL STOCK UNDERLYING PLAN ALL OTHER
NAME OF INDIVIDUAL AND SALARY COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR $(1) BONUS $ $(2) $(3) #(4) $ $(5)
- ----------------------------- ---- ------- ------- ------------ ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Douglas L. Rock 1993 399,240 250,000 5,769 -- 133,500 -- 7,075
President and Chief 1992 350,012 -- -- 26,875 43,500 -- 9,125
Executive Officer 1991 349,897 128,000 -- 136,300 20,000 -- 11,943
Loren K. Carroll 1993 240,006 150,000 52,819(6) -- 57,600 -- 7,075
Executive Vice President 1992 49,847 20,000 -- -- 20,000 -- 2,189
and Chief Financial Officer 1991 -- -- -- -- -- -- --
Bryan L. Dudman 1993 219,704 66,000 9,682 -- 41,300 -- 4,717
Vice President 1992 200,000 -- -- 11,755 19,065 -- 4,200
Worldwide Sales 1991 199,942 70,000 -- 59,618 8,750 -- 5,599
David B. Heppenstall 1993 179,923 54,000 6,928 -- 32,000 -- 6,688
Vice President and 1992 173,269 -- -- 11,755 19,065 -- 5,498
General Manager -- Drill Bits 1991 170,000 45,000 -- 59,632 8,750 -- 5,452
Neal S. Sutton 1993 179,846 100,000 -- -- 32,000 -- 7,075
Vice President -- 1992 163,077 -- -- 13,438 15,940 -- 5,195
Administration, General 1991 139,904 25,000 -- 11,760 10,000 -- 4,878
Counsel and Secretary
</TABLE>
- ---------------
(1) The amounts in this column include compensation deferred by the Named
Officers in 1993 pursuant to the Smith International, Inc. Supplemental
Executive Retirement Plan ("SERP").
(2) The amounts in this column include the Company's contribution to the Named
Officers' accounts in the SERP in 1993, excluding interest (at 120% of the
applicable Federal long-term rate).
(3) The amounts in this column reflect the fair market value at the time of the
award of restricted stock granted in 1989, 1990 and 1991 which vested in
50% increments in 1991 and 1992. No restricted stock was awarded and no
restricted stock vested in 1993. As of December 31, 1993, there were no
shares of restricted stock outstanding.
(4) Certain of the options granted in 1993 are subject to shareholder approval
of an amendment to increase the number of shares authorized under the
Company's Long-Term Incentive Compensation Plan, which amendment is
discussed at pages 14-16 below.
(5) This column reflects the Company's contributions to the Smith International,
Inc. 401(k) Retirement Plan.
(6) Mr. Carroll was reimbursed by the Company for moving expenses of $40,701
pursuant to the Company's corporate relocation program.
6
<PAGE> 9
OPTION/SAR GRANTS IN 1993
The following table shows all grants of options to the Named Officers in
1993. No stock appreciation rights were granted in 1993.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------------------------
NUMBER OF
SECURITIES
UNDERLYING % OF TOTAL
OPTION OPTIONS GRANTED EXERCISE OR GRANT DATE
GRANTS TO EMPLOYEES BASE PRICE PRESENT VALUE
NAME #(1) IN 1993 $/SHARE EXPIRATION DATE $(2)
- --------------------------- ------------ --------------- ----------- --------------- -------------------
<S> <C> <C> <C> <C> <C>
Douglas L. Rock............ 73,500 30.4 10.31 5-18-03 $ 389,500
60,000 8.38 12-09-03 258,600
Loren K. Carroll........... 32,600 13.1 10.31 5-18-03 172,780
25,000 8.38 12-09-03 107,750
Bryan L. Dudman............ 27,300 9.4 10.31 5-18-03 144,690
14,000 8.38 12-09-03 60,340
David B. Heppenstall....... 18,000 7.3 10.31 5-18-03 95,400
14,000 8.38 12-09-03 60,340
Neal S. Sutton............. 18,000 7.3 10.31 5-18-03 95,400
14,000 8.38 12-09-03 60,340
</TABLE>
- ---------------
(1) Options were granted to the Named Officers on May 19, 1993 and on December
10, 1993 at exercise prices of $10.31 and $8.38, respectively. The options
granted at $10.31 are subject to shareholder approval of an amendment to
increase the number of shares authorized under the Company's Long-Term
Incentive Compensation Plan, which amendment is discussed at pages 14-16
below. The exercise price per share is equal to the closing price of the
Common Stock on the New York Stock Exchange Composite Tape on the date of
grant. Options granted vest at a rate of 25% per year and will not begin to
become exercisable until May 19, 1994 and December 10, 1994, respectively.
