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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Western Atlas, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] 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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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[LOGO OF WESTERN ATLAS]
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WESTERN ATLAS INC.
360 North Crescent Drive
Beverly Hills, California
90210-4867
Tel 310.888.2500
Alton J. Brann
Chairman and
Chief Executive Officer
March 28, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of
Shareholders of Western Atlas Inc. to be held at the Regent
Beverly Wilshire Hotel, 9500 Wilshire Boulevard, Beverly Hills,
California, on Tuesday, May 13, 1997, at 11:00 a.m. We hope you
will be present to hear management's report to the
shareholders.
The attached notice of meeting and proxy statement describe the
matters to be acted upon. If you plan to attend the meeting in
person, please mark the designated box on the proxy card.
Whether or not you plan to be present at the meeting, and
regardless of the number of shares you own, it is important
that your shares be represented at the meeting. Accordingly, we
urge you to complete the enclosed proxy and promptly return it
to our vote tabulators in the envelope provided. If you do
attend the meeting and wish to vote in person, you may withdraw
your proxy at that time.
Sincerely,
/s/ Alton J. Brann
Alton J. Brann
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[LOGO OF WESTERN ATLAS]
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 13, 1997
The Annual Meeting of Shareholders of Western Atlas Inc., a Delaware
corporation, will be held at the Regent Beverly Wilshire Hotel, 9500 Wilshire
Boulevard, Beverly Hills, California, on Tuesday, May 13, 1997, at 11:00 a.m.
for the following purposes:
..To elect three Class III directors for a three-year term and until their
successors are elected and qualified.
..To ratify the appointment of independent auditors for the fiscal year ending
December 31, 1997.
..To approve the Western Atlas Inc. 1996 Employee Stock Purchase Plan.
..To consider and vote upon a proposal submitted by certain shareholders
concerning elimination of the classified Board of Directors, as set forth in
the proxy statement.
..To transact such other business as may properly come before the meeting or
any postponement or adjournment thereof.
Shareholders of record at the close of business on March 21, 1997, are
entitled to receive notice of and to vote at the meeting. A complete list of
such shareholders will be open for examination by any shareholder for any
purpose germane to the meeting at the offices of the Company at 360 North
Crescent Drive, Beverly Hills, California, for a period of ten days prior to
the meeting.
If you do not plan to attend the meeting in person, you are urged to vote,
sign, date, and mail the enclosed proxy immediately. The proxy is revocable
and will not affect your right to vote in person in the event you attend the
meeting.
By order of the Board of Directors,
/s/ Virginia S. Young
Virginia S. Young
Vice President and Secretary
March 28, 1997
Beverly Hills, California
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TABLE OF CONTENTS
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PAGE
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General................................................................... 1
Voting at the Meeting..................................................... 1
Proxies and Proxy Solicitation............................................ 2
Matters to be Considered at the Annual Meeting............................ 2
Item One. Election of Directors........................................... 2
Nominees for Directors.................................................. 3
Directors Continuing in Office.......................................... 4
Meetings and Committees of the Board...................................... 5
Directors' Compensation and Retirement Policies........................... 6
Item Two. Ratification of Appointment of Independent Auditors............. 8
Item Three. Proposal to Approve the 1996 Employee Stock Purchase Plan..... 8
Item Four. Shareholder Proposal Regarding Classified Board................ 12
Additional Information for Shareholders................................... 13
Executive Compensation.................................................... 13
Employment and Change in Control Arrangements............................. 18
Retirement Benefits....................................................... 20
Indebtedness of Management to the Company................................. 26
Certain Transactions...................................................... 26
Report of the Compensation Committee on Executive Compensation............ 27
Stock Performance Graph................................................... 33
Security Ownership of Certain Beneficial Owners of Common Stock........... 34
Filing of Reports under Section 16(a) of the Exchange Act................. 36
Shareholder Proposals for 1998 Annual Meeting............................. 36
Exhibit A--Western Atlas Inc. 1996 Employee Stock Purchase Plan........... A-1
</TABLE>
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WESTERN ATLAS INC.
360 NORTH CRESCENT DRIVE, BEVERLY HILLS, CA 90210-4867
March 28, 1997
PROXY STATEMENT
GENERAL.
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Western Atlas Inc. ("Western Atlas" or
the "Company") to be used at the Annual Meeting of Shareholders of the Company
to be held on May 13, 1997, and at any postponement or adjournment thereof,
for the purposes set forth in the accompanying Notice of Annual Meeting. This
proxy statement is first being mailed to shareholders on or about March 28,
1997.
The Company was incorporated in 1984 and operated as a subsidiary of Litton
Industries, Inc. ("Litton"), until March 17, 1994, when Litton effected a pro
rata distribution of all of the Company's outstanding shares of common stock
to the holders of Litton common stock on a one-for-one basis (the
"Distribution"). The Company has operated as an independent publicly-held
entity since the Distribution.
This proxy statement is accompanied by the Company's 1996 Annual Report to
Shareholders (which does not constitute a portion of the proxy soliciting
material).
VOTING AT THE MEETING.
The record date for voting at the Annual Meeting is the close of business on
March 21, 1997. On the record date, the Company had outstanding 53,677,590
shares of its common stock, par value $1 per share ("Common Stock" or "Western
Atlas Common Stock"), not including treasury shares, which may not be voted.
The holders of the outstanding Common Stock, which is the only outstanding
class of voting security of the Company, will be voting on all matters
currently scheduled to be acted upon at the 1997 Annual Meeting, with each
share entitled to one vote.
The holders of a majority of the issued and outstanding shares of Common Stock
represented in person or by proxy at the Annual Meeting of Shareholders will
constitute a quorum for the transaction of business at the meeting. The
inspector of election appointed for the meeting will determine the existence
of a quorum and will tabulate the votes cast at the meeting. Shareholders may
withhold authority to vote for one or more of the nominees for director and
may abstain on one or more of the other matters that may come before the
meeting. Shares for which authority is withheld or for which abstentions are
indicated will be counted as present for purposes of determining if a quorum
is present. Directors are elected by a plurality of the shares represented in
person or by proxy at the meeting; votes withheld will be excluded entirely
from the vote and will have no effect. The other three matters expected to
come before the meeting (identified as Items Two, Three, and Four in this
proxy statement) require the approval of a majority of the shares represented
in person or by proxy; and, therefore, abstentions will have the effect of a
negative vote on these matters. If a broker indicates on a proxy that such
broker does not have discretionary authority to vote on a particular matter,
under applicable Delaware law those shares
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will be counted as present for purposes of determining the presence of a
quorum, but will not be counted as votes cast on the matter and will have no
effect on the outcome of the vote on such matter.
PROXIES AND PROXY SOLICITATION.
All shares of Common Stock represented by properly executed proxies will be
voted at the Annual Meeting in accordance with the directions marked on the
proxies, unless such proxies previously have been revoked. If no directions
are indicated on such proxies, they will be voted for the election of the
three nominees named below under "ITEM ONE. ELECTION OF DIRECTORS," in favor
of the ratification of the selection of Deloitte & Touche LLP as the Company's
LLP independent auditors for 1997, for approval of the Western Atlas Inc. 1996
Employee Stock Purchase Plan, and against the proposal submitted by certain
shareholders as set forth on pages 12-13 of this proxy statement. If any other
matters, not presently anticipated, are properly presented at the meeting for
action, the proxy holders will vote the proxies (which confer discretionary
authority upon such holders to vote on such matters) in accordance with their
best judgment. Each proxy executed and returned by a shareholder may be
revoked at any time before it is voted by timely submission of written notice
of revocation or by submission of a duly executed proxy bearing a later date
(in either case directed to ChaseMellon Shareholder Services, Attention: Norma
Cianfaglione, 600 Willowtree Road, Leonia, New Jersey 07605) or, if a
shareholder is present at the meeting, he or she may elect to revoke his or
her proxy and vote his or her shares personally.
In addition to solicitation by mail, certain directors, officers, and other
employees of the Company, not specially employed for this purpose, may solicit
proxies, without additional remuneration therefor, by personal interview,
mail, telephone, telegram, facsimile transmission, or electronic mail. The
Company intends to reimburse brokerage firms, banks, and other holders of
record for their reasonable out-of-pocket expenses in forwarding proxy
material to the beneficial owners of Common Stock or otherwise in connection
with this solicitation of proxies. The Company has retained Georgeson &
Company Inc. to assist in the solicitation for a fee of $8,500, in addition to
reimbursement by the Company of the expenses and disbursements of that firm.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
ITEM ONE. ELECTION OF DIRECTORS.
The Board of Directors currently has seven members. The Board is divided into
three classes, with each director normally elected to serve for a three-year
term and one full class of directors to be elected at each Annual Meeting.
Paul Bancroft, III, Alton J. Brann, and William C. Edwards, incumbent Class
III directors whose terms are currently scheduled to expire at the 1997 Annual
Meeting, have been nominated for re-election as Class III directors for three-
year terms.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION TO THE BOARD
OF DIRECTORS OF MESSRS. BANCROFT, BRANN, AND EDWARDS.
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Set forth below is information regarding the age, business experience, and
Board Committee membership as of March 14, 1997, of the nominees for election,
as well as information about the directors whose terms of office do not expire
this year. Each nominee has consented to being named as such in this proxy
statement and has agreed to serve if elected. If, as a result of circumstances
not presently known, any of such nominees shall be unable to serve as a
director, proxies will be voted for the election of such other person or
persons as the Board of Directors may select, or the number of authorized
directors may be reduced.
NOMINEES FOR DIRECTORS.
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Class III. To serve until the annual election of directors in 2000 or until
their successors are elected and qualified.
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[PHOTO OF PAUL BANCROFT, III] PAUL BANCROFT, III, age 67. Independent venture capitalist and
consultant. Director of the Company since 1994. Chair of the
Compensation Committee and member of the Audit and Compliance
Committee and the Nominating Committee.
Mr. Bancroft was President, Chief Executive Officer, and a
director of Bessemer Securities Corporation from 1976 until 1988.
He is a director of several investment funds sponsored by
Scudder, Stevens and Clark, Inc.
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[PH0TO OF ANTON J. BRANN] ALTON J. BRANN, age 55. Chairman of the Board and Chief Executive
Officer of Western Atlas and Director of the Company since 1994.
Member of the Executive Committee and the Nominating Committee.
Mr. Brann was elected President of Litton in 1990 and became its
Chief Executive Officer in 1992, which positions he held until
the date of the Distribution. Mr. Brann is a director and
Chairman of the Executive Committee of the Board of Litton and is a member of
the Board of Overseers of the Executive Council on Foreign Diplomacy, the
Board of the Petroleum Equipment Suppliers Association (PESA), the Board of
the U.S.-Russia Business Council, the Board of the United States-Kazakhstan
Council and the Board of the National Association of Manufacturers. Mr. Brann
is also a member of the President's Cabinet of California Polytechnic State
University at San Luis Obispo, the California Business Higher Education Forum,
the Optical Society of America, the Institute of Navigation, the Society of
Petroleum Engineers, the Board of Directors of the Los Angeles World Affairs
Council, and the Board of Governors of Town Hall Los Angeles. He is a trustee
of the Manufacturers Alliance and a senior member of the Institute of
Electrical and Electronics Engineers.
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[PHOTO OF WILLIAM C. EDWARDS] WILLIAM C. EDWARDS, age 68. Venture capital investor; partner
of Bryan & Edwards since 1968 and general partner of Ritter Partners and
Banner Partners, venture capital partnerships, since 1962. Director of the
Company since 1994. Chair of the Nominating Committee and member of the Audit
and Compliance Committee and the Compensation Committee.
Mr. Edwards is Chairman of the Board of Xeruca Corporation and
a director of Trust Company of the West and CellNet Data Systems. He is also a
director and treasurer of Population Action International and a member of the
Board of Governors of the San Francisco Symphony. Mr. Edwards is a member of
the Advisory Committee of the Stanford Center for Economic Policy Research and
the Board of Overseers and Executive Committee of the Hoover Institution at
Stanford University and is an Associate with the Stanford Center for
International Security and Arms Control. He is an emeritus trustee of Scripps
College and the Deerfield Academy.
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DIRECTORS CONTINUING IN OFFICE.
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Class I. To serve until the annual election of directors in 1998 or until
their successors are elected and qualified.
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[PHOTO OF CLAIRE W. GARGALLI] CLAIRE W. GARGALLI, age 54. Vice Chairman, Diversified Search
and Diversified Health Search Companies (executive search
consultants) since 1990. Director of the Company since 1994.
Chair of the Audit and Compliance Committee and member of the
Compensation Committee and the Nominating Committee.
Ms. Gargalli served as President and Chief Operating Officer of
Equimark between 1984 and 1990. During that period she also
served as Chairman and Chief Executive Officer of Equimark's two principal
subsidiaries, Equibank and Liberty Bank. Ms. Gargalli is a director of
Praxair, Inc. and of Renal Treatment Centers, Inc. She is also a trustee of
Carnegie Mellon University, of Middlebury College, and of Allegheny University
of the Health Sciences.
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[PHOTO OF ORION L. HOCH] ORION L. HOCH, age 68. Chairman of the Executive Committee of
the Board of Directors of Western Atlas since 1994. Director of
the Company since 1994. Member of the Nominating Committee.
Dr. Hoch became President and Chief Operating Officer of Litton
in 1982, served as its Chief Executive Officer from 1986
through 1992, and was Chairman of the Board of Litton from 1988
to the date of the Distribution. He is a director and Chairman
Emeritus of Litton and a director of Bessemer Trust Company, Woodbridge, New
Jersey, and of Bessemer Trust Company, N.A., New York. Dr. Hoch is also a
trustee of Carnegie Mellon University.
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DIRECTORS CONTINUING IN OFFICE (CONTINUED).
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Class II. To serve until the annual election of directors in 1999 or until
their successors are elected and qualified.
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[PHOTO OF JOSEPH T. CASEY] JOSEPH T. CASEY, age 65. Consultant to Western Atlas since
October 1, 1996. Director of the Company since 1994. Member of
the Executive Committee and the Nominating Committee.
Mr. Casey served as Vice Chairman and Chief Financial Officer
of the Company from the date of the Distribution to his
retirement on September 30, 1996, and prior thereto held the
same positions at Litton since 1988. He is a director of Litton
and is a trustee of Claremont McKenna College and of the Don Bosco Technical
Institute.
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[PHOTO OF STEVEN B. SAMPLE] STEVEN B. SAMPLE, age 56. President of the University of
Southern California since 1991. Director of the Company since
1994. Member of the Audit and Compliance Committee, the
Compensation Committee, and the Nominating Committee.
