<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] 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 sec. 240.14a-11(c) or sec. 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)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(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):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] 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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[WESTERN ATLAS LOGO]
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WESTERN ATLAS INC. 10205 Westheimer
P.O. Box 1407
Houston, Texas 77251
Tel 713-972-4000
JOHN R. RUSSELL
President and
Chief Executive Officer
April 1, 1998
Dear Shareholder:
You are cordially invited to attend the 1998 Annual Meeting of Shareholders of
Western Atlas Inc., which will be held on Tuesday, May 12, 1998, at 11:00 a.m.
(C.D.T.) at the Westchase Hilton and Towers, 9999 Westheimer Road, Houston,
Texas. In addition to the matters to be acted upon at the meeting, which are
described in detail in the attached Notice of Annual Meeting of Shareholders
and Proxy Statement, we will update you on the Company. We hope you will be
able to attend.
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. Please complete, date, sign, and promptly return the proxy card
enclosed in the envelope provided with this Proxy Statement so that your shares
are represented at the meeting and voted in accordance with your wishes. If you
do attend the meeting and wish to vote in person, you may withdraw your proxy at
that time.
Sincerely,
/s/ JOHN R. RUSSELL
<PAGE> 3
[WESTERN ATLAS LOGO]
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WESTERN ATLAS INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 12, 1998
To the Shareholders of Western Atlas Inc.:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Shareholders of Western
Atlas Inc., a Delaware corporation, will be held on Tuesday, May 12, 1998, at
11:00 a.m. (C.D.T.) at the Westchase Hilton and Towers, 9999 Westheimer Road,
Houston, Texas, for the following purposes:
o To elect two Class I directors for a three-year term and until their
successors are duly elected and qualified.
o To ratify the appointment of independent auditors for the fiscal year
ending December 31, 1998.
o To consider and vote upon a proposal submitted by certain shareholders
regarding the elimination of the classified Board of Directors, as set
forth in the Proxy Statement.
o To transact such other business as may properly come before the meeting
or any postponement or adjournment thereof.
Holders of record of the Company's Common Stock, $1.00 par value, at the close
of business on March 19, 1998, 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 10205 Westheimer Road, Houston, Texas, for a period of 10 days prior
to the meeting.
You are cordially invited to attend the meeting. However, whether or not you
plan to attend, please complete, sign, date, and promptly mail the enclosed
proxy card so that your shares may be represented and voted at the meeting.
Your 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/ LOURDES T. HERNANDEZ
Lourdes T. Hernandez
Secretary
Houston, Texas
April 1, 1998
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
General. 1
Purpose of Annual Meeting 1
Voting at the Meeting. 1
Proxies and Proxy Solicitation . 2
Matters To Be Considered at the Annual Meeting . 3
Item 1. Election of Directors. 3
Nominees for Election. 3
Directors Continuing in Office. 4
Meetings and Committees of the Board. 6
Directors' Compensation and Retirement Policies. 7
Item 2. Ratification of Appointment of Independent Auditors. 8
Item 3. Shareholder Proposal Regarding Classified Board. 9
Additional Information for Shareholders . 11
Executive Officers of the Company 11
Executive Compensation. 12
Employment and Change in Control Arrangements. 18
Retirement Benefits. 19
Indebtedness of Management to the Company. 21
Certain Relationships and Transactions. 22
Report of the Compensation Committee on Executive Compensation. 23
Stock Performance Graph. 27
Security Ownership of Certain Beneficial Owners of Common Stock. 28
Compliance with Section 16(a) of the Exchange Act. 30
Shareholder Proposals for 1999 Annual Meeting. 31
</TABLE>
<PAGE> 5
WESTERN ATLAS INC.
10205 Westheimer Road, Houston, Texas 77042-3115
PROXY STATEMENT
GENERAL.
This Proxy Statement is furnished in connection with the solicitation of
proxies by and on behalf of the Board of Directors (the "Board") of Western
Atlas Inc., a Delaware corporation ("Western Atlas" or the "Company"), to be
used at the 1998 Annual Meeting of Shareholders of the Company to be held at
11:00 a.m. (C.D.T.) on Tuesday, May 12, 1998, at the Westchase Hilton and
Towers, 9999 Westheimer Road, Houston, Texas, and at any postponement or
adjournment thereof (the "Annual Meeting"), for the purposes set forth in the
accompanying Notice of Annual Meeting. This Proxy Statement and the
accompanying proxy card are first being mailed to shareholders on or about
April 6, 1998. The Company's 1997 Annual Report to Shareholders, which
accompanies this Proxy Statement, does not constitute a part of the proxy
soliciting material.
PURPOSE OF ANNUAL MEETING.