If a change of control occurs, vesting of all outstanding options is subject
to acceleration by the Compensation and Benefits Committee.
(2) Present value was calculated using the Black-Scholes option pricing model
adapted for use in valuing executive stock options. Use of this model should
not be viewed in any way as a forecast of the future performance of the
Company's Common Stock, which will be determined by future events and
unknown factors. The estimated values under the Black-Scholes model are
based upon certain assumptions as to variables such as interest rate and
stock price volatility.
AGGREGATED OPTION EXERCISES IN 1993 AND DECEMBER 31, 1993 OPTION VALUES
The following table provides information as to options exercised by each of
the Named Officers during 1993 and the value of options held by such officers at
December 31, 1993 measured in terms of the closing price of the Company's Common
Stock on December 31, 1993.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT DECEMBER 31, 1993 DECEMBER 31, 1993
ACQUIRED ON VALUE # $(1)
EXERCISE REALIZED ---------------------------- ----------------------------
NAME # $ EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Douglas L. Rock........ -- -- 55,875 181,125 $ 4,024 $34,271
Loren K. Carroll....... -- -- 20,000 57,600 -- 9,250
Bryan L. Dudman........ -- -- 24,454 62,161 1,763 10,471
David B. Heppenstall... -- -- 30,954 52,861 22,888 10,471
Neal S. Sutton......... -- -- 8,985 43,955 1,012 8,216
</TABLE>
- ---------------
(1) Value based on the closing price on the New York Stock Exchange Composite
Tape for the Common Stock on December 31, 1993 ($8.75).
7
<PAGE> 10
COMPENSATION AND BENEFITS COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program is designed to help the
Company attract, motivate and retain the executive resources that the Company
needs in order to maximize its return to shareholders. To meet this overall
objective, the Company's executive compensation program has been structured and
implemented as explained below by the Compensation and Benefits Committee (the
"Committee") to provide competitive compensation opportunities and various
incentive award payments based on Company and individual performance, as well as
to link compensation to financial targets which affect short and long term share
price performance. All members of the Committee are independent, non-employee
directors. An independent compensation consultant, Towers Perrin, retained by
the Committee, has advised the Committee on all compensation matters since 1989.
Base Salary Program. The objective of the Company's base salary program for
key management positions is to provide base salaries that are consistent with
competitive market norms for companies similar in size, activity and complexity
to the Company. Salary levels are generally targeted to and correspond to the
median of the range of compensation paid by such other similar companies. The
companies that comprise the Peer Group described in the performance graph are
some of the companies used by the Committee in establishing base salary. The
Committee estimates an executive's competitive level of compensation based on
information drawn from a variety of sources, including proxy statements, special
surveys and its compensation consultant. This information is used in creating
the basic structure of the executive compensation program. However, in
establishing the executive compensation program, the Committee considers total
compensation and not solely base salary levels. Actual salaries are based on
individual performance contributions within a competitive salary range for each
position that is established through job evaluation and market comparisons. Base
pay levels for the executive officers are competitive within a range that the
Committee considers to be necessary and reasonable. In 1993, five executive
officers received merit increases.
Annual Incentive Compensation. The Company's pay-for-performance plan
includes cash incentive awards that are determined and paid based on the
achievement of performance objectives established for the fiscal year and an
assessment by the Committee of each individual participant's contribution to the
Company for the year. Targeted annual incentive award levels are determined for
plan eligible positions each year using data obtained from the Company's
independent consultant.
The target incentive awards for 1993 for eligible Company executives were
based on various company, business unit and individual performance measures.