From 1982 to 1991 Dr. Sample was president of the State
University of New York at Buffalo. He is a director of the
Presley Companies, the Santa Catalina Island Company, Rebuild
L.A., and the Galaxy Institute for Education. Dr. Sample is a trustee of the
University of Southern California, the Los Angeles Educational Alliance for
Restructuring Now (L.E.A.R.N.), and the Regenstreif Medical Foundation and
Institute. He is also a member of the Los Angeles World Affairs Council and
the Council on Foreign Relations in New York, and he is the founder and member
of the Board of Governors of the Los Angeles Annenberg Metropolitan Project
(LAAMP).
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MEETINGS AND COMMITTEES OF THE BOARD.
The Board of Directors of the Company met eight times during 1996 with an
average attendance of 98.2%. The Board also acted twice by unanimous written
consent. The Board has four standing committees. Membership on these
committees is indicated in the preceding biographical information.
AUDIT AND COMPLIANCE COMMITTEE. The Audit and Compliance Committee consists of
four directors, none of whom is an employee of the Company. The Committee,
which met five times in 1996, reviews and makes inquiries, as it deems
appropriate, with respect to the scope and results of the audit by the
Company's outside auditors, the activities of the Company's internal auditors,
and the adequacy of the Company's system of internal controls and procedures.
The Committee proposes the appointment of the outside auditors, subject to
approval by the Board and ratification by the shareholders, and approves fees
paid for services (including any nonaudit services) rendered by such auditors.
The Audit and Compliance Committee reviews the implementation and monitoring
of compliance with the Standards of Conduct of the Company; and the Committee
is empowered, in connection with such function, to evaluate the reportable
interests questionnaires completed by certain Company
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employees to determine if possible conflicts of interest exist or possible
violations of corporate policy have occurred, to consider other possible
conflict of interest situations brought to the attention of the Committee, and
to make appropriate recommendations with respect to such matters.
COMPENSATION COMMITTEE. The Compensation Committee is composed of four
nonemployee directors. The Committee establishes policies for executive
compensation and approves the remuneration of all officers of the Company. The
Committee administers the Company's 1993 Stock Incentive Plan, 1995 Incentive
Compensation Plan (including the establishment of the individual performance
goals thereunder), Individual Performance Award Plan, incentive loan program,
1996 Employee Stock Purchase Plan, and certain other compensation and
retirement arrangements. The Committee, which met three times and acted twice
by unanimous written consent in 1996, also reviews and makes recommendations
with respect to other compensation plans and policies of the Company.
EXECUTIVE COMMITTEE. The Executive Committee, which consists of three
directors, has all powers which may be lawfully delegated to it under Delaware
law. In general, such powers include supervision of the management of all
business of the Company except for matters which by law specifically require
the action of the full Board of Directors or of the shareholders. During 1996
the Executive Committee held no meetings but acted by unanimous written
consent on nine occasions.
NOMINATING COMMITTEE. The Nominating Committee, which presently is composed of
all seven directors of the Company, recommends possible candidates to fill
vacancies on the Board of Directors and reviews the qualifications of
candidates recommended by others, including candidates recommended by
shareholders of the Company. Any recommendations of possible candidates from
shareholders should be sent to the Secretary of the Company and should include
the agreement of the recommended candidate to serve if nominated and elected.
The Nominating Committee did not meet during 1996.
DIRECTORS' COMPENSATION AND RETIREMENT POLICIES.
Directors who are employees of the Company are not paid any fee or additional
remuneration for services as members of the Board or any committee thereof.
Directors who are not employees of the Company are paid an annual fee for
Board service of $27,500, payable in quarterly installments, and an attendance
fee of $1,500 for each Board meeting attended. A nonemployee director serving
as a member of the Executive Committee receives an additional annual fee of
$6,000, payable in quarterly installments; however, if the nonemployee
director is Chairman of the Executive Committee, such annual fee is $15,000.
Each nonemployee director receives a fee of $1,500 for attending each meeting
of a Board committee of which the director is a member, other than the
Executive Committee; however, if a nonemployee director serves as Chair of a
Board committee, other than the Executive Committee, the attendance fee of
such Chair for each meeting of the relevant committee is $2,500. Directors are
reimbursed for travel and other expenses incurred for the purpose of attending
meetings of the Board and its committees.
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Dr. Hoch has acted as a consultant and advisor to the Compensation Committee
without the power to vote or otherwise exercise authority with respect to any
matter considered. Dr. Hoch is paid a fee of $1,500 for each meeting of the
Compensation Committee he attends pursuant to the Committee's request.
Pursuant to the Western Atlas Inc. Deferred Compensation Plan for Directors,
any director of the Company may defer his or her annual fee for Board service,
fees earned for attendance at meetings of the Board or any committee thereof,
and fees earned for serving as Chairman or a member of the Executive
Committee. Amounts deferred bear interest at the prime rate as in effect on
the first business day of each calendar quarter. Payments of deferred amounts,
including accrued interest, will be paid in the number of annual installments
requested by the director, commencing after the director ceases to be a member
of the Board; provided that upon the occurrence of certain events resulting in
a change in control of the Company, all such amounts will become immediately
due and payable in a lump sum.
Under the terms of the Western Atlas Inc. Director Stock Option Plan,
directors who are not employees of the Company or any subsidiary thereof
automatically receive annual grants of options to purchase shares of Western
Atlas Common Stock at the fair market value of such stock on the date of
grant. Pursuant to this plan, each incumbent director of the Company, except
Messrs. Brann and Casey, received options to purchase 2,000 shares of Common
Stock on May 8, 1996, at a purchase price of $57.81 per share, the then
prevailing market price. Subsequent option grants to each outside director,
expected to occur in May of 1997 and each year thereafter, will also cover
2,000 shares of Common Stock; however, any person who joins the Board
subsequent to the date of the preceding grant of options under such plan (and
who was not an employee of the Company subsequent to such preceding grant
date) will receive an initial grant of options to purchase 10,000 shares. All
options granted under the Western Atlas Inc. Director Stock Option Plan become
fully exercisable on the first anniversary of the grant thereof if the
optionee is then an active member of the Board or an advisory director;
however, if a director dies or becomes permanently disabled while serving on
the Board, or if the director retires pursuant to the policy for mandatory
retirement of directors described below, then all options held by such
director become exercisable in full. In addition, if any of certain events
resulting in a change in the control of the Company occurs, then all options
granted under this plan become fully exercisable.
The Company has a policy establishing the mandatory retirement date of each
member of the Board as the date of the Annual Meeting of the Shareholders of
the Company next following his or her 72nd birthday.
Under the retirement program for directors, upon retirement from the Board at
or after age 65, or upon his or her death after attaining age 65 while serving
as a nonemployee director, each such director of the Company (or, in the case
of death, his or her surviving spouse) is entitled to receive an annual fee,
for the period set forth below, equal to the annual fee paid to active members
of the Company's Board of Directors as such fee is in effect from time to time
(but in no event less than the annual fee in effect on the date of the next
Annual Meeting of Shareholders following the retirement date of the director
or the date of his or her death, if earlier). In the event of the
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resignation or removal of a director or his or her failure to be re-elected a
director prior to the date of his or her 65th birthday, in connection with and
as the result of a change in the control of the Company, such director shall
thereafter be entitled to receive the annual fee in effect for members of the
Board for the year immediately prior to such change in control. In the case of
either the fee payable upon retirement (or death) or the fee payable in
connection with a change in the control of the Company, payment of the fee to
a director shall continue for a period of time equal to the shorter of (1) ten
years or (2) the number of years the director served as a member of the Board
of Directors of the Company or as an advisory director plus, with respect to
the period prior to the Distribution, the number of years, or any portion
thereof, that the director served as a nonemployee director or advisory
director of Litton; provided, however, that in the event the director dies
prior to the end of such period of time, such payments shall be made to his or
her surviving spouse, if any, for the remainder of such period, but shall in
no event continue beyond the death of the surviving spouse (or beyond the
death of the director if not survived by a spouse).
For information concerning amounts paid to Mr. Casey subsequent to his
retirement from the Company as Vice Chairman and Chief Financial Officer
pursuant to a consulting agreement and as a pension benefit, see the
information under the captions "Restoration Plan" and "Certain Transactions"
on pages 21 and 26-27.
ITEM TWO. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS.
At its meeting on February 19, 1997, the Board of Directors of the Company,
upon recommendation of its Audit and Compliance Committee, approved the
appointment of Deloitte & Touche LLP as independent auditors for the Company
for the 1997 fiscal year, subject to ratification by the shareholders at the
Annual Meeting. This accounting firm has served as independent auditors of the
Company continuously since the Distribution and is familiar with the business
and operations of the Company.
Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting of Shareholders. Such representatives will be offered the
opportunity to make a statement and will be available to respond to
appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS.
ITEM THREE. PROPOSAL TO APPROVE THE 1996 EMPLOYEE STOCK PURCHASE PLAN.
The shareholders are asked to consider and vote upon a proposal to approve the
adoption of the Company's 1996 Employee Stock Purchase Plan (the "Plan"). The
Plan was adopted by the Board of Directors on June 19, 1996, and was
implemented on September 1, 1996. The Plan is intended to qualify under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"),
thus affording participants the favorable U.S. income tax treatment described
below. A summary of the principal features of the Plan follows and is
qualified in its entirety by reference to the specific provisions of the Plan
set forth as Exhibit A to this proxy statement.
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The Board of Directors believes that broad participation by the employees in
ownership of the Company's Common Stock is extremely valuable. The purpose of
the Plan is to provide eligible employees with a convenient means of acquiring
Common Stock at a discount from the market price through payroll deductions,
to enhance such employees' sense of participation in the affairs of the
Company, and to provide an incentive for continued employment.
A total of 2,500,000 shares of Common Stock has been reserved for issuance
under the Plan, subject to adjustment as set forth below. Any full-time
employee of the Company or of a subsidiary of the Company which has been
designated by the Board of Directors as a participating subsidiary who has
completed at least a year in the employ of the Company or its subsidiaries is
eligible to participate in the Plan.
The Plan will be administered by a Committee (the "Committee") selected by the
Board of Directors, consisting of at least two members, who need not be
members of the Board and who may be eligible to participate in the Plan. The
Plan is presently administered by the Compensation Committee of the Board.
Unless otherwise determined by the Committee or the Board of Directors,
offering periods under the Plan will commence on January 1 and July 1 of each
calendar year and have a duration of six months; however, the initial offering
period under the Plan was a four-month period which commenced on September 1,
1996. Prior to the commencement of each offering period, an eligible employee
may subscribe to purchase shares of Common Stock at a price per share which
will be the lower of 85% of the fair market value of the Common Stock on the
first day of the offering period or 85% of the fair market value on the last
day of the offering period. Fair market value on a given date is the mean
between the highest and lowest reported sales prices of the Common Stock on
the New York Stock Exchange Composite Tape. If there is no reported sale price
for the Common Stock on such date, then the fair market value shall be
measured on the preceding trading day for which such reported sale price is
available.
An eligible employee may elect to have deductions made from his or her
compensation for the purpose of purchasing shares under the Plan in 1%
increments of not more than 8% of compensation. For this purpose compensation
includes all base salary, wages, cash bonuses, and overtime. No participant
may contribute more than $21,250 for purchase of shares under the Plan in any
one calendar year. A participant may reduce, but not increase, the percentage
of compensation which is deducted under the Plan at any time during the
offering period, but such reduction may be made only once during any offering
period. However, a participant may always reduce his or her participation
level to zero or withdraw from the Plan.
A participant may withdraw from the Plan at any time on or before the 15th day
of the last month of an offering period. A participant who withdraws will
receive a refund, without interest, of all deductions which have not been
applied to the purchase of Common Stock. A participant who files a withdrawal
request after the 15th day of the last month of the offering period will have
his or her contributions applied to the purchase of Common Stock on the last
day of the offering period.
9
<PAGE>
In the event a participant's employment terminates for any reason (including
death or disability) on or before the 15th day of the last month of the
offering period, such participant's right to purchase Common Stock under the
Plan will terminate immediately, and his or her payroll deductions not yet
applied to the purchase of Common Stock will be returned. If termination of
employment occurs after the 15th day of such month, the participant's payroll
deductions credited to his or her account with the Plan will be utilized for
the purchase of Common Stock. A participant will not be deemed to have
terminated employment if the participant is on a leave of absence which has
been approved by the Committee.
Amounts deducted from a participating employee's compensation will accumulate
during an offering period and be applied to the purchase of full and
fractional shares on the last day of the offering period at the applicable
price described above. All full and fractional shares will be credited to a
separate investment account for each employee with an independent financial
institution. Until the tax holding period described below has been satisfied,
shares may be sold only through the brokerage facilities provided by such
financial institution.
No employee will have the right to purchase shares under the Plan in any
calendar year if the fair market value of shares to be so purchased
(determined as of the first day of each offering period), when added to the
fair market value of all other shares which such employee has the right to
purchase under the Plan or other plans that would qualify as employee stock
purchase plans under Section 423 of the Code, exceed $25,000. Further, no
employee will be permitted to purchase shares of Common Stock under the Plan
in any calendar year if the number of shares which such employee then owns (as
determined under the rules of Section 424(d) of the Code), or has the right or
option to purchase, plus the number of shares to which he or she wishes to
subscribe, would represent 5% or more of the total number of shares of the
Company's Common Stock outstanding.
Rights under the Plan are not transferable by a participating employee and may
be exercised only by the employee during the employee's lifetime.
In the event that the number of shares subscribed for in any offering period
exceeds the number of shares of Common Stock remaining available for issuance
under the Plan, subscriptions will be reduced pro rata in as uniform a manner
as is reasonably practicable. The Company's shareholders or the Board may
suspend or terminate the Plan at any time. Unless the Plan is terminated prior
thereto by the shareholders or the Board, the Plan shall terminate on December
31, 2006.
If the Plan is approved by the shareholders at the Annual Meeting, in the
opinion of counsel it will meet the requirements of Section 423 of the Code.
Under these circumstances, no income tax consequences arise until a
participating employee disposes of the stock acquired under the Plan. If he or
she disposes of the stock more than two years after the first day of the
offering period in which the stock was purchased and more than one year from
the date of purchase of those shares or if he or she dies while still owning
the stock, an amount equal to the lesser of (i) the excess of the fair market
value of such stock at the time of disposition or death over the purchase
price or (ii) 15% of the fair market value of such stock at the beginning of
10
<PAGE>
the offering period, will be ordinary income. The excess, in the event of
disposition, of the sale price over the sum of the amount recognized as
ordinary income plus the purchase price will be capital gain. However, if the
disposition results in a loss, there will be no recognition of ordinary
income, and the participating employee will have a capital loss equal to the
difference between the sale price and the purchase price.
If the participating employee disposes of the stock within two years after the
first day of the offering period in which the stock was purchased or within
one year from the date of purchase of those shares, he or she must recognize
ordinary income on any difference between the purchase price and the market
value of the stock at the time of purchase, whether or not the stock has
increased or decreased in value thereafter. Capital gain or loss rules then
apply (long- or short-term depending on how long the stock was held) to any
change in market value between the date of purchase and the date of any sale.