Individual performance is assessed in both a quantitative and qualitative
fashion for purposes of determining individual annual incentive awards. The
Committee does not use a specific formula for weighing these individual
performance measures, but the key factor considered in this assessment is the
extent to which the individual contributed to the Company's business success in
his or her area of responsibility. No awards were made in 1993 under the Annual
Incentive Plan for fiscal year 1992 to eligible executives due to the Company's
performance in 1992; however, a bonus was paid in May 1993 to 68 individuals
(including the Named Officers) who contributed to the successful closing of the
sale of the Company's directional drilling business to Halliburton.
Stock Option Program. The Committee strongly believes that by providing
those persons who have substantial responsibility for the management and growth
of the Company with an opportunity to increase their ownership of Common Stock,
the best interests of the shareholders and executives will be closely aligned.
Therefore, executives and managers are eligible to receive stock options from
time to time, giving them the right to purchase shares of Common Stock at a
specified price in the future. The number of stock options granted to executive
officers is based on such officer's ability to influence the Company's
performance. In addition, in granting stock options, the Committee considers
both the total compensation of an executive officer as well as the amount of
stock options previously awarded.
Since no officers are currently receiving "applicable employee
remuneration" which approaches the limit of $1 million, the Committee has not
yet addressed the compensation deduction cap imposed by Section 162(m) of the
Internal Revenue Code, which is effective for years after 1993.
8
<PAGE> 11
Chief Executive Officer Compensation. As described above, the Committee
determines pay levels for all executives, including the Chief Executive Officer,
considering both a pay-for-performance philosophy and market rates of
compensation for similar positions. A significant portion of the compensation
for the Chief Executive Officer is based upon the Company's performance.
Specific actions taken by the Committee regarding Mr. Rock's compensation are
summarized below.
BASE SALARY -- The base compensation of Mr. Rock was increased effective
February 26, 1991 when he became Chairman of the Board. The increase was based
upon the additional duties and responsibilities he assumed and was determined
after a review of comparative data. Effective January 1, 1993, Mr. Rock's base
compensation was increased to $400,000 based on recommendations to the Committee
by the independent consultant -- Towers Perrin.
ANNUAL INCENTIVE -- No annual incentive bonus was paid to Mr. Rock in 1993
for 1992 due to the Company's performance; however, a special bonus of $250,000
was paid to Mr. Rock in May 1993 for his contributions to the successful closing
of the sale of the Company's directional drilling business to Halliburton
Company on March 29, 1993.
STOCK OPTIONS -- Non-qualified stock options to purchase an aggregate of
73,500 shares were granted to Mr. Rock on May 19, 1993 at the recommendation of
the Committee. In addition, non-qualified stock options to purchase an aggregate
of 60,000 shares were granted to Mr. Rock on December 10, 1993, subject to
shareholder approval of the amendment to the Company's Long-Term Incentive
Compensation Plan. All options were granted at 100% of fair market value on the
date of grant. The performance sensitivity of the grant is built into the option
concept, since the options produce no gain for the optionee unless the Company's
share price rises over the initial grant price.
Compensation Committee
James R. Gibbs, Chairman
G. Clyde Buck
Jerry W. Neely
9
<PAGE> 12
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
The performance graph shown below was prepared by Standard & Poors
Compustat for use in this proxy statement. The graph was prepared based upon the
following assumptions:
1. $100 was invested in the Company's Common Stock, the S&P 500 and
the Peer Group (as defined below) on December 31, 1988.
2. Peer Group returns are weighted based on the market capitalization
of each individual company within the Peer Group at the beginning of each
year.
3. Dividends are reinvested monthly.
The Company's peer group (the "Peer Group") are comprised of the following
companies in the same general line of business as the Company: Baker Hughes,
Inc., BJ Services Co., Daniel Industries, Dresser Industries, Inc., Enterra
Corp., Halliburton Company and Tuboscope VETCO International.
The Company's Peer Group changed substantially when compared to the
Company's 1992 Proxy Statement due to the sale of the Company's directional
drilling business. The Company's 1992 peer group data was provided by Simmons &
Company International using data from the Simmons & Company International
Diversified Oilfield Services ("D.O.S.") Index. The data for this index is
reflected in the graph below as the "D.O.S. Index."
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN OF
COMPANY, PEER GROUP AND BROAD MARKET
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) SMITH S&P 500 D.O.S. INDEX PEER GROUP
<S> <C> <C> <C> <C>
1988 100.00 100.00 100.00 100.00
1989 147.10 131.70 216.40 165.40
1990 177.90 127.60 223.00 171.10
1991 91.20 166.50 179.90 132.20
1992 100.00 179.20 155.00 135.40
1993 102.90 197.20 207.40 151.80
</TABLE>
PENSION PLAN
Smith International, Inc. Pension Plan. The Company maintains a defined
benefit pension plan (the "Pension Plan") which is currently frozen. The Company
has received a determination letter from the Internal Revenue Service that the
Pension Plan is qualified under Section 401 of the Internal Revenue Code of
1986, as amended (the "Code"). Effective March 1, 1987, benefit accruals under
the Pension Plan were frozen and the amount of the pension benefit was fixed for
all eligible employees based only upon benefit
10
<PAGE> 13
accruals from September 1, 1985 to March 1, 1987. Any benefits payable under the
Pension Plan are offset by any benefits paid under a previous pension plan of
the Company.
The following table sets forth the estimated annual benefits, payable as a
life annuity, under the Pension Plan (and the Supplemental Pension Plan,
described below) at various remuneration levels and for representative years of
credited service at normal retirement date. Calculations assume retirement on
December 31, 1993, but reflect the freezing of benefit accruals and the fixing
of pension benefits under the Pension Plan effective March 1, 1987.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE ANNUAL
COMPENSATION
FOR 60 MONTHS ESTIMATED CURRENT ANNUAL PENSION FOR
IN THE LAST 120 REPRESENTATIVE YEARS OF CREDITED SERVICE(1)
MONTHS PRECEDING --------------------------------------------------------
MARCH 1, 1987 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000........................... $ 3,280 $ 3,280 $ 3,280 $ 3,280 $ 3,280
150,000........................... 3,940 3,940 3,940 3,940 3,940
175,000........................... 4,590 4,590 4,590 4,590 4,590
200,000........................... 5,250 5,250 5,250 5,250 5,250
225,000........................... 5,910 5,910 5,910 5,910 5,910
250,000........................... 6,560 6,560 6,560 6,560 6,560
300,000........................... 7,875 7,875 7,875 7,875 7,875
400,000........................... 10,500 10,500 10,500 10,500 10,500
450,000........................... 11,810 11,810 11,810 11,810 11,810
500,000........................... 13,125 13,125 13,125 13,125 13,125
</TABLE>
- ---------------
(1) The Code limits the maximum annual benefit under qualified defined benefit
retirement plans such as the Pension Plan to $90,000, as adjusted to
reflect increases in the cost of living (currently $118,800). The Code also
limits the amount of compensation that may be taken into account in
determining benefits under a defined benefit plan to $200,000, as adjusted
to reflect increases in the cost of living (currently $242,280).
Since benefit accruals under the Company's Pension Plan have been frozen
since March l, 1987, the years of service for purposes of the Pension Plan for
the Named Officers is only the period from September l, 1985 to March l, 1987.
The annual pension benefit that would be payable at age 65 under the prior
Pension Plan to the Named Officers are as follows: Mr. Rock: $27,613; Mr.
Carroll: $1,776; Mr. Dudman: $5,541; Mr. Heppenstall: $9,036; and Mr. Sutton:
$-0-.
Smith International, Inc. Supplemental Pension Plan. It is the policy of
the Company to permit certain senior employees to retire at age 60. In order to
provide such employees with benefits equivalent to those that would have been
paid had the employee remained in service until age 65, the Company has adopted
the Smith International, Inc. Supplemental Pension Plan (the "Supplemental
Pension Plan") which is an unfunded pension plan. The Supplemental Pension Plan
provides a benefit in an amount which, in conjunction with the benefits payable
under the Pension Plan, results in the same pension payment as the employee
would have received under the Pension Plan if the employee were to retire at age
65. Participants who attain age 55 while actively employed by the Company and
accrue five years of service with the Company while participating in the Pension
Plan are vested in their benefit. The employees subject to this policy are those
who have served as chief executive officer, president, vice president,
treasurer, secretary, controller or president of a division. If the participant
retires prior to or after age 60, the participant's Supplemental Pension Plan
benefit may be reduced accordingly. If the participant dies after attaining age
55, the participant's spouse will be entitled to a survivor's benefit. The
Supplemental Pension Plan is not a qualified retirement plan under the Code.