For tax purposes, "disposition" includes not only a sale, but also a gift. In
the event of a disposition within two years from the first day of the offering
period in which the stock was purchased or within one year from the date of
purchase, the Company will be entitled to a deduction equal to the amount
taxable to the employee as ordinary income.
In the event of any stock split, stock dividend, spinoff, combination or
exchange of shares, merger, consolidation, reorganization, recapitalization,
distribution to shareholders other than a normal cash dividend, or other
change in corporate structure or capitalization affecting the Common Stock,
the Committee shall make equitable adjustment in the number, kind, and price
of shares issuable under the Plan. The shareholders or the Board of Directors
may at any time amend the Plan, provided that any amendment adopted by the
Board will require shareholder approval if (a) the amendment will increase the
aggregate number of shares which may be issued under the Plan or (b) failure
to obtain shareholder approval of the amendment would cause the Plan to fail
to qualify under Section 423 of the Code.
In the event the shareholders fail to approve the Plan at the Meeting, the
Plan shall thereupon terminate; all outstanding rights to purchase shares of
Common Stock shall be canceled and cease to be in effect; and all amounts
deducted from the compensation of participants and not applied to the purchase
of Common Stock shall be refunded without interest. In addition, without
shareholder approval of the Plan, the favorable tax treatment described above
would not be available in the case of shares purchased by employees during the
initial offering period which ended on December 31, 1996.
There were approximately 9,000 employees who were eligible to participate in
the Plan as of March 14, 1997, at which time the closing sale price of a share
of Common Stock was $60.25. The following table sets forth the number of
shares of the Common Stock purchased during 1996 under the Plan and the
purchase price paid for those shares by the persons and groups listed.
11
<PAGE>
BENEFITS UNDER THE EMPLOYEE STOCK PURCHASE PLAN IN 1996
<TABLE>
<CAPTION>
NUMBER OF
NAME OR IDENTITY OF GROUP SHARES PURCHASED PURCHASE PRICE ($)
------------------------------------------------------------------------------
<S> <C> <C>
Alton J. Brann 205 51.7969
Orval F. Brannan 149 51.7969
Norman L. Roberts 151 51.7969
John R. Russell 202 51.7969
All executive officers as a group 707 51.7969
All employees as a group
(excluding executive officers) 36,268 51.7969
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE 1996
EMPLOYEE STOCK PURCHASE PLAN.
ITEM FOUR. SHAREHOLDER PROPOSAL REGARDING CLASSIFIED BOARD.
The Company has been advised that John J. Gilbert, who states he is the owner
of 20 shares of the Company's Common Stock, and/or Margaret and/or John
Gilbert as executors of the Estate of Lewis D. Gilbert, which is stated to own
20 shares of the Company's Common Stock, and/or Harold J. Mathis, who is
stated to be the owner of 200 shares of the Company's Common Stock and to
represent Central Gulf Marine, which is stated to be the owner of 100 shares
of the Company's Common Stock, intend to present for action at the Annual
Meeting the following proposal:
"RESOLVED: That the stockholders of Western Atlas Inc., assembled in annual
meeting in person and by proxy, hereby request that the Board of Directors
take the needed steps to provide that at future elections of directors new
directors be elected annually and not by classes, as is now provided, and that
on expiration of present terms of directors their subsequent election shall
also be on an annual basis."
The following is the statement submitted by the proponents in support of this
proposal:
"ARCO to its credit, voluntarily ended theirs stating that when a very high
percentage (34.6%) desired it to be changed to an annual election it was
reason enough for them to change it. Several other companies have also
followed suit such as: Pacific Enterprises, Katy Industries, Hanover Direct
and others. Ameritech is one of the latest to end theirs. We believe that
Western Atlas should follow their example.
"A few years ago may [sic] resolution on the subject was withdrawn when the
Westinghouse directors agreed to end their stagger system. At the Lockheed-
Martin merger the stagger system was ended and also at a special meeting of
First Commerce Corporation in 1995. Further, Alleghany Power System tried to
put in a stagger system, as well as take away cumulative voting, and the
stockholders defeated it, showing stockholders are interested in their rights.
12
<PAGE>
"In the merger of NYNEX into Bell Atlantic the annual election of directors,
instead of the stagger system that NYNEX had, will be adopted.
"Because of the normal need to find new directors and because of environmental
problems and the avalanche of derivative losses and many groups desiring to
have directors who are qualified on the subjects, we think that ending the
stagger system of electing directors and having cumulative voting is the
answer.
"Equitable Life Insurance Company, which is now called Equitable Companies,
converted from a policy owned company to a public stockholder meeting. Thanks
to AXA, the comptrolling French insurance company not wanting it, they now do
not have a staggered board.
"Orange and Rockland Utility Company had a terrible time with the stagger
system and its 80% clause to recall a director. The chairman was involved in a
scandal effecting the company. Not having enough votes the meeting to get rid
of the chairman had to be adjourned. Finally, at the adjourned meeting enough
votes were counted to recall him.
"If you agree, please mark your proxy for this resolution; otherwise it is
automatically cast against it, unless you have marked to abstain."
THE COMPANY'S BOARD OF DIRECTORS OPPOSES THE PROPOSAL SUBMITTED BY THESE
SHAREHOLDERS FOR THE FOLLOWING REASONS:
The Board of Directors believes that the classified board, which has been a
feature of the Company's corporate governance procedures since Western Atlas
became an independent public company in 1994, facilitates the ability of the
Company to make plans for a reasonable period into the future and gives a
certain degree of continuity to the planning and management process. The
classified board assures that the Board will at all times include several
directors who have had prior experience in the management of the Company's
business and affairs. Board classification is also intended to encourage any
third party which might seek to acquire control of the Company to negotiate
with the Board of Directors (rather than inaugurating an election contest or
unsolicited bid), and this should help give the Board time to evaluate any
proposal and seek the most favorable result for the Company's shareholders.
The Company's Certificate of Incorporation requires the vote of 80% of the
outstanding shares to eliminate the classified board. Therefore, the adoption
of the shareholder proposal set forth above would not cause the elimination of
the Company's classified board, nor would it permit the Board of Directors to
eliminate the classified board.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST THE SHAREHOLDER
PROPOSAL SET FORTH ABOVE.
ADDITIONAL INFORMATION FOR SHAREHOLDERS
EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE.
The following table presents a summary of compensation paid or awarded to (or
accrued for services by) those individuals who were the five most highly
compensated
13
<PAGE>
executive officers at December 31, 1996 (the "Named Executive Officers"). The
table shows amounts earned by such persons in all capacities in which they
served during the past three years.
Joseph T. Casey retired as an executive officer on September 30, 1996, and the
compensation shown for him for 1996 was paid for services rendered prior to
that date. Mr. Casey is included in the table in accordance with applicable
regulations of the Securities and Exchange Commission ("SEC"), since the
amount of such compensation would have caused him to be one of the five
highest paid executive officers at December 31, 1996, if he had not retired
during the fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------------------------------
AWARDS PAYOUTS
I II III IV V
----------------------------------------------------
SECURITIES LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS UNDERLYING PAYOUTS COMPENSATION
POSITION YEAR ($) ($)(a) OPTIONS (#) ($)(b) ($)(c)
- - -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alton J. Brann 1996 687,030 928,125 50,000 -0- 17,382
Chairman of the 1995 649,065 669,638 50,000 -0- 17,130
Board and Chief 1994 573,092 625,000 175,000 -0- 157,994
Executive Officer
- - -------------------------------------------------------------------------------------------
Orval F. Brannan 1996 306,398 277,200 17,000 -0- 125,898
Senior Vice 1995 298,320 290,000 20,000 -0- 69,985
President 1994 277,981 232,000 25,000 1,109,500 49,704
- - -------------------------------------------------------------------------------------------
Joseph T. Casey 1996 315,577 412,500 -0- -0- 14,924
Former Vice 1995 387,032 401,782 30,000 -0- 16,131
Chairman and 1994 396,646 375,000 50,000 -0- 212,200
Chief Financial
Officer
- - -------------------------------------------------------------------------------------------
Norman L. Roberts
Senior Vice 1996 295,846 292,887 15,000 -0- 9,057
President and 1995 285,774 220,455 15,000 -0- 10,090
General Counsel 1994 267,027 210,000 25,000 -0- 39,289
- - -------------------------------------------------------------------------------------------
John R. Russell 1996 414,344 450,000 30,000 -0- 130,078
Executive Vice 1995 386,556 468,750 30,000 -0- 90,393
President and Chief 1994 360,176 375,000 50,000 1,607,196 67,596
Operating Officer
of Oilfield Services
- - -------------------------------------------------------------------------------------------
Clayton A. Williams 1996 257,500 321,875 25,000 -0- 45,540
Senior Vice 1995 15,385(d) -0- 12,000 -0- -0-
President
</TABLE>
14
<PAGE>
(a) Bonuses awarded to the Named Executive Officers, with respect to 1996 were
paid as follows: an amount equal to 50% of the recipient's annual base pay
in effect on January 1, 1996, was paid in February, 1997, and the
remainder will be paid one year later provided the recipient is then in
the employ of the Company, or has terminated employment by reason of
death, disability, or retirement or is on an approved leave of absence.
Where a bonus exceeded 100% of the recipient's base pay at January 1,
1996, an amount equal to one half of such base pay was paid in February,
1997; and, subject to satisfaction of the conditions set forth in the
preceding sentence, an additional amount equal to 50% of such base pay
will be paid in February, 1998; and the remainder, in February, 1999. The
full amount of Mr. Casey's bonus, awarded subsequent to his retirement,
was paid in February, 1997.
(b) Included in this column for 1994 is the difference between (i) the amount
paid by each of Messrs. Brannan and Russell for shares of the common stock
of Western Atlas International, Inc. ("WAII"), purchased under the WAII
1988 Restricted Stock Purchase Plan and (ii) the amount paid to each such
individual for these shares in connection with the repurchase thereof by
WAII in 1994, which amounts in both cases were determined by the Board of
Directors of WAII to represent the fair market value thereof. All shares
of WAII common stock outstanding under this plan were repurchased by WAII
in 1994, whereupon the plan was terminated.
(c) Included in this column for 1996 are the following: (i) Company
contributions of $90,225, and $130,078 for the 1996 plan year to the
respective accounts of Mr. Brannan and Mr. Russell in the defined
contribution plans of WAII described in "Retirement Benefits--WAII Profit
Sharing Plan" and "Retirement Benefits--WAII Benefit Restoration Plan";
(ii) present value costs of the Company's portion of 1996 premiums for
split-dollar life insurance for Mr. Brann, Mr. Brannan, and Mr. Casey,
respectively, of $1,936, $924, and $4,506; (iii) the amount of $2,793
representing premiums paid by the Company with respect to the
participation in the Company's Executive Medical Plan of each of Messrs.
Brann, Casey, and Roberts; (iv) the following amounts representing
interest imputed to and taxable to the holder of loans from the Company:
Mr. Brann, $10,903, Mr. Casey, $5,875, and Mr. Roberts, $4,514; (v)
Company matching contributions of $1,750 made to the respective accounts
of Messrs. Brann, Casey, and Roberts under the Company's 401(k) plan
described on pages 20-21; (vi) the amount of $26,892 paid by WAII for the
rental of temporary housing for Mr. Brannan in London, England,
immediately following his relocation to that city and the amount of $7,857
paid as an installment of an annual foreign pay differential to which Mr.
Brannan will be entitled so long as his place of employment with WAII
remains in London; and (vii) the amount of $45,540 paid to Mr. Williams as
relocation expenses and relocation bonus in connection with his move from
San Francisco to the Detroit area in December, 1995, to assume the
position of Group Executive for the Company's Manufacturing Systems
Operations.
(d) Represents salary paid to Mr. Williams from the date of his employment by
the Company, December 9, 1995, through December 31, 1995.
15
<PAGE>
STOCK OPTION INFORMATION.
The following table shows stock option grants under the Western Atlas Inc.
1993 Stock Incentive Plan during 1996 to the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------
NUMBER OF PERCENTAGE OF
SECURITIES TOTAL OPTIONS GRANT DATE
UNDERLYING GRANTED TO EXERCISE PRESENT
OPTIONS EMPLOYEES IN PRICE EXPIRATION VALUE
NAME GRANTED (#)(a) FISCAL YEAR ($/SH) DATE ($)(b)
- - ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alton J. Brann 1,731(c) 0.29% 57.75 8/15/2006 54,653
48,269(d) 7.98% 57.75 8/15/2006 1,523,990
- - ----------------------------------------------------------------------------------
Orval F. Brannan 1,731(c) 0.29% 57.75 8/15/2006 54,653
15,269(e) 2.53% 57.75 8/15/2006 482,086
- - ----------------------------------------------------------------------------------
Norman L. Roberts 1,731(c) 0.29% 57.75 8/15/2006 54,653
13,269(f) 2.19% 57.75 8/15/2006 418,940
- - ----------------------------------------------------------------------------------
John R. Russell 1,731(c) 0.29% 57.75 8/15/2006 54,653
28,269(g) 4.68% 57.75 8/15/2006 892,533
- - ----------------------------------------------------------------------------------
Clayton A. Williams 1,731(c) 0.29% 57.75 8/15/2006 54,653
10,269(h) 1.70% 57.75 8/15/2006 324,222
</TABLE>
(a) All options granted to the Named Executive Officers were granted at the
prevailing market price of the Common Stock on the date of grant. These
options permit payment of the exercise price and any withholding tax due
upon exercise by the surrender of already owned shares of Common Stock
having a fair market value equal to the exercise price or the amount of
withholding tax, as the case may be, or payment of withholding tax by
applying shares otherwise receivable upon exercise. All such options
become immediately exercisable upon the occurrence of certain events
resulting in a change in control of the Company, and accelerated vesting
schedules become applicable in the event of the death of the optionee
while in the employ of the Company. Change in control has the meaning
described on pages 18-19 of this proxy statement.
(b) The Black-Scholes model was used to determine the grant date present value
of stock options. This method requires the assumption of certain values
that affect the option price. The values which were used in this model are
the volatility of the Company's stock price and the estimate of the risk-
free interest rate. Since the Company does not pay a dividend, no yield on
the Common Stock was assumed. For purposes of the model used to value the
options in this table, a volatility factor of 26%, determined from
historical stock price fluctuations, and a 6.7% risk-free interest rate,
determined from market information prevailing on the grant date, were
used. No adjustments were made for the nontransferability or risk of
forfeiture of the stock options. This model assumed all options are
exercised on
16
<PAGE>
their respective expiration dates. There is no assurance that these
assumptions will prove true in the future. The actual value of the options
depends on the market price of the Common Stock at the date of exercise,
which may vary from the theoretical value indicated in the table.