11
<PAGE> 14
SMITH INTERNATIONAL, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("SERP")
The Company adopted the SERP effective October 1, 1993. The SERP is
administered by the Compensation and Benefits Committee of the Board of
Directors (the "Committee"). It is a non-qualified, deferred compensation plan
covering those executives of the Company who are selected by the Committee. The
primary purpose of the SERP is to provide executives affected by the Code
limitations under the Company's 401(k) Retirement Plan (the "401(k) Plan") with
the opportunity to defer a portion of their current compensation until
retirement. Distributions may generally be made following a participant's
termination of employment for whatever reason. A participant in the SERP may
defer up to 50% of his or her salary for a plan year ending December 31. A
participant may also defer up to 100% of any Annual Incentive bonus to be
awarded during the plan year. As described below, the Company may also make
contributions to the SERP on behalf of its participants.
Age-Weighted Contributions. Effective as of the last day of each quarter
during a plan year, an age-weighted contribution with respect to each
participant may be allocated under the SERP based on the participant's
age-weighted contribution percentage ("AWCP") ranging from 2 to 6%. To compute a
participant's age-weighted contribution for a plan year, his or her AWCP is
multiplied by the difference between the participant's (i) "Total 401(k)
Compensation" (defined below) and his or her (ii) "Net 401(k) Compensation"
(defined below). "Total 401(k) Compensation" generally means the total of all
cash amounts payable by the Company to or for the benefit of a participant for
services rendered during a plan year including deferred amounts. "Net 401(k)
Compensation" generally means Total 401(k) Compensation, less participant
contributions to the SERP, but not to exceed $150,000 for any plan year.
Matching Contributions. To the extent that a SERP participant's account
under the 401(k) Plan is precluded during a plan year from receiving any
matching contribution under the 401(k) Plan as the result of limits imposed by
the Code, then such participant will be eligible to receive an allocation of
matching contributions under the SERP. The SERP matching contribution is based
on a formula set forth in the SERP that is intended to provide the participant
with the full amount of matching contributions that he or she would have been
eligible to receive under the Company's 401(k) Plan without regard to the
applicable limits of the Code. In no event will matching contributions for a
plan year allocated on behalf of the same participant in both the SERP and
401(k) Plan exceed 6% of his or her Total 401(k) Compensation net of any
incentive bonus.
Discretionary Profit Sharing Contributions. The Committee may, in its
discretion, determine the amount of any Company profit sharing contribution for
a plan year to be credited to the SERP and how such amount is to be allocated
among its participants.
EMPLOYEE AGREEMENTS
The Company entered into Employment Agreements with Messrs. Rock, Dudman
and Heppenstall in 1987 and with Mr. Sutton in 1991, all of whom are current
executive officers of the Company. The Board of Directors believes that the
Employment Agreements will help assure the continued dedication of, and the
availability of objective advice and counsel from, key employees of the Company.
Each Employment Agreement has an initial term of three years and is
automatically extended for an additional one year at each anniversary date of
the Employment Agreement or, if less, until the earlier of the date that the
employee attains age 65 or begins to receive benefits from a Company retirement
plan. The Employment Agreements set forth the employee's salary and other
conditions of employment and entitle the employee to participate in the
Company's bonus program and any other benefit program available to executive
employees. If the employee's employment is terminated for "cause" (as defined in
the Employment Agreement), the employee will only be entitled to a lump sum
payment of any amounts then due to be paid. If the employee dies or becomes
incapacitated during the term of the Employment Agreement, or if the employee's
position is eliminated or becomes redundant or the employee's responsibilities
are substantially decreased, the Employment Agreement will be terminated and the
employee will be entitled to receive a lump sum payment of all amounts due the
employee through the remainder of the term of the Employment Agreement.
12
<PAGE> 15
In November 1989, the Employment Agreements were amended to provide that if
a third party commences a tender or exchange offer or takes actions to
effectuate a "change in control" (as defined therein), the employee will not
voluntarily leave the Company's employ until such third party terminates their
efforts to effectuate a change in control or a change in control occurs. If the
employee is terminated by the Company other than for cause (as defined in the
amendment) or elects to terminate his employment under certain circumstances
during the one and one-half year period following a change in control, the
employee will be entitled to the following benefits: (i) a lump sum payment in
cash equal to the sum of (A) three times the employee's base salary, (B) the
employee's target incentive level for an award under the Company's stock option
plan, (C) the Company contributions made to the employee's account under the
401(k) Plan during the year immediately preceding the change in control and (D)
the amount provided for in the Company's executive prerequisite program in
effect on the employee's date of termination; (ii) for the twelve-month period
from the date of the employee's termination (or until reemployment, if earlier)
continued medical, dental and other welfare benefits; (iii) out-placement
services and certain other services and reimbursement for expenses up to a
maximum of $12,000, (iv) full and immediate vesting of all then outstanding and
unexercised stock options held by the employee and a cash payment with respect
to each such option (and related SAR) equal to the excess, if any, of the higher
of (A) the closing price of the shares subject to the option on the date of the
employee's termination of employment or (B) the highest price per share actually
paid in connection with the change in control (the "Fair Market Value"), over
the exercise price of the option, multiplied by the number of shares of Common
Stock subject to the option; (iv) a cash payment with respect to each then
unexercised and outstanding related SAR equal to the excess of the Fair Market
Value over the exercise price of the SAR; (v) full and immediate vesting of all
stock grants and a cash payment with respect to each share held by the employee
equal to the Fair Market Value of such share.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth as of March 4, 1994, certain information
relating to the stock ownership of all persons known to the Company to own of
record or beneficially more than 5% of the outstanding Common Stock of the
Company as of such date. This information is based upon information furnished to
the Company by such persons and statements filed with the Securities and
Exchange Commission:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
--------------------------------------------------------- -------------------- ----------
<S> <C> <C>
FMR Corp................................................. 5,107,594 shares 12.9%
82 Devonshire Street
Boston, Massachusetts 02109
J.P. Morgan & Co. Incorporated........................... 2,877,066 shares 7.3
60 Wall Street
New York, New York 10260
Dalton, Greiner, Hartman, Maher & Co..................... 2,239,600 shares 5.7
630 Fifth Avenue
Suite 3425
New York, New York 10111
NBD Bancorp, Inc......................................... 2,005,060 shares 5.1
611 Woodward Avenue
Detroit, Michigan 48226
</TABLE>
2. APPROVAL OF AMENDMENT TO SMITH INTERNATIONAL, INC. 1989 LONG-TERM INCENTIVE
COMPENSATION PLAN TO INCREASE NUMBER OF SHARES AUTHORIZED THEREUNDER FROM
1,000,000 TO 1,500,000.
In February 1989, the Board of Directors adopted the 1989 Long-Term
Incentive Compensation Plan (the "Plan") and on May 9, 1989, the shareholders of
the Company approved the Plan. Unless terminated by
13
<PAGE> 16
the Board of Directors, the Plan would terminate on May 9, 1999. On February 23,
1994, the Board of Directors approved, subject to shareholder approval, an
amendment to the Plan to increase the number of shares of Common Stock reserved
for issuance under the Plan from 1,000,000 to 2,500,000. Upon approval, the term
of the Plan would be extended to April 27, 2004.
As of February 24, 1994, options to acquire l,002,832 shares of common
stock were outstanding under the Plan, including stock options for 199,500
shares which were issued on December 10, 1993 subject to shareholder approval of
the amendment discussed herein. The outstanding options have a ten-year term,
are exercisable at various dates through December 2003, and are conditioned upon
continued employment.
The following summary of the Plan is qualified in its entirety by the full
text of the Plan, a copy of which may be obtained by stockholders of the Company
on request to it at 16740 Hardy Street, Houston, Texas 77032, Attention:
Corporate Secretary. For additional information regarding option awards to
certain officers, see "Executive Compensation" above.
The Committee determines awards based upon an officer or employee's ability
to influence the Company's performance. Future awards are based on future
performance and are, therefore, not determinable. As of the date of this proxy
statement, nonqualified stock options have been granted to all Named Officers,
two Executive Group employees and 38 Non-Executive Officer employees, for a
total of 45 current employees. No directors of the Company have been granted
awards under this Plan. Please see "Executive Compensation" above for additional
information regarding stock options granted.