(c) Incentive Stock Options. These options become 100% exercisable on the
fifth anniversary of the date of grant.
(d) Nonqualified Stock Options. These options become exercisable in four
installments of 10,000 shares each on the first through the fourth
anniversaries of the date of grant, and in one installment of 8,269 shares
on the fifth anniversary of the date of grant.
(e) Nonqualified Stock Options. These options become exercisable in four
installments of 3,400 shares each on the first through the fourth
anniversaries of the date of grant, and in one installment of 1,669 shares
on the fifth anniversary of the date of grant.
(f) Nonqualified Stock Options. These options become exercisable in four
installments of 3,000 shares each on the first through the fourth
anniversaries of the date of grant, and one installment of 1,269 shares on
the fifth anniversary of the date of grant.
(g) Nonqualified Stock Options. These options become exercisable in four
installments of 6,000 shares each on the first through the fourth
anniversaries of the date of grant, and one installment of 4,269 shares on
the fifth anniversary of the date of grant.
(h) Nonqualified Stock Options. These options become exercisable in four
installments of 2,400 shares each on the first through the fourth
anniversaries of the date of grant, and one installment of 669 shares on
the fifth anniversary of the date of grant.
17
<PAGE>
The following table provides information with respect to options to purchase
Western Atlas Common Stock exercised by any of the Named Executive Officers
during 1996 and with respect to the number and value of unexercised options
held by each Named Executive Officer and by Mr. Casey at December 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES(a)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED OPTIONS AT IN-THE-MONEY OPTIONS AT
ON VALUE DECEMBER 31, 1996(#) DECEMBER 31, 1996($)
EXERCISE REALIZED ------------------------- -------------------------
NAME (#)(b) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alton J. Brann 12,644 498,880 72,196 273,440 2,605,610 7,440,925
Orval F. Brannan -0- -0- 4,000 58,000 111,740 1,381,210
Joseph T. Casey 49,400 2,253,317 103,000 69,000 4,767,965 1,950,465
Norman L. Roberts -0- -0- 17,600 59,400 795,780 1,604,768
John R. Russell 3,400 123,399 33,600 106,400 1,366,758 2,705,763
Clayton A. Williams -0- -0- 26,960 36,040 1,266,758 775,882
</TABLE>
(a) The number and value of unexercised options to purchase Western Atlas
Common Stock at the end of 1996 are shown in the table. In addition,
Messrs. Brann, Casey, Roberts, and Russell held options to purchase shares
of Litton common stock, adjusted on account of the Distribution and
granted to them prior to the Distribution, as follows:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
LITTON OPTIONS AT LITTON OPTIONS AT
DECEMBER 31, 1996 (#) DECEMBER 31, 1996 ($)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Alton J. Brann -0- 33,440 -0- 887,569
Joseph T. Casey 92,000 -0- 2,881,820 -0-
Norman L. Roberts 14,600 7,400 460,596 233,951
John R. Russell 7,300 7,400 230,298 233,951
</TABLE>
(b) In addition, during 1996 Mr. Brann exercised Litton options to purchase
49,840 shares, thereby realizing $1,388,406; and Mr. Casey exercised
Litton options to purchase 49,400 shares, thereby realizing $1,862,054.
EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS.
Each of the Named Executive Officers except Mr. Williams has entered into a
change in control agreement with the Company (collectively, the "Agreements").
Mr. Casey's Agreement terminated upon his retirement as an executive officer
of the Company. The Agreements are operative only upon the occurrence of a
change in control, which includes substantially those events described below.
Absent a change in control, the Agreements do not require the Company to
retain the executives or pay them any specified level of compensation or
benefits.
18
<PAGE>
Generally, under the Agreements, a change in control is deemed to have
occurred if: (a) a majority of the Board becomes composed of persons other
than persons for whose election proxies have been solicited by the Board, or
other than persons who are then serving as directors appointed by the Board to
fill vacancies caused by death or resignation (but not removal) of a director
or to fill newly created directorships; (b) another party becomes the
beneficial owner of at least 30% of the Company's outstanding voting stock,
other than as a result of a repurchase by the Company of its voting stock; (c)
the Company consummates a merger, reorganization, or consolidation with
another party (other than certain limited types of mergers) or sells or
otherwise disposes of all or substantially all of the Company's assets; or (d)
the shareholders approve the liquidation or dissolution of the Company.
Each Agreement provides that for three years after a change in control there
will be no adverse change in the executive's salary, bonus opportunity,
benefits, or location of employment. If, during this three-year period, the
executive's employment is terminated by the Company other than for cause, or
if the executive terminates his or her employment for good reason as such
terms are defined in the Agreements (including compensation reductions,
demotions, relocation, and requiring excessive travel), or voluntarily during
the 30-day period following the first anniversary of the change in control,
the executive is entitled to receive an accrued salary and annual incentive
payment through the date of the termination and, except in the event of death
or disability, a lump-sum severance payment equal to three times the sum of
the executive's base salary and annual bonus (and certain pension credit and
insurance and other welfare plan benefits). Further, an additional payment is
required in such amount that after the payment of all taxes, income and
excise, the executive will be in the same after-tax position as if no excise
tax under the Code had been imposed. In the event of termination of employment
by reason of death or disability or for cause, the Agreements terminate and
the sole obligation of the Company is to pay any amounts theretofore accrued
thereunder.
The Company has entered into an employment agreement with Clayton A. Williams
whereby Mr. Williams agreed to accept employment with the Company from the
period from December 9, 1995, to December 31, 1998, as Group Executive of the
Company's Manufacturing Systems Operations. Under this agreement, Mr. Williams
is to receive an annual salary of not less than $250,000 and is entitled to
participate in the Company's 1995 Incentive Compensation Plan and Individual
Performance Award Plan, under which Mr. Williams was awarded the bonus amount
for 1996 set forth in the Summary Compensation Table. Mr. Williams was also
entitled under the agreement to the grant of options to purchase 25,000 shares
of Western Atlas Common Stock at the fair market value on December 11, 1995.
In the event of Mr. Williams' termination of employment without cause, he is
entitled to receive the remaining installments of base salary payable during
the term of the agreement and a pro rata portion of the bonus for which he
would have qualified had he remained employed throughout the year of any such
termination.
19
<PAGE>
RETIREMENT BENEFITS.
THE FSSP AND RELATED RETIREMENT PLAN.
Messrs. Brann and Roberts participate in the Company's Financial Security and
Savings Program (the "FSSP"), a defined contribution plan intended to qualify
under Section 401(k) of the Code. Participation in the FSSP is generally
available to employees of the U.S. divisions of the Company's industrial
automation businesses and employees of the corporate office.
A participant in the FSSP may elect to defer from 2% to 18% of his or her
covered compensation for investment in the trust established under the FSSP,
but the maximum amount which the employee may contribute to the FSSP for any
calendar year is limited by provisions of the Code relating to the maximum
amount, as adjusted for inflation, which may be contributed to plans qualified
under Section 401(k) of the Code (the "401(k) Maximum Amount"), which was
$9,500 for 1996. Deposits of 2% to 4% of the participant's compensation are
invested in the FSSP Retirement Fund, while deposits in excess of 4% are
invested in one or more investment funds as designated by the participant.
The Company adds to the investment fund account of an FSSP participant an
amount (not to exceed 2% of the participant's compensation) equal to 50% of
the participant's deposits in excess of 4% of his or her compensation. In the
case of employees who are classified as highly compensated pursuant to
applicable Treasury releases (those earning over $66,000 for 1996), such
employees' permissible contributions may be reduced further and the amount of
the employer's matching contributions may be limited if certain
nondiscrimination tests set forth in the Code are not achieved. A participant
is entitled to receive his or her entire FSSP account, to the extent it has
become vested, upon retirement or earlier termination of employment with the
Company.
Benefits under the FSSP are intended to supplement benefits under the
Company's related retirement plan, which is a defined benefit plan. Although
deposits to the FSSP do not comprise part of the retirement plan's trust
(except for transfers of assets made at the request of a participant in
connection with a distribution, as described below), the extent of an
employee's participation in the Retirement Fund of the FSSP will affect the
amount of such employee's benefit under the related retirement plan. The
employee's contribution to the FSSP of 2% to 4% of his or her gross earnings
causes the employee (if eligible to participate in the Company's retirement
plan) to become eligible to accrue benefits under such retirement plan.
Covered compensation for purposes of both the retirement plans and the FSSP
Retirement Fund is aggregate cash compensation including bonuses and
commissions but would, in the case of Messrs. Brann and Roberts be limited to
$150,000 pursuant to provisions of the Code.
The amount of a participant's annual retirement benefit at his or her normal
retirement date (generally age 65) under the Company's defined benefit
retirement plan is the higher of (A) 60% of the participant's deposits to the
Retirement Fund of the FSSP (during the entire period of his or her
employment) or (B) 85% of such deposits minus 75% of the participant's
estimated Social Security primary benefit at age 65, with adjustments in the
amount of the benefit to take into account factors such as age at
20
<PAGE>
retirement, degree of vesting, and form of benefit selected. In the case of
Company employees who transferred directly from Litton to the Company,
contributions to most of the contributory retirement plans of Litton and to
the retirement fund of Litton's 401(k) plan will be included in the
computation of a participant's total deposits for purposes of the formula set
forth above. The annual retirement benefit at normal retirement age is reduced
by the actuarial equivalent of lump sum distributions made (at the request of
the participant) of the participant's Retirement Fund account in the FSSP
comprised of deposits with earnings (and, if applicable, the participant's
Retirement Fund account transferred from Litton's 401(k) plan and the
participant's deposits with interest transferred from contributory retirement
plans of Litton). Should a participant wish to receive the entire benefit
described in the formula set forth above, without any reduction on account of
the distribution of the participant's Retirement Fund balance in the FSSP, the
participant may direct that such account balance consisting of deposits with
earnings be transferred to the retirement plan trust. Such an election would
have the effect of converting a potential lump-sum distribution from the
defined contribution plan to an increased pension benefit under the defined
benefit plan.
RESTORATION PLAN.
The limitations in the Code establishing the 401(k) Maximum Amount cause
certain participants in the FSSP to lose Company-provided benefits which they
could otherwise have derived from the deposit of a full 8% of their covered
compensation to the FSSP. Consequently, the Company has adopted a
noncontributory and unfunded plan (the "Restoration Plan") designed to restore
the approximate amount of lost employer-provided benefits to those employees
who participate in the FSSP to the fullest extent permitted by the applicable
Code provisions but who are unable (as a result of the 401(k) Maximum Amount
limitation) to contribute 8% of their compensation to the FSSP. Such lost
employer-provided benefits which are restored under this plan consist of (i)
all or part of the 50% matching contribution to the investment fund account of
the FSSP participant and (ii) except in the case of Mr. Brann, who
participates in a supplemental contractual arrangement (as described below), a
portion of the full benefit under the Company's retirement plan if the
participant's contributions to the FSSP Retirement Fund are limited to less
than 4% of his or her compensation. Amounts that would have been deposited to
the employee's Retirement Fund account by the employee and to his or her
investment fund account by the Company are projected with interest to the
participant's normal retirement date. Based upon these amounts, the
participant's lost benefits from the Company's retirement plan and lost
Company contributions to the investment fund are determined and converted to,
and payable upon the participant's retirement as, a single life annuity if the
participant is unmarried at such time or as a 100% joint and survivor annuity
if the participant is then married; however, no payment will commence until
the participant reaches the age of 62.
As a result of his retirement from Western Atlas in 1996, Mr. Casey commenced
to receive a combined annual benefit in the form of a 100% joint and survivor
annuity pursuant to the FSSP, the related retirement plan, and the Restoration
Plan of $156,608, all of which is deemed to have been provided by the
employer's (as opposed to Mr. Casey's) contributions.
21
<PAGE>
SUPPLEMENTAL ARRANGEMENT FOR MR. BRANN.
In addition to the FSSP, the related retirement plan, and the Restoration
Plan, the Company has a noncontributory and unfunded supplemental contractual
arrangement (the "Supplemental Arrangement") designed to provide additional
retirement benefits to Mr. Brann. If Mr. Brann retires on or after age 65
following 25 years of service with the Company (including prior service with
Litton), his annual benefit (computed as a single life annuity) under the
Supplemental Arrangement is 55% of his final average compensation, less
amounts payable to Mr. Brann under Social Security and less that portion of
pension benefits deemed to have been provided by the employer's (as opposed to
Mr. Brann's) contributions which would have been received by Mr. Brann under
any other retirement plan sponsored by the Company or Litton if he was
eligible to participate and had participated at all times in any such plan to
the maximum extent permitted (regardless of the degree of actual
participation). Final average compensation means one-third of covered cash
compensation (including salary and bonus) paid during any three periods of 12
consecutive months specified by Mr. Brann occurring during the 60-month period
preceding his retirement. For purposes of the Supplemental Arrangement, Mr.
Brann had 23 credited years of service at March 14, 1997.
If Mr. Brann's employment is terminated before he has completed 25 years of
service or attained the age of 65, then the percentage of 55% referred to
above is reduced in accordance with a schedule relating to age and length of
service; however, payment of retirement benefits to Mr. Brann under the
Supplemental Arrangement will, in no event, commence until he reaches age 62.
The Supplemental Arrangement also provides for certain salary continuation
payments in the event of Mr. Brann's disability and certain survivors'
benefits in the event of his death prior to attaining age 62.
The following table indicates the approximate annual combined benefit which
would be received by Mr. Brann representing the sum of (a) the benefit under
the Company's basic retirement plan deemed to have been provided by the
employer's contributions and (b) the benefit under the Supplemental
Arrangement, based on the following assumptions: (i) participation in the
voluntary retirement plans to the maximum extent permitted during the entire
period of Mr. Brann's employment, (ii) retirement at age 65, and (iii)
election of the benefit in the form of a single life annuity.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------------------
REMUNERATION 15 20 25 OR MORE
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
$1,200,000 $420,000 $570,000 $ 660,000
1,400,000 490,000 665,000 770,000
1,600,000 560,000 760,000 880,000
1,800,000 630,000 855,000 990,000
2,000,000 700,000 950,000 1,100,000
</TABLE>
Although, as indicated above, the amount of such combined benefit would be
reduced by Mr. Brann's Social Security primary benefit, the foregoing table
does not give effect
22
<PAGE>
to such offset. Covered compensation under the Supplemental Arrangement is
aggregate cash compensation, including salary and bonus, actually paid to Mr.
Brann during the fiscal year. Since Mr. Brann received incentive awards from
Western Atlas payable in installments, and since Mr. Brann's bonus awarded by
Western Atlas for fiscal 1996 was not paid during 1996, the cash compensation
paid to Mr. Brann during 1996 was $1,312,000, rather than the amount shown in
the Summary Compensation Table.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN.