The Plan is administered by the Compensation and Benefits Committee of the
Board of Directors (the "Committee"). All full-time salaried employees of the
Company who are engaged in performing management, supervisory, sales, scientific
or engineering services or who have been determined by the Committee to be key
employees are eligible to receive awards under the Plan.
The Plan provides for the following types of awards: (a) nonstatutory stock
option; (b) stock appreciation right related to an option; (c) stock
appreciation right not related to an option; (d) stock award; (e) restricted
stock; (f) cash award; and (g) any combination of the foregoing.
Exercise and Termination of Awards. The purchase price for a nonstatutory
stock option is payable in full in cash, its equivalent acceptable to the
Company or, at the Committee's discretion, in shares of Common Stock.
No award under the Plan is assignable or transferable except by will or the
laws of descent and distribution, and may be exercised during the lifetime of
the employee only by the employee. If the employment of the employee is
terminated for cause or if the employee voluntarily resigns, all of the awards
then held by the employee shall immediately expire. If the employment of an
employee is terminated by the Company other than for cause or a voluntary
resignation, then the award will expire one year thereafter unless by its terms
it expires sooner. If the employee retires at normal retirement age or retires
with the consent of the Company at an earlier date, the award will expire three
years thereafter unless by its terms it expires sooner. If an employee dies or
becomes permanently and totally disabled after termination of employment and
within the one or three year periods referred to above, the award will expire
after the later of one year following the date of death or disability or three
years following retirement. In no event may an award be exercised after ten
years from the date the award is granted.
Adjustment of Awards. In the event of any change in the capitalization of
the Company, such as a stock dividend or stock split, or in the event of a
merger in which the Company is the surviving corporation, the Committee may make
an appropriate adjustment to the outstanding awards and the number of shares
reserved for issuance under the Plan. In the event of a takeover bid or tender
offer for 25% or more of the outstanding securities of the Company, the
restrictions on all shares of restricted stock awarded lapse immediately, all
outstanding options and stock appreciation rights become exercisable
immediately, and all performance objectives are deemed to be met and payment
made immediately.
Amendment of the Plan. The Board of Directors may terminate, modify or
amend the Plan at any time without shareholder approval except for amendments
that would change the class of persons eligible to receive
14
<PAGE> 17
awards under the Plan, that would materially increase the benefits under the
Plan, that would transfer the administration of the Plan to anyone who is not a
"disinterested person" under the federal securities laws, or that would increase
the number of shares subject to the Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL OF
THE AMENDMENT TO THE PLAN.
3. APPROVAL OF ARTHUR ANDERSEN & CO. AS AUDITORS
The Board of Directors has selected Arthur Andersen & Co. to audit the
books and records of the Company for its fiscal year ending December 31, 1994.
The Company has been advised by Arthur Andersen & Co. that the firm has no
relationship with the Company or its subsidiaries other than that arising from
the firm's engagement as auditors, tax advisors and consultants.
Arthur Andersen & Co. has been the Company's independent public accounting
firm since 1952. The firm has offices in or convenient to most of the localities
within and without the United States where the Company and its subsidiaries
operate. Representatives of Arthur Andersen & Co. will be present at the annual
meeting, during which they will be afforded the opportunity to make a statement
if they so desire, and shareholders will be afforded the opportunity to ask
questions.
If the selection of Arthur Andersen & Co. is not approved by the holders of
a majority of the shares represented at the meeting and entitled to vote
thereon, or if Arthur Andersen & Co. should decline to act or otherwise become
incapable of acting, or if its engagement should otherwise be discontinued by
the Board of Directors, then in any such case the Board of Directors will
appoint other independent auditors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
CONTINUED ENGAGEMENT OF ARTHUR ANDERSEN & CO. TO AUDIT THE BOOKS AND RECORDS OF
THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 1994.
4. OTHER BUSINESS
The Board of Directors does not intend to present any other business for
action at the meeting and the Company has not been advised of any other business
intended to be presented by others.
SHAREHOLDERS' PROPOSALS
Proposals of shareholders for consideration at the 1995 annual meeting of
shareholders must be received by the Company no later than December 20, 1994, in
order to be included in the Company's proxy statement and proxy relating to that
meeting.
MISCELLANEOUS
The cost of soliciting proxies for the 1994 annual meeting of shareholders
will be borne by the Company. In addition to solicitation by mail, directors,
officers and regular employees of the Company may solicit proxies from
shareholders by telephone, telegrams or personal interview. Such individuals may
be reimbursed for reasonable out-of-pocket expenses incurred in connection with
such solicitation. Additionally, the Company has retained Morrow & Co., 909
Third Avenue, 20th Floor, New York, New York 10022 to assist in the solicitation
of proxies and will pay such firm a fee of $6,500 in addition to reimbursement
for reasonable out-of-pocket expenses. Brokers, nominees, fiduciaries and other
custodians have been requested to forward soliciting material to the beneficial
owners of shares held of record by them, and such custodians will be reimbursed
for their reasonable out-of-pocket expenses.
15
<PAGE> 18
ANNUAL REPORT AND FINANCIAL INFORMATION
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1993 WILL BE MAILED ON OR BEFORE MARCH 25, 1994, BY FIRST
CLASS MAIL TO EACH SHAREHOLDER OF RECORD ON MARCH 4, 1994. THE COMPANY WILL ALSO
FURNISH COPIES OF EXHIBITS, IF ANY, TO THE FORM 10-K TO PERSONS REQUESTING
EXHIBITS AT $.50 PER PAGE, PAID IN ADVANCE. THE COMPANY WILL INDICATE THE NUMBER
OF PAGES TO BE CHARGED FOR UPON WRITTEN INQUIRY. REQUESTS AND INQUIRIES SHOULD
BE ADDRESSED TO:
INVESTOR RELATIONS
SMITH INTERNATIONAL, INC.
P. O. BOX 60068
HOUSTON, TEXAS 77205-0068
Nothing contained in the Form 10-K is to be regarded as proxy soliciting
material or as a communication by means of which a solicitation of proxies is to
be made.
By Order of the Board of Directors
Neal S. Sutton
Secretary
Houston, Texas
March 25, 1994
16
<PAGE> 19
SMITH INTERNATIONAL, INC.
Proxy Solicited on Behalf of the Board of Directors
For Annual Meeting of Shareholders April 27, 1994
P
The undersigned hereby constitutes and appoints Douglas L. Rock and
R Loren K. Carroll, and each of them, his true and lawful agents and
proxies with full power of substitution in each, to represent the
O undersigned at the Annual Meeting of Shareholders of SMITH
INTERNATIONAL, INC. to be held at the Wyndham Hotel Greenspoint,
X 12400 Greenspoint Drive, Houston, Texas on April 27, 1994 at
10:00 A.M., and at and adjournments thereof, on all matters coming
Y before said meeting.
The election of three directors to (Change of address/Comments)
serve until their respective
successors are elected and shall ------------------------------
qualify. ------------------------------
------------------------------
Nominees: Benjamin F. Bailar ------------------------------
Douglas L. Rock (If you have written in the
H. Moak Rollins above space, please mark the
corresponding box on the
reverse side of this card)
You are encouraged to specify your choices by marking the appropriate
boxes, SEE REVESE SIDE, but you need not mark any boxes if you wish
to vote in accordance with the Board of Directors' recommendations.
The Proxy Committee cannot vote your shares unless you sign and
return this card.
SEE REVERSE SIDE
<PAGE> 20
/X/ Please mark your votes as in this example. 7551
This proxy will be voted as directed below, or where no direction is
given, will be voted "FOR" items 1, 2 and 3 and in the discretion of the
proxies on all other matters.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
1. Election of Directors. FOR / / WITHHELD / /
(see reverse side)
For, except vote withheld from the following nominee(s):
--------------------------------------------------------------------------
2. Approval of amendment to Company's 1989 Long-Term Incentive
Compensation Plan.
FOR / / AGAINST / / ABSTAIN / /
3. Approval of Arthur Andersen & Co. as independent auditors of the Company
FOR / / AGAINST / / ABSTAIN / /
4. In the discussion of the proxies on any other matters that may properly
come before the meeting or any adjournment thereof.
Comments / /
Change of Address / /
SIGNATURE(S) DATE
--------------------------------------- -------------------
NOTE: Signature(s) should agree with name(s) as printed on this proxy. When
signing in a fiduciary capacity, please give title as such.
Co-fiduciaries and joint owners should each sign.