Mr. Roberts participates in the Western Atlas Inc. Supplemental Executive
Retirement Plan, an unfunded plan which provides additional retirement
benefits to key executive employees designated by the Compensation Committee
of the Board after nomination by the Chief Executive Officer. A participant in
this plan does not ordinarily vest in a retirement benefit until reaching the
age of 60 and completing 15 years of service and may not ordinarily begin
receiving a retirement benefit thereunder until reaching age 62. Under this
plan a participant's annual retirement benefit is the actuarial equivalent, as
of the age of the participant at retirement, of the following computation
(a) 1.6% of "average earnings" of the participant up to $125,000 (which amount
is adjusted annually for inflation) plus (b) 2.2% of "average earnings" in
excess of such amount, the sum of (a) plus (b) then being multiplied by the
participant's number of years of service (not to exceed 25) following the
participant's 40th birthday. Average earnings for purposes of this plan is the
average of base salary and cash bonus paid by the Company to the participant
in the three periods of 12 consecutive months in which the participant's cash
compensation was highest during the final 60 months of the participant's
employment. There is offset from the benefit calculated in the manner
described above the participant's Social Security primary benefit as well as
all amounts of "Company-provided" retirement benefit which the participant
receives (or could have received assuming full participation at all times of
eligibility) under other retirement plans sponsored by the Company. For
purposes of this plan, Mr. Roberts had 22 credited years of service at March
14, 1997.
The following table indicates the approximate combined annual retirement
benefit which would be received by a participant in this plan representing the
sum of (a) the Company-provided benefit under the Company's basic retirement
plan; (b) the benefit under the Restoration Plan; and (c) the benefit under
the Supplemental Executive Retirement Plan based on retirement at age 65, full
participation at all relevant times in the basic retirement plans, and
election of a benefit in the form of a single life annuity. The table does not
give effect to the offset of the participant's Social Security benefit.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------------------
REMUNERATION 15 20 25 OR MORE
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 600,000 $177,739 $236,986 $296,232
800,000 243,739 324,986 406,232
1,000,000 309,739 412,986 516,232
1,200,000 375,739 500,986 626,232
</TABLE>
23
<PAGE>
In addition to retirement benefits, certain benefits are payable under this
plan in the event of the death or disability of the participant. In the event
of a change of control of the Company, a participant is immediately vested in
the retirement benefit and is entitled to receive a lump sum payment equal to
the actuarial equivalent, as of the age of the participant on the date of the
change of control of the Company, of the retirement benefit which would have
been payable at age 65, unless the Committee elects to defer such lump sum
payment.
WAII PROFIT SHARING PLAN.
Messrs. Brannan and Russell participate in the WAII Retirement/Profit Sharing
Plan (the "Profit Sharing Plan"), which provides a lump-sum retirement benefit
equal to a participant's vested account balances. The Profit Sharing Plan is
generally available to most full-time U.S. employees and certain non-U.S.
employees of the oilfield services businesses of the Company. The plan has two
parts: one part provides for contributions to be made only by the employer,
and the other part allows participant contributions and is intended to qualify
under Section 401(k) of the Code. Under the portion of the plan which allows
participant contributions, a participant may elect to defer annually, subject
to the 401(k) Maximum Amount, from 1% to 10% of his or her covered
compensation for deposit to one or more available funds designated by the
participant ("401(k) Accounts"). To the extent employer contributions are made
to the Profit Sharing Plan, such contributions will first be made as matching
contributions to each of the 401(k) Accounts of participants. The employer may
match up to 66 2/3% of a participant's deferrals; however, in no event will
the annual amount of employer matching contributions made to any one
participant's 401(k) Account exceed 2% of such participant's compensation for
such year. Such employer matching contributions to the 401(k) Accounts of
Messrs. Brannan and Russell are included in column V of the Summary
Compensation Table for the years indicated. Additional employer contributions,
if any, will be made to each participant's Profit Sharing Plan account based
on the Profit Sharing Plan formula. The formula provides that, subject to
maximum amounts imposed by law on qualified defined contribution plans, a
participant's account is credited annually with a weighted share of employer
contributions and forfeitures of nonvested amounts of terminated employees'
accounts. Pursuant to this formula, the Profit Sharing Plan account and 401(k)
Account (including any employer matching contributions) are also allocated a
share of the net investment income or loss of the particular investment funds
designated by the participant.
WAII BENEFIT RESTORATION PLAN.
In addition to the Profit Sharing Plan, WAII has a noncontributory and
unfunded plan for employees, including Messrs. Brannan and Russell, whose
annual base salary is at least $100,000 and who have been selected as
participants by the President of WAII (the "WAII Benefit Restoration Plan").
The WAII Benefit Restoration Plan is designed to provide participants with the
difference between the actual amount of employer provided benefits under the
Profit Sharing Plan and the amount of employer provided benefits which would
otherwise be provided under the Profit Sharing Plan if the limitations imposed
by the Code with respect to allocations to a particular participant's Profit
Sharing Plan account and 401(k) Account and with respect to the employer's tax
deduction for amounts which would otherwise be contributed to the Profit
Sharing
24
<PAGE>
Plan were disregarded. Under the WAII Benefit Restoration Plan, individual
accounts are established by WAII for each participant and are credited with
the amounts which would have been contributed by WAII to a participant's
Profit Sharing Plan account and 401(k) Account but for the above-described
limitations imposed by the Code. These individual accounts are also credited
with earnings at the rate of earnings of the fixed income fund of the Profit
Sharing Plan. The vesting schedule and the benefit payment form under the WAII
Benefit Restoration Plan correspond to the vesting schedule and benefit
payment form under the Profit Sharing Plan. The accounts of Messrs. Brannan
and Russell under the WAII Benefit Restoration Plan were credited with the
amounts included in column V of the Summary Compensation Table for the years
indicated.
WAII SUPPLEMENTAL RETIREMENT PLAN.
Messrs. Brannan and Russell also participate in the supplemental retirement
plan of WAII, which provides potential additional retirement benefits to
designated employees of WAII. In the case of a participant who is age 65 or
older and has 25 or more years of service with WAII, the supplemental plan
provides an annual benefit equal to 55% of the participant's final average
compensation. Final average compensation means the 12-month average of the
highest consecutive 36-month period of the 60-month period prior to employment
termination and includes both base pay and any cash bonus paid during such 36
months. Such maximum 55% benefit is reduced by the participant's annual
primary Social Security benefit at age 65 (or annual pension which the
participant would receive at age 65 from a public retirement program of a
foreign country) plus the annualized annuity value of the lump sum benefit
payable to the participant under the Profit Sharing Plan and under the WAII
Benefit Restoration Plan described above (collectively, the "WAII Offsetting
Benefits")--provided, however, that such maximum benefit shall not be reduced
by more than 60% of the amount of the reductions described above, and,
provided further, that the sum of the annual benefit payable under the
supplemental plan, the Social Security primary benefit (or equivalent foreign
pension), and the WAII Offsetting Benefits shall not exceed 65% of the
participant's final average compensation. Thus, if a participant's WAII
Offsetting Benefits plus his or her Social Security or equivalent benefit
exceed 65% of final average compensation, the participant would receive no
benefit under the WAII supplemental retirement plan but would receive the full
benefit payable under the Profit Sharing Plan and the WAII Benefit Restoration
Plan. The figure of 55% referred to above is subject to reduction to account
for years of service and age at retirement.
25
<PAGE>
The following table indicates the approximate annual benefit which would be
received by a participant in the WAII supplemental plan based upon the
following assumptions: (i) retirement at age 65 and (ii) election of the
benefit in the form of a single life annuity. Although the amount of such
combined benefit would be reduced by the WAII Offsetting Benefits to the
extent described above and by the participant's Social Security primary
benefit, the foregoing table does not give effect to such reduction.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------------------
REMUNERATION 15 20 25
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 600,000 $180,000 $255,000 $330,000
800,000 240,000 340,000 440,000
1,000,000 300,000 425,000 550,000
1,200,000 360,000 510,000 660,000
</TABLE>
Mr. Brannan and Mr. Russell had 30 years and 27 years, respectively, of
credited service at March 14, 1997, for purposes of the WAII supplemental
retirement plan.
INDEBTEDNESS OF MANAGEMENT TO THE COMPANY.
As a form of additional incentive for the Company's key employees, the Company
provides loans to certain such employees located in the United States. Under
such program, loans in the aggregate principal amount of $1,196,000 were
outstanding at March 14, 1997, to four executive officers of the Company, as
follows: Alton J. Brann, $616,000; Charles A. Cusumano, $225,000; Michael E.
Keane, $100,000; and Norman L. Roberts, $255,000. These loans are unsecured,
currently bear interest at the rate of 4% per annum, and are payable on the
Company's demand, but, in any event, not later than the earlier of (i)
termination of the borrower's employment with the Company or any subsidiary
thereof, or (ii) December 31, 1998. The foregoing amounts represent the
largest amount of indebtedness of each such executive officer and present
executive officers as a group under such loan program outstanding since
December 31, 1995.
In addition, Joseph T. Casey had a loan in the principal amount of $415,000,
which was repaid upon his retirement as an executive officer on September 30,
1996.
CERTAIN TRANSACTIONS.
Joseph T. Casey, who retired as Vice Chairman and Chief Financial Officer of
the Company on September 30, 1996, has entered into a consulting agreement
with the Company for an initial term of one year from October 1, 1996, to
September 30, 1997, during which Mr. Casey agrees to provide consulting
services to the Company on not more than 50 days during the year for an annual
fee of $150,000 payable in monthly installments of $12,500. In the event the
Company requests Mr. Casey to provide consulting services on more than 50 days
during the year, Mr. Casey will receive compensation at the rate of $3,000 per
day. The agreement is renewable at the request
26
<PAGE>
of the Company on such terms as are mutually agreeable. During the time of the
agreement Mr. Casey agrees not to engage in any activity for a business which
competes with the business of the Company.
To facilitate the relocation of Orval F. Brannan, President of the E & P
Services division of WAII, to London, England, in October, 1996, WAII
purchased Mr. Brannan's residence in Houston, Texas, for the sum of $660,000.
The purchase price was determined by an independent licensed real estate
appraiser to represent the fair market value of the property at the time of
purchase by WAII.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION.
The Compensation Committee of the Board of Directors of Western Atlas Inc.,
composed entirely of outside independent directors, is responsible for, among
other duties, the determination and administration of policies and procedures
regarding executive compensation and for setting the amounts of such
compensation. In establishing the Company's executive compensation program,
the Committee takes into account current market data and compensation trends
for companies in industries comparable to those in which the Company is
engaged and compares corporate performance at Western Atlas to that of
selected peer group companies. The Committee also considers the effectiveness
of the program in achieving and rewarding desired performance levels.
The compensation program presently in effect has three elements: (1) base
annual salary; (2) potential annual cash incentive awards which are based
primarily on financial performance of the Company or its relevant business
operating unit; and (3) long-term incentives in the form of stock options. The
Committee believes that a significant portion of the total compensation of the
Company's executives should be at risk, based upon the achievement of
preestablished performance goals.
To assist in the accomplishment of its objectives, the Committee has retained
an independent national compensation consulting firm to provide advice and to
render reports when requested to do so with respect to data such as comparable
compensation levels for executives of the Company's competitors in both the
oilfield services and industrial automation systems industries.
BASE ANNUAL SALARY.
In considering appropriate adjustments to base annual salaries for executive
officers to be made during the 1996 fiscal year, the Committee focused
particularly upon pay levels, as reported to the Committee by its independent
compensation consultant, at the five oilfield services companies which, along
with Western Atlas, comprise the Standard & Poor's Oil Well Equipment &
Services Index (which is one of the two indexes with which the Company's total
shareholder return is compared in the stock performance graph immediately
following this report). The information provided by the consultant with
respect to pay levels at these other five companies comprised both base
salaries and total compensation, including incentive awards. The consultant's
report also considered competitive pay levels at 500 companies in a variety of
industries (excluding financial services).
27
<PAGE>
The median and average revenues of the five peer group oilfield services
companies are significantly greater than those of Western Atlas. Therefore, in
addition to providing 50th percentile and 75th percentile base salaries for
these peer group companies, the independent compensation consultant regressed
relevant base salaries of the Western Atlas executives against total revenues
of Western Atlas. Of the five Western Atlas executive officers covered by the
study, all had base salaries below the 50th percentile of the sample. In
addition, Mr. Brann and Mr. Russell had base salaries below the regression-
predicted median values, and the others had base salaries between 12% and 16%
above the regression-predicted median values. In view of the lack of direct
comparability between the positions of the Western Atlas executives and those
covered by the consultant's report, the Committee regarded the data presented
as indicative of base salaries in an acceptable range.
The Committee reviewed the results of the consultant's report and paid
particular attention to the circumstance that all five Western Atlas executive
officers reported upon by the consultant have award incentives (in the form of
cash bonuses) that are more leveraged than the compensation packages indicated
by market median data. Therefore, the fact that total compensation (as opposed
to base salary) of these officers approximates the 75th percentile of the
reported market data appears, in the Committee's view, to reflect greater risk
than the average compensation package reported upon, owing to the emphasis at
Western Atlas on short-term performance-related cash incentives.
In reliance upon the data contained in the report of the independent
consultant, and after a review of the performance, experience,
responsibilities, and effectiveness of the executive officers, the Committee
determined to grant increases in base salary to the Company's executive
officers which averaged approximately 4.9% (not including the increases in
base salary granted to three executive officers who received promotions during
fiscal 1996, which ranged from 10% to 36% of base salary). These increases in
the base salaries of the executive officers became effective on July 1, 1996.
ANNUAL BONUSES FOR 1996.
Approximately 91% of cash incentive awards to executive officers with respect
to the 1996 fiscal year were made under the terms of the Company's 1995
Incentive Compensation Plan, pursuant to which the award of a bonus is
contingent upon the achievement by the Company or its relevant operating unit
of preestablished performance goals set by the Committee. Awards under this
Plan are expected to be fully deductible from the Company's taxable income
pursuant to Section 162(m) of the Internal Revenue Code, which limits
deductibility of the compensation of the individuals included in the Summary
Compensation Table to $1 million, except for certain "performance-based"
compensation.
The Committee established at the beginning of fiscal 1996 a maximum potential
bonus under the 1995 Incentive Compensation Plan with respect to that year for
each executive officer which ranged, in the case of each individual, from 70%
of the individual's base salary to 125% thereof. With respect to those
executive officers who are members of the corporate staff, the Committee set
as performance goals levels of return on tangible equity of the Company and
its consolidated subsidiaries, and with
28
<PAGE>
respect to those executive officers who are associated with one of the
Company's two business segments, the Committee set as performance goals levels
of return on capital utilized achieved by the relevant business operating
unit. In order for any portion of maximum potential bonuses to be awarded
under the 1995 Incentive Compensation Plan, the applicable performance
threshold must be met. The percentage of maximum potential bonus paid is
dependent upon the extent actual performance meets or exceeds that threshold.
As a result of the actual level of performance achieved by the Company and its
applicable operating business units during the 1996 fiscal year, each
executive officer who is a member of the corporate staff was eligible to
receive 100% of the individual's maximum potential bonus under the 1995
Incentive Compensation Plan, and each executive officer associated with the
oilfield services business segment or the industrial automation systems
business segment was eligible to receive an award ranging from 80% to 100%
(depending upon the applicable business with which the executive officer is
associated) of the individual's maximum potential bonus under this Plan.
Based upon the Committee's conclusion that all of the executive officers had
exhibited commendable efforts and ability in the discharge of their
responsibilities and the fact that the Company had exceeded its targets for
growth in earnings per share and other financial measures, each executive
officer was awarded the maximum amount permitted by the applicable performance
goal formulas established under the 1995 Incentive Compensation Plan.
After completing the award of bonuses for executive officers for fiscal 1996
under the performance-driven 1995 Incentive Compensation Plan, the Committee
then discussed at length the circumstance that, for participants whose
performance goals were based on levels of return on tangible equity, the
Company's performance during 1996 exceeded the level necessary to qualify a
participant to receive his or her maximum potential bonus under the 1995
Incentive Compensation Plan by approximately 20%. The Committee concluded
that, because the actual performance of the Company exceeded by a considerable
margin that which had been anticipated by the Committee as the maximum which
was likely to be achieved in fiscal 1996, it was appropriate to consider the
grant of incentive awards under the Company's Individual Performance Award
Plan to four present executive officers whose performance goals were related
to return on tangible equity and to one executive officer responsible for
operations which showed substantially improved performance in 1996. The
Committee decided that, under the circumstances, these individuals should be
rewarded with additional amounts under the Individual Performance Award Plan,
which awards are intended in part to serve as an incentive for officers and
other key employees in the future to exceed, to the extent possible, 100% of
their preestablished performance goals.
Under the Individual Performance Award Plan, the Committee may grant awards,
which are not contingent upon the achievement of preestablished performance
goals, in circumstances when the Committee believes it appropriate to reward
outstanding performance on the part of individual participants. Amounts
awarded under the Individual Performance Award Plan would not qualify, in the
case of the executive officers named in the Summary Compensation Table, for
the exemption from the limitation on deductibility of compensation set forth
in Section 162(m) of the Internal Revenue Code.
29
<PAGE>
After full consideration of the matter, the Committee made awards aggregating
$155,044 to five present executive officers under the Individual Performance
Award Plan. The aggregate amount of these awards under the Individual
Performance Award Plan represented approximately 8.8% of the aggregate bonus
amounts received by these individuals under the 1995 Incentive Compensation
Plan. In awarding these additional amounts, the Committee took into
consideration not only the valuable role these executive officers had
performed with respect to the Company's outstanding financial results for 1996
but also their contribution to the development of the Company's strategy for
growth internally and by way of acquisitions.
Total bonuses so awarded to present executive officers as a group under both
the 1995 Incentive Compensation Plan and the Individual Performance Award Plan
aggregated $3,260,556 and represented 103% of the aggregate base salaries of
such executive officers in effect at the beginning of the 1996 fiscal year.
After completing the award of bonuses for fiscal 1996, the Committee discussed
the establishment of appropriate performance goals for 1997 awards under the
1995 Incentive Compensation Plan for executive officers. As was the case in
1996, the Committee then established performance goals for executive officers
on the corporate staff based on levels of return on tangible equity of the
consolidated enterprise and established performance goals for executive
officers associated with operating units of the Company based on levels of
return on capital utilized of the applicable business operating unit.
STOCK OPTION GRANTS.
In 1996 the Committee determined to follow the methodology utilized in 1995
with respect to the annual grant of stock options to officers and other key
employees. This methodology is based on a range of potential share quantities,
in the case of each executive officer, with the value of the grants based upon
a multiple of base salary, subject to the Committee's qualitative assessment
of each individual's performance.
The Committee reviewed the analysis of long-term stock-based incentives at
peer group companies (including stock options, restricted stock, and stock
appreciation rights) comprising part of the report prepared by the independent
compensation consultant and also reviewed materials prepared at the request of
the Committee by employees of the Company with respect to the type and amount
of stock-based incentives utilized at a number of other major corporations.
After completing such review, the Committee decided that the multiples of base
salary of the executive officers which should be utilized in 1996 should range
from 2.3 to 4.1, with the exception of one executive officer whose multiple
was set at 7.8 because of a promotion during the course of the year. In
reaching the determination that these multiples should be somewhat higher than
those utilized in 1995, the Committee took into consideration the fact that a
broader range of stock-based incentives are routinely granted by a number of
the Company's competitors.
The Committee determined in August, 1996, that options to purchase an
aggregate of 207,000 shares at an exercise price of $57.75, the then fair
market value of the Company's Common Stock, would be granted to the present
executive officer group. The Committee directed that the options granted to
executive officers be exercisable in 20% installments vesting on the first
through the fifth anniversaries of the date of the option grant.
30
<PAGE>
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER.
Effective July 1, 1996, the Committee increased the annual base salary of Mr.
Brann from $675,000 to $700,000, representing an increase of approximately
3.7%. The Committee expressed its view that a substantial part of Mr. Brann's
total compensation should be at risk, subject to the satisfaction by the
Corporation of certain performance goals preestablished by the Committee. In
view of Mr. Brann's potential ability to earn an amount greater than his base
salary in the form of a bonus award, the Committee determined that the
adjustment in base salary described above was appropriate.
The Committee had established Mr. Brann's maximum potential bonus for 1996 as
125% of his base salary of $675,000 in effect at the beginning of fiscal 1996.
As a result of the achievement of performance goals based on return on
tangible equity of the Company during 1996, Mr. Brann qualified to receive his
maximum potential bonus of $843,750. The Committee determined it was
appropriate to award the entire amount of such bonus to Mr. Brann in view of
the Company's outstanding performance during 1996 when the Company had record
earnings per share.
In addition, as set forth above, the Company's actual performance during 1996
exceeded by a considerable margin the level required for Mr. Brann to receive
100% of his maximum potential bonus under the 1995 Incentive Compensation
Plan. Therefore, in view of Mr. Brann's extraordinary efforts directed to
achieving that result, as well as his outstanding leadership in developing and
implementing the Company's strategic plan and maintaining its position as a
leader in all of its principal businesses, the Committee determined that Mr.
Brann should also receive an award of $84,375 under the Individual Performance
Award Plan.
Of Mr. Brann's aggregate award of $928,125 under both plans, $337,500 was paid
to Mr. Brann in February, 1997; and, subject to the terms of the 1995
Incentive Compensation Plan, the same amount will be paid in February, 1998,
with the remaining $253,125 to be paid in February, 1999.
Applying the stock option grant methodology described above, the Committee
granted to Mr. Brann options to purchase 50,000 shares of the Company's Common
Stock at an exercise price of $57.75, the market value of the stock on the
grant date in August, 1996. Such number of options resulted from applying a
multiple of 4.1 to Mr. Brann's base compensation, consistent with the
guidelines referred to earlier.
31
<PAGE>
SECTION 162(m) POLICY.
The Committee's policy is to qualify for deduction for Federal income tax
purposes all executive compensation by compliance with Section 162(m) of the
Internal Revenue Code except in instances, such as the awards made under the
Company's Individual Performance Award Plan as described above, when the
Committee may determine it is in the Company's best interest to award
compensation which does not so qualify. The Committee notes that, in view of
the compensation level of the recipients of the awards and the performance-
based nature of more than 90% of their total 1996 bonuses, no portion of
awards made under the Individual Performance Award Plan for 1996 is expected
to result in the loss of any tax deduction to the Company.
Dated: March 18, 1997
THE COMPENSATION COMMITTEE
Paul Bancroft, III, Chair William C. Edwards
Claire W. Gargalli Steven B. Sample
32
<PAGE>
STOCK PERFORMANCE GRAPH.
Set forth below is a line graph comparing the percentage change in the
cumulative total shareholder return on Western Atlas Common Stock with the
cumulative total return of the Standard & Poor's 500 Composite Stock Index and
the Standard & Poor's Oil Well Equipment & Services Index for the period
beginning March 8, 1994, which was the date "when issued" trading commenced in
Western Atlas Common Stock on the New York Stock Exchange, and ending December
31, 1996. The graph assumes the investment of $100 on March 8, 1994, in
Western Atlas Common Stock, in the S&P 500, and in the S&P Oil Well Equipment
& Services Index. Total shareholder return was calculated on the basis that in
each case all dividends were reinvested.
COMPARISON OF CUMULATIVE TOTAL RETURN BASED
ON REINVESTMENT OF $100
MARCH 8, 1994 - DECEMBER 31, 1996
<TABLE>
<CAPTION>
OIL & GAS
Measurement Period WESTERN (DRILLING & S&P
(Fiscal Year Covered) ATLAS INC. EQUIP)-500 500 INDEX
- - ------------------- ---------- ------------ ----------
<S> <C> <C> <C>
Measurement Pt- 3/8/94 $100.00 $100.00 $100.00
FYE 12/31/94 $ 91.77 $ 95.02 $100.77
FYE 12/31/95 $123.17 $131.64 $138.64
FYE 12/31/96 $172.87 $186.30 $170.47
</TABLE>
33
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF COMMON STOCK.
BY MANAGEMENT.
The following table sets forth the number of shares of Common Stock
beneficially owned, directly or indirectly, by each director, each Named
Executive Officer, and all directors and executive officers as a group, as of
March 14, 1997. Except as otherwise indicated, each individual named has sole
investment and voting power with respect to the securities shown.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (a) CLASS
---------------------------------------------------------------------------
<S> <C> <C>
Paul Bancroft, III 26,000 *
Alton J. Brann 163,985 *
Orval F. Brannan 10,499 *
Joseph T. Casey 197,513(b) *
William C. Edwards 17,300(c) *
Claire W. Gargalli 16,000 *
Orion L. Hoch 123,573(d) *
Norman L. Roberts 31,401 *
John R. Russell 60,852 *
Steven B. Sample 16,500 *
Clayton A. Williams 31,400 *
All directors and executive
officers (16 persons) 839,273(e) 1.55%
</TABLE>
* Less than 1%.
(a) Includes shares of Common Stock subject to options which were exercisable
on March 14, 1997, or which become exercisable within 60 days thereafter,
as follows: Mr. Bancroft, 24,000 shares; Mr. Brann, 148,136 shares; Mr.
Brannan, 10,250 shares; Mr. Casey, 119,250 shares; Mr. Edwards, 14,000
shares; Ms. Gargalli, 14,000 shares; Dr. Hoch, 21,916 shares; Mr. Roberts,
31,250 shares; Mr. Russell, 57,250 shares; Dr. Sample, 16,000 shares; Mr.
Williams, 31,000 shares; and such group, 546,742 shares.
(b) Includes 10,000 shares held by a charitable corporation of which Mr. Casey
serves as trustee. Mr. Casey has voting and investment power with respect
to such 10,000 shares and may thus be deemed to have incidents of
beneficial ownership thereof for certain purposes within the meaning of
applicable regulations of the SEC.
(c) Includes 3,300 shares held by a general partnership of which Mr. Edwards
is a general partner.
(d) Includes 1,080 shares owned by Dr. Hoch's wife, as to which shares Dr.
Hoch disclaims beneficial ownership.
34
<PAGE>
(e) Includes 50,000 shares of Common Stock held by The Western Atlas
Foundation (the "Foundation"). Voting power and investment power with
respect to these shares are exercised by the Foundation's officers, a
majority of whom are officers of the Company and who are elected by the
directors of the Foundation. The Foundation's directors are elected by,
and may be removed by, the Board of Directors of the Company. The officers
of the Foundation share voting power and investment power with respect to
such shares of Common Stock held by the Foundation and thus may be deemed
to have incidents of beneficial ownership thereof for certain purposes
within the meaning of the SEC regulations referred to above. Also includes
31,475 shares of Common Stock held by the Western Atlas Master Pension
Fund, a trust organized to hold the assets of certain qualified U.S.
pension plans. Voting and investment power with respect to these shares
are exercised by a committee appointed by the Board of Directors
comprising four officers of the Company and Joseph T. Casey, a director of
and consultant to the Company.
BY OTHERS.
The following table sets forth each person or entity that as of December 31,
1996, reported beneficial ownership of more than 5% of the Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
-----------------------------------------------------------------------------
<S> <C> <C>
Unitrin, Inc. 12,657,764(a) 23.58%
One East Wacker Drive
Chicago, IL 60601
-----------------------------------------------------------------------------
FMR Corp. 6,934,315(b) 12.92%
82 Devonshire Street
Boston, MA 02109
-----------------------------------------------------------------------------
The Capital Group Companies, Inc. 3,947,100(c) 7.35%
333 South Hope Street
Los Angeles, CA 90071
-----------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 3,125,031(d) 5.82%
World Financial Center, North Tower
250 Vesey Street
New York, NY 10281
</TABLE>
(a) Unitrin, Inc. ("Unitrin"), has reported in a filing on Schedule 13D under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that
these shares are owned by two of its subsidiaries, Trinity Universal
Insurance Company (7,206,776 shares) and United Insurance Company of
America (5,450,988 shares). Unitrin reported that such subsidiaries each
share voting power and dispositive power with Unitrin over the shares
respectively reported by them. Based upon the foregoing, Unitrin
beneficially owns 12,657,764 shares of Common Stock.
35
<PAGE>
(b) The number of shares of the Common Stock indicated was reported by FMR
Corp. ("FMR") in a filing on Schedule 13G under the Exchange Act, which
states that FMR has sole dispositive power with respect to these shares
and sole voting power with respect to 266,991 of such shares.
(c) In a filing on Schedule 13G under the Exchange Act, The Capital Group
Companies, Inc., stated that it has sole voting power with respect to
754,800 shares and sole dispositive power with respect to 3,947,100
shares. The Capital Group Companies, Inc., has advised Western Atlas that
2,881,800 of such shares are beneficially owned by its wholly owned
subsidiary Capital Research and Management Company, which acts as
investment manager for institutional investors such as pension funds and
mutual funds, and the remainder of such shares are beneficially owned by
others of its subsidiaries. The Capital Group Companies, Inc., disclaims
beneficial ownership of these shares.
(d) In a filing on Schedule 13G under the Exchange Act, Merrill Lynch & Co.,
Inc. stated that it held shared voting power and shared dispositive power
with respect to 3,125,031 shares. The filing further discloses that the
beneficial owner of the shares reported is a registered investment company
advised by Merrill Lynch Asset Management known as Merrill Lynch Growth
Fund for Investment and Retirement. Merrill Lynch & Co. and various of its
affiliates disclaim beneficial ownership of the shares of the Company
reported.
FILING OF REPORTS UNDER SECTION 16(a) OF THE EXCHANGE ACT.
Section 16(a) of the Exchange Act requires that the Company's executive
officers, directors, and persons who hold more than 10% of a registered class
of the Company's equity securities file reports of ownership and changes in
ownership with the SEC and the New York Stock Exchange. Executive officers,
directors, and greater than 10% shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on an examination of the copies of such forms furnished to the
Company and written representations that no other reports were required during
1996, all Section 16(a) filing requirements applicable to the Company's
executive officers and directors were satisfied in 1996.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING.
Shareholders may submit proposals on matters appropriate for shareholder
action at the Company's annual meetings consistent with regulations adopted by
the SEC. For such proposals to be considered for inclusion in the proxy
statement and form of proxy relating to the 1998 Annual Meeting, they must be
received by the Company not later than November 28, 1997. Such proposals
should be directed to the attention of the Secretary of the Company at 360
North Crescent Drive, Beverly Hills, California 90210-4867.
THE BOARD OF DIRECTORS
WESTERN ATLAS INC.
36
<PAGE>
EXHIBIT A
WESTERN ATLAS INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
1. ESTABLISHMENT OF PLAN.
Western Atlas Inc., a Delaware corporation (the "Company"), proposes to
grant options ("Options") for purchase of the Company's common stock, $1 par
value ("Common Stock"), to eligible employees of the Company and its
Designated Subsidiaries (as hereinafter defined) pursuant to this 1996
Employee Stock Purchase Plan (this "Plan"). For purposes of this Plan, "parent
corporation" and "subsidiary" (collectively, "Subsidiaries") shall have the
same meanings as "parent corporation" and "subsidiary corporation" set forth
in Sections 424(e) and 424(f), respectively, of the Internal Revenue Code of
1986, as amended (the "Code"). The Company intends this Plan to qualify as an
"employee stock purchase plan" under Section 423 of the Code (including any
amendments or successor provisions to such Section), and this Plan shall be so
construed. Any term not expressly defined in this Plan but defined for
purposes of Section 423 of the Code shall have the same definition therein.
2. STOCK SUBJECT TO PLAN.
A total of 2,500,000 shares of the Common Stock is reserved for issuance
under this Plan. Such number shall be subject to adjustments effected in
accordance with Section 16 of this Plan. Any shares of Common Stock that have
been made subject to an Option that cease to be subject to the Option (other
than by means of exercise of the Option), including, without limitation, in
connection with the cancellation or termination of an Option, shall again be
available for issuance in connection with future grants of Options under this
Plan.
3. PURPOSE.
The purpose of this Plan is to provide employees of the Company and its
designated subsidiaries, as that term is defined in Section 5 of this Plan
("Designated Subsidiaries"), with a convenient means of acquiring an equity
interest in the Company through payroll deductions, to enhance such employees'
sense of participation in the affairs of the Company and Subsidiaries, and to
provide an incentive for continued employment.
4. ADMINISTRATION.
This Plan shall be administered by a committee (the "Committee") appointed
by the Company's Board of Directors (the "Board") consisting of at least two
members, who need not be members of the Board and who may be eligible to
participate in the Plan. The Committee shall initially be the Compensation
Committee of the Board. Subject to the provisions of this Plan and the
limitations of Section 423 of the Code or any successor provision in the Code,
the Committee shall have exclusive authority, in its discretion, to determine
all matters relating to Options granted under this Plan, including all terms,
conditions, restrictions, and limitations of Options; provided, however, that
all participants granted Options under an offering pursuant to this Plan
A-1
<PAGE>
shall have the same rights and privileges within the meaning of Code Section
423(b)(5) except as required by applicable law. The Committee shall also have
exclusive authority to interpret this Plan and may from time to time adopt
rules and regulations of general application for this Plan's administration.
The Committee's exercise of discretion and interpretation of this Plan, its
rules and regulations, and all actions taken and determinations made by the
Committee pursuant to this Plan shall be conclusive and binding on all parties
involved or affected. The Committee may delegate administrative duties to
employees of the Company or to independent contractors, as it deems advisable.
All expenses incurred in connection with the administration of this Plan shall
be paid by the Company and the Designated Subsidiaries; provided, however,
that the Committee may require a participant to pay any costs or fees in
connection with the sale by the participant of shares of Common Stock acquired
under this Plan or in connection with the participant's request for the
issuance of a certificate for shares of Common Stock held in the participant's
account under the Plan.
5. ELIGIBILITY.
Any employee of the Company or the Designated Subsidiaries is eligible to
participate in the Plan for any Offering Period (as hereinafter defined) under
this Plan except the following:
(a) employees who have not been continuously employed by the Company or
Subsidiaries from the date of hire or rehire or of return from an
unapproved leave of absence for a period of at least one year before the
beginning of such Offering Period;
(b) employees who are customarily employed for less than 20 hours per
week;
(c) employees who are customarily employed for not more than five months
in a calendar year;
(d) employees who, together with any other person whose stock would be
attributed to such employee pursuant to Section 424(d) of the Code, own
stock or hold options to purchase stock possessing five percent or more of
the total combined voting power or value of all classes of stock of the
Company or any of its Subsidiaries or who, as a result of being granted
Options under this Plan would own stock or hold options to purchase stock
possessing five percent or more of the total combined voting power or
value of all classes of stock of the Company or any of its Subsidiaries;
(e) employees whose employment terms are covered by a collective
bargaining agreement in situations where the applicable union or other
collective bargaining unit has either refused to bargain with respect to
this Plan as an employee benefit or has considered this Plan as a
potential employee benefit and has rejected this Plan or has otherwise
determined that employees which such union or other bargaining unit
represents may not participate in this Plan; and
(f) employees who are citizens of a foreign country which prohibits
foreign corporations from granting stock options to any of its citizens.
A-2
<PAGE>
For all purposes of this Plan, the term Designated Subsidiaries shall mean
those Subsidiaries listed on Annex A to this Plan or Subsidiaries which may
hereafter be determined by the Committee or the Board to be Designated
Subsidiaries. A Designated Subsidiary will cease to be a Designated Subsidiary
on the earlier of (i) the date the Committee or the Board determines that such
Subsidiary is no longer a Designated Subsidiary or (ii) such Designated
Subsidiary ceases for any reason to be a "parent corporation" or "subsidiary
corporation" as defined in Sections 424(e) and 424(f), respectively, of the
Code.
6. OFFERING PERIODS.
The offering periods of this Plan (individually, an "Offering Period") shall
be of periods not to exceed the maximum period permitted by Section 423 of the
Code. Until determined otherwise by the Committee or the Board, (a) Offering
Periods shall commence on January 1 and July 1 of each calendar year,
provided, however, that the first Offering Period shall begin on September 1,
1996, and (b) each Offering Period, with the exception of the initial Offering
Period which shall consist of one four-month purchase period, shall consist of
one six-month purchase period (individually, a "Purchase Period") during which
payroll deductions of the participants are accumulated under this Plan. The
first day of each Offering Period is referred to as the "Offering Date." The
last day of each Purchase Period is referred to as the "Purchase Date."
Subject to the requirements of Section 423 of the Code, the Committee or the
Board shall have the power to change the duration of Offering Periods or
Purchase Periods with respect to future offerings if such change is announced
at least 30 days prior to the first day of the first Offering Period to be
affected by such change.
7. PARTICIPATION IN THIS PLAN.
Eligible employees may become participants in an Offering Period under this
Plan on the first Offering Date after satisfying the eligibility requirements
by delivering an enrollment form provided by the Company to the administrator
for this Plan at the division of the Company or the Designated Subsidiary by
which the participant is employed ("Division Plan Administrator") not later
than the 15th day of the month (or if such day is not a business day for the
Company or the applicable Subsidiary, on the immediately preceding business
day) before such Offering Date unless a later time for filing the enrollment
form authorizing payroll deductions is set by the Committee for all eligible
employees with respect to a given Offering Period. Once an employee becomes a
participant in the Plan with respect to an Offering Period, such employee will
automatically participate in the Offering Period commencing immediately
following the last day of the prior Offering Period unless the employee
withdraws from this Plan or terminates further participation in the Offering
Period as set forth in Sections 13 and 14 below. Such participant is not
required to file any additional enrollment form in order to continue
participation in this Plan, except that the Committee may require the filing
of new enrollment forms by participants who transfer to another division of
the Company or a Designated Subsidiary.
A-3
<PAGE>
8. GRANT OF OPTION ON ENROLLMENT.
Enrollment by an eligible employee in this Plan with respect to an Offering
Period will constitute the grant by the Company to such employee of an Option
to purchase on the Purchase Date up to that number of shares of Common Stock
of the Company, and any fraction of a share, determined by dividing (a) the
amount accumulated in such employee's payroll deduction account during the
Purchase Period ending on such Purchase Date by (b) the Purchase Price as that
term is defined in Section 9; provided, however, that the number of shares
which may be purchased pursuant to an Option may in no event exceed the number
of shares determined in the manner set forth in Section 11(b) of the Plan or
such other maximum number of shares as may be specified in the future by the
Committee in lieu of the limitation set forth in Section 11(b).
9. PURCHASE PRICE.
The purchase price per share (the "Purchase Price") at which a share of
Common Stock will be sold in any Purchase Period shall initially be the lower
of (a) 85 percent of the fair market value of such share on the first day of
the Offering Period in which such Purchase Period occurs or (b) 85 percent of
the fair market value of such share on the Purchase Date; provided, however,
that in no event may the purchase price per share of Common Stock be below the
par value per share of Common Stock.
For purposes of this Plan, the term "fair market value" on a given date
shall be the mean between the highest and lowest reported sales prices of the
Common Stock on the New York Stock Exchange Composite Tape or, if the Common
Stock is not listed on such exchange, any other national securities exchange
on which the Common Stock is listed or on NASDAQ. If there is no reported sale
price of the Common Stock on such date, then the "fair market value" shall be
measured on the next preceding trading day for which such reported sale price
is available. If there is no regular trading market for the Common Stock, the
fair market value of the Common Stock shall be as determined by the Committee
in its sole discretion, exercised in good faith. The Committee may change the
manner in which the Purchase Price is determined with respect to future
offerings (provided such determination does not have the effect of lowering
the Purchase Price to an amount less than that which would be computed
utilizing the method for determining the Purchase Price set forth in the first
paragraph of this Section 9) if such changed manner of computation is
announced at least 30 days prior to the first day of the first Offering Period
to be affected by such change.
10. PURCHASE OF SHARES; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF SHARES.
(a) Funds contributed by each participant for the purchase of shares under
this Plan shall be accumulated by regular payroll deductions made during each
Offering Period. The deductions shall be made as a percentage of the
participant's Compensation in 1 percent increments comprising not less than 1
percent and not more than 8 percent of Compensation. As used herein,
"Compensation" shall mean all base salary, wages, cash bonuses, commissions,
and overtime; provided, however, that, for purposes of determining a
participant's Compensation, any election by such participant to reduce his or
her regular cash remuneration under Sections 125 or 401(k)
A-4
<PAGE>
of the Code shall be treated as if the participant did not make such election.
"Compensation" does not include severance pay, hiring and relocation
allowances, pay in lieu of vacation, automobile allowances, imputed income
arising under any Company group insurance or benefit program, income received
in connection with stock options, or any other special items of remuneration.
Payroll deductions shall commence on the first payday following the Offering
Date and shall continue through the last payday of the Offering Period unless
sooner altered or terminated as provided in this Plan.
(b) A participant may lower (but not increase) the rate of payroll
deductions during an Offering Period by filing with the Division Plan
Administrator a new authorization for payroll deductions, in which case the
new rate shall become effective for the next payroll period commencing more
than 15 days after the Division Plan Administrator's receipt of the
authorization and shall continue for the remainder of the Offering Period
unless changed as described below. Such change in the rate of payroll
deductions may be made at any time during an Offering Period, but not more
than one change may be made effective during any Offering Period.
Notwithstanding the foregoing, a participant may lower the rate of payroll
deductions to zero for the remainder of the Offering Period. A participant may
increase or decrease the rate of payroll deductions for any subsequent
Offering Period by filing with the Division Plan Administrator a new
authorization for payroll deductions not later than the 15th day of the month
(or if such date is not a business day, the immediately preceding business
day) before the beginning of such Offering Period. A participant who has
decreased the rate of withholding to zero will be deemed to continue as a
participant in the Plan until the participant withdraws from the Plan in
accordance with the provisions of Section 13 or his or her participation is
terminated in accordance with the provisions of Section 14. A participant
shall have the right to withdraw from this Plan in the manner set forth in
Section 13 regardless of whether the participant has exercised his or her
right to lower the rate at which payroll deductions are made during the
applicable Offering Period.
(c) All payroll deductions made for a participant will be credited to his or
her account under this Plan and deposited with the general funds of the
Company. No interest will accrue on payroll deductions. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose, and the Company shall not be obligated to segregate such payroll
deductions.
(d) On each Purchase Date, provided that the participant has not terminated
employment in accordance with Section 14 or has not submitted to the Division
Plan Administrator a signed and completed withdrawal form, in either case on
or before the 15th day (or if such date is not a business day, on the
immediately preceding business day) of the last month of the Offering Period
in accordance with Section 10(b) or Section 13 of this Plan, or the Plan has
not been terminated prior to the date referred to in the foregoing clause, the
Company shall apply the funds then in the participant's account to the
purchase at the Purchase Price of whole and any fractional share of Common
Stock issuable under the Option granted to such participant with respect to
the Offering Period to the extent that such Option is exercisable on the
Purchase Date.
A-5
<PAGE>
(e) During a participant's lifetime, such participant's Option to purchase
shares hereunder is exercisable only by him or her. The participant will have
no interest or voting right in shares covered by his or her Option until such
Option has been exercised.
(f) Unless the Committee shall in the future determine otherwise, the
maximum amount which may be deducted from any participant's Compensation for
the purpose of purchasing Common Stock under this Plan shall not exceed
$21,250 in any single calendar year.
11. LIMITATIONS ON RIGHTS TO PURCHASE.
(a) No employee shall be granted an Option to purchase Common Stock under
this Plan at a rate which, when aggregated with his or her rights to purchase
stock under all other employee stock purchase plans of the Company or any
Subsidiary which is intended to meet the requirements of Code Section 423,
exceeds $25,000 in fair market value, determined as of the applicable date of
the grant of the Option, for each calendar year in which the employee
participates in this Plan (or any other employee stock purchase plan described
in this Section 11(a)).
(b) The number of shares which may be purchased by any employee on the first
Purchase Date to occur in any calendar year may not exceed the number of
shares determined by dividing $25,000 by the fair market value (as defined in
Section 9) of a share of Common Stock on the first day of the Offering Period
in which such Purchase Date occurs. The number of shares which may be
purchased by any employee on any subsequent Purchase Date which occurs in the
same calendar year (as that referred to in the preceding sentence) shall not
exceed the number of shares determined by performing the calculation described
below, with all computations to be made to the nearest ten thousandth of a
whole share of Common Stock or one hundredth of one cent, as the case may be.
Step One: The number of shares purchased by the employee during any
previous Offering Period which occurred in the same calendar year shall be
multiplied by the fair market value (as defined in Section 9) of a share
of Common Stock on the first day of such previous Offering Period in which
such shares were purchased.
Step Two: The amount determined in Step One shall be subtracted from
$25,000.
Step Three: The amount determined in Step Two shall be divided by the fair
market value (as defined in Section 9) of a share of Common Stock on the
first day of the Offering Period in which the subsequent Purchase Date
(for which the maximum number of shares which may be purchased is being
determined by this calculation) occurs. The quotient so obtained shall be
the maximum number of shares which may be purchased by any employee on
such subsequent Purchase Date.
Subject to the limitations of Section 423 of the Code, the Committee may
from time to time determine that a different maximum number of shares may be
purchased on any given Purchase Date in lieu of the maximum amounts described
above in this Section 11(b), in which case the number of shares which may be
purchased by any employee on such Purchase Date may not exceed such different
limitation.
A-6
<PAGE>
(c) If the number of shares to be purchased on a Purchase Date by all
employees participating in this Plan exceeds the number of shares then
available for issuance under this Plan, then the Company will make a pro rata
allocation of the remaining shares in as uniform a manner as shall be
reasonably practicable and as the Committee shall determine to be equitable.
In such event, the Company shall give written notice of such reduction of the
number of shares to be purchased under a participant's Option to each
participant affected thereby.
(d) Any payroll deductions accumulated in a participant's account which are
not used to purchase stock due to the limitations in this Section 11 shall be
returned to the participant as soon as practicable after the end of the
applicable Purchase Period without interest.
12. EVIDENCE OF STOCK OWNERSHIP.
(a) Promptly following each Purchase Date, the number of full and fractional
shares of Common Stock purchased by each participant shall be deposited into
an account established in the participant's name at a stock brokerage or other
financial services firm designated or approved by the Committee (the "Plan
Financial Agent"). A participant shall be free to undertake a disposition
(whether by way of sale, gift, or other transfer) of the shares in his or her
account at any time, but, in the absence of such a disposition, the shares
must remain in the participant's account at the Plan Financial Agent until the
holding period set forth in Code Section 423(a) has been satisfied. With
respect to full (but not fractional) shares for which the Code Section 423(a)
holding period has been satisfied, the participant may move those shares to
another brokerage account of the participant's choosing or request that a
stock certificate for full (but not fractional) shares be issued and delivered
to him or her. In the event a participant or former participant shall have an
account balance of less than one full share with the Plan Financial Agent as
of the first day of any Offering Period for which such participant has elected
not to participate in the Plan, the Plan Financial Agent shall cause such
fractional share to be sold as promptly as possible and the cash proceeds from
such sale to be paid to the account holder.
(b) Following termination of a participant's employment for any reason, the
participant shall have a period of 60 days to notify the Plan Financial Agent
whether such participant desires (i) to receive a certificate representing all
full shares then in the participant's account with the Plan Financial Agent
and cash in lieu of any fractional share interest or (ii) to sell the shares,
including any fractional share, in the participant's account through the Plan
Financial Agent. If the terminated participant fails to file such notice with
the Plan Financial Agent within 60 days after termination, he or she shall be
deemed to have elected the alternative set forth in clause (i) above. However,
the participant shall not in any event receive a certificate representing
shares with respect to which the Code Section 423(a) holding period has not
been satisfied until such holding period has been satisfied.
13. WITHDRAWAL.
(a) Each participant may withdraw from an Offering Period under this Plan by
signing and delivering to the Division Plan Administrator a written notice to
that effect on a form provided for such purpose. Such withdrawal may be
elected at any time on
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or prior to the 15th day of the last month (or if such date is not a business
day, the immediately preceding business day) of an Offering Period.
(b) Upon withdrawal from this Plan, the accumulated payroll deductions of
the participant not theretofore utilized for the purchase of shares of Common
Stock on a Purchase Date shall be returned to the withdrawn participant,
without interest, and his or her participation in this Plan shall terminate.
In the event a participant voluntarily elects to withdraw from this Plan, he
or she may not resume his or her participation in this Plan during the same
Offering Period, but he or she may participate in any subsequent Offering
Period by filing a new authorization for payroll deductions in the same manner
as set forth above for initial participation in this Plan.
14. TERMINATION OF EMPLOYMENT; LEAVE OF ABSENCE.
Termination of a participant's employment for any reason, including
retirement, death, or the failure of a participant to remain an eligible
employee, immediately terminates his or her participation in this Plan. In
such event, except as provided in Section 15, the payroll deductions credited
to the participant's account will be returned to him or her or, in the case of
his or her death, to his or her beneficiary or heirs, without interest. For
purposes of this Section 14, an employee will not be deemed to have terminated
employment or failed to remain in the continuous employ of the Company in the
case of any leave of absence approved by the Committee.
15. RETURN OF PAYROLL DEDUCTIONS.
In the event a participant's interest in this Plan is terminated by
withdrawal, termination of employment, or otherwise, or in the event this Plan
is terminated by the Board, the Company shall promptly deliver to the
participant all contributions of the participant to the Plan which have not
yet been applied to the purchase of stock unless such termination of
participation occurs later than the 15th day of the final month of the
Offering Period (or if such date is not a business day, on the preceding
business day), in which event such contributions will be utilized to purchase
Common Stock for the participant. No interest shall accrue on the payroll
deductions of a participant in this Plan.
16. CAPITAL CHANGES.
In the event that at any time or from time to time a stock dividend, stock
split, spin-off, combination or exchange of shares, recapitalization, merger,
consolidation, distribution to stockholders other than a normal cash dividend,
or other change in the Company's corporate or capital structure results in (a)
the outstanding shares of Common Stock or any securities exchanged therefor or
received in their place being exchanged for a different number or class of
securities of the Company or of any other corporation or (b) new, different,
or additional securities of the Company or of any other corporation being
received by the holders of shares of Common Stock, then the Committee, in its
sole discretion, shall make such equitable adjustments as it shall deem
appropriate in the circumstances in the maximum number and kind of shares of
stock subject to this Plan as set forth in Sections 1 and 2, the number and
kind of shares subject to outstanding Options, and the Purchase Price. The
determination by the Committee as to the terms of any of the foregoing
adjustments shall be conclusive and binding.
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17. NONASSIGNABILITY.
Neither payroll deductions credited to a participant's account nor any
rights with regard to the exercise of an Option or to receive shares under
this Plan may be assigned, transferred, pledged, or otherwise disposed of in
any way (other than by will, the laws of descent and distribution, or as
provided in Section 24 hereof) by the participant. Any such attempt at
assignment, transfer, pledge, or other disposition shall be void and without
effect.
18. REPORTS AND STATUS OF ACCOUNTS.
Individual accounts will be maintained by the Plan Financial Agent for each
participant in this Plan. The participant shall have all ownership rights with
respect to shares of Common Stock held in his or her account by the Plan
Financial Agent, including the right to vote such shares and to receive any
dividends or distributions which may be declared thereon by the Board. The
Plan Financial Agent shall send to each participant promptly after the end of
each Purchase Period a report of his or her account setting forth with respect
to such Purchase Period the total payroll deductions accumulated, the number
of whole and any fractional share purchased, and the per share price thereof,
and also setting forth the total number of shares (including any fractional
share) then held in his or her account. Neither the Company nor any Designated
Subsidiary shall have any liability for any error or discrepancy in any such
report.
19. NO RIGHTS TO CONTINUED EMPLOYMENT; NO IMPLIED RIGHTS.
Neither this Plan nor the grant of any Option hereunder shall confer any
right on any employee to remain in the employ of the Company or any Subsidiary
or restrict the right of the Company or any Subsidiary to terminate such
employee's employment. The grant of any Option hereunder during any Offering
Period shall not give a participant any right to similar grants thereafter.
20. EQUAL RIGHTS AND PRIVILEGES.
All eligible employees shall have equal rights and privileges with respect
to this Plan except as required by applicable law so that this Plan qualifies
as an "employee stock purchase plan" within the meaning of Section 423 or any
successor provision of the Code and the related regulations. Any provision of
this Plan which is inconsistent with Section 423 or any successor provision of
the Code shall, without further act or amendment by the Company, the Board, or
the Committee, be reformed to comply with the requirements of Section 423.
This Section 20 shall take precedence over all other provisions in this Plan.
21. NOTICES.
All notices or other communications by a participant to the Company under or
in connection with this Plan shall be deemed to have been duly given when
received in the form specified by the Company at the location, or by the
person, designated by the Company for the receipt thereof.
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<PAGE>
22. AMENDMENT OF PLAN.
This Plan may be amended by the stockholders of the Company. The Board may
also amend this Plan in such respects as it shall deem advisable; however,
stockholder approval will be required for any amendment that will increase the
total number of shares as to which Options may be granted under this Plan, or,
but for such shareholder approval, cause this Plan to fail to continue to
qualify as an "employee stock purchase plan" under Section 423 of the Code.
23. TERMINATION OF THE PLAN.
The Company's stockholders or the Board may suspend or terminate this Plan
at any time. Unless this Plan shall theretofore have been terminated by the
Company's stockholders or the Board, this Plan shall terminate on, and no
Options shall be granted after, December 31, 2006. No Options shall be granted
during any period of suspension of this Plan.
24. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who is to
receive any shares and cash, if any, from the participant's account under this
Plan in the event of such participant's death prior to delivery to him or her
(or to the Plan Financial Agent on his or her behalf) of such shares and cash.
(b) Such designation of beneficiary may be changed by the participant at any
time by written notice. In the event of the death of a participant and in the
absence of a beneficiary validly designated under this Plan who is living at
the time of such participant's death, the Company shall deliver such shares or
cash to the executor or administrator of the estate of the participant, or if
no such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares or cash to
the spouse or to any one or more dependents or relatives of the participant
or, if no spouse, dependent, or relative is known to the Company, to such
other person as the Company may in good faith determine to be the appropriate
designee.
25. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES.
Shares shall not be issued with respect to an Option unless the exercise of
such Option and the issuance and delivery of such shares pursuant thereto
shall comply with all applicable provisions of law, domestic or foreign,
including, without limitation, the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange or
automated quotation system upon which the shares may then be listed, and shall
be further subject to the approval of counsel for the Company with respect to
such compliance.
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26. EFFECTIVE DATE.
This Plan shall become effective on June 19, 1996, and shall be submitted to
the stockholders for approval thereof no later than one year thereafter. In
the event the stockholders have not approved this Plan within such one-year
period, this Plan shall thereupon terminate; all then outstanding Options
shall be cancelled and cease to be in effect; all amounts deducted from the
Compensation of participants and not theretofore applied to the purchase of
shares of Common Stock shall be refunded without interest; and all full shares
held by the Plan Financial Agent for the accounts of participants shall be
delivered to the respective participants and all fractional share interests
shall be sold for the accounts of the participants by the Plan Financial Agent
and the proceeds of such sale distributed to the participants entitled
thereto.
27. GOVERNING LAW.
Except to the extent that provisions of this Plan are governed by applicable
provisions of the Code or any other substantive provision of federal law, this
Plan shall be construed in accordance with, and shall be governed by, the
substantive laws of the State of Delaware without regard to any provisions of
Delaware law relating to the conflict of laws.
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[LOGO OF WESTERN ATLAS]
WESTERN ATLAS INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 13, 1997
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Alton J. Brann and Michael E. Keane, and each of them, with full power of
substitution, are hereby appointed by the signatory of this Proxy to vote all
shares of Western Atlas Inc. Common Stock entitled to be voted by the signatory
at the Annual Meeting of Shareholders to be held on May 13, 1997, or at any
adjournment thereof, on the matters set forth on the reverse side in accordance
with any directions given by the signatory and, in their discretion, on all
other matters that may properly come before the Annual Meeting or any
adjournment thereof.
IMPORTANT -- PLEASE SIGN AND DATE ON THE REVERSE SIDE AND RETURN PROMPTLY.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED ON THE
REVERSE SIDE. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSALS
---
1, 2 AND 3 AND AGAINST PROPOSAL 4.
-------
FOLD AND DETACH PROXY CARD HERE
[LOGO OF WESTERN ATLAS]
YOUR VOTE IS IMPORTANT
PLEASE SIGN AND RETURN YOUR PROXY BY
TEARING OFF THE TOP PORTION OF THIS SHEET AND
RETURNING IT IN THE ENCLOSED ENVELOPE.
<PAGE>
WESTERN ATLAS INC. Please mark
ANNUAL MEETING OF SHAREHOLDERS your votes X
like this
- - --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1, 2,
AND 3 AND "AGAINST" ITEM 4:
- - --------------------------------------------------------------------------------
1. Election of FOR Paul Bancroft, III, WITHHOLD AUTHORITY to
Directors: Alton J. Brann, and vote for Paul Bancroft, III,
William C. Edwards for a Alton J. Brann, and
three-year term that William C. Edwards
expires in 2000
Withhold authority to vote for the following nominee(s): _______________________
________________________________________________________________________________
2. Ratification of appointment of Deloitte & Touche LLP as independent
auditors.
FOR AGAINST ABSTAIN
3. Approval of Western Atlas Inc. 1996 Employee Stock Purchase Plan.
FOR AGAINST ABSTAIN
4. Shareholder proposal regarding declassification of the Board of Directors.
FOR AGAINST ABSTAIN
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR ITEMS 1, 2, AND 3 AND
---
AGAINST ITEM 4.
- - -------
- - --------------------------------------------------------------------------------
I (WE) PLAN TO ATTEND THE ANNUAL MEETING OF SHAREHOLDERS ON TUESDAY, MAY 13,
1997.
Please sign your name as it appears hereon. Executors, administrators,
guardians, and others signing in a fiduciary capacity should indicate such
capacity when signing. If shares are held jointly, each holder should sign.
Date____________________________________
Signature(s)____________________________
________________________________________
FOLD AND DETACH PROXY CARD HERE
[LOGO OF WESTERN ATLAS]
To: Western Atlas Shareholders
If you plan to attend the Annual Meeting of Shareholders to be held on Tuesday,
May 13, 1997, please check the appropriate box on the proxy card.
Please sign and date the proxy card and return it promptly to ensure your
representation at the meeting.
YOUR VOTE IS IMPORTANT.
Thank you.
WESTERN ATLAS INC.