At the Annual Meeting, shareholders of the Company will consider and vote upon
(i) the election of two Class I directors for a three-year term ending at the
2001 Annual Meeting of Shareholders and until their successors are duly elected
and qualified, (ii) the ratification of the appointment of independent auditors
for the fiscal year ending December 31, 1998, (iii) the proposal submitted by
certain shareholders regarding the elimination of the classified Board, as set
forth herein, and (iv) such other business as may properly come before the
Annual Meeting. The Company is not aware of any business to come before the
Annual Meeting other than as set forth in items (i), (ii), and (iii) above.
VOTING AT THE MEETING.
The record date for determination of shareholders entitled to notice of and to
vote at the Annual Meeting is the close of business on March 19, 1998 (the
"Record Date"). On the Record Date, the Company had outstanding 54,773,733
shares of its common stock, par value $1.00 per share ("Common Stock" or
"Western Atlas Common Stock"). The holders of the outstanding Common Stock,
which is the only class of voting security of the Company presently
outstanding, are entitled to vote on all matters currently scheduled to be
acted upon at the Annual Meeting, with each share of Common Stock 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 will constitute a
quorum for the transaction of business at the Annual Meeting. The inspector of
election appointed for the Annual Meeting will determine the existence of a
quorum and will tabulate the votes cast at the Annual Meeting. Shareholders
may withhold authority to
<PAGE> 6
vote for one or both of the nominees for director and may abstain from voting
on one or more of the other matters that may come before the Annual 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 Annual Meeting; votes withheld will be excluded entirely from the
vote and will have no effect. The other two matters expected to come before
the Annual Meeting (identified as "Item 2. Ratification of Appointment of
Independent Auditors" and "Item 3. Shareholder Proposal Regarding Classified
Board" 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. However, with respect to Item
3, the Company's Restated Certificate of Incorporation requires the vote of 80%
of the outstanding shares of Common Stock to effect an amendment thereto which
would eliminate the classified board. The adoption of the shareholder proposal
described in Item 3 below would not cause such amendment and elimination of the
Company's classified board, nor would it permit the Board to eliminate the
classified board. 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 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 not be considered a part of the voting power with respect
to that proposal.
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, IT IS THE INTENTION OF THE AGENTS DESIGNATED IN
THE ENCLOSED PROXY CARD TO VOTE "FOR" THE ELECTION OF THE TWO NOMINEES NAMED
BELOW UNDER "ITEM 1. ELECTION OF DIRECTORS," "FOR" THE RATIFICATION OF THE
SELECTION OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR
1998 AS SET FORTH IN ITEM 2, AND "AGAINST" THE PROPOSAL SUBMITTED BY CERTAIN
SHAREHOLDERS AS SET FORTH IN ITEM 3 ON PAGES 9-10 OF THIS PROXY STATEMENT. If
any other matters, not presently anticipated, are properly presented at the
Annual Meeting for action, the agents designated in the enclosed proxy card
will vote the proxies (which confer discretionary authority upon such agents 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 Annual
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 the Company in the solicitation of proxies for the Annual Meeting for a
fee of $9,000, in addition to reimbursement by the Company of the expenses and
disbursements of that firm.
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MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
ITEM 1. ELECTION OF DIRECTORS.
The Restated Certificate of Incorporation and By-laws of the Company provide
for three classes of directors, with approximately one-third of the directors
constituting the Board being elected each year to serve a three-year term.
Pursuant to the Company's By-laws, the number of directors has been established
by resolution of the Board at seven.
Claire W. Gargalli and Orion L. Hoch, incumbent Class I directors whose terms
are currently scheduled to expire at the 1998 Annual Meeting, each have been
nominated for re-election as a Class I director for a three-year term.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION TO THE BOARD OF MS.
GARGALLI AND DR. HOCH.
Set forth below is information regarding the age, business experience, and
Board Committee memberships as of March 16, 1998, 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 may select, or the number of authorized directors may be
reduced.
NOMINEES FOR ELECTION
Class I. To serve until the annual meeting of shareholders in 2001 and until
their successors are duly elected and qualified.
CLAIRE W. GARGALLI, age 55. 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 from
1984 to 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. She is also a
trustee of Carnegie Mellon University, Middlebury College, and Allegheny
University of the Health Sciences.
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ORION L. HOCH, age 69. Director of the Company since 1994. Member of the
Nominating Committee.
Dr. Hoch served as Chairman of the Executive Committee of the Company's Board
from 1994 until October 31, 1997, when the Company distributed to its
shareholders all of the shares of UNOVA, Inc. ("UNOVA"), its then wholly-owned
industrial automation systems subsidiary (the "Spin-off"). Dr. Hoch became
President and Chief Operating Officer of Litton Industries, Inc. ("Litton") in
1982, served as its Chief Executive Officer from 1986 through 1992, and was
Chairman of the Board of Directors of Litton from 1988 until March 17, 1994,
when Litton, as the sole shareholder of the Company, effected a pro rata
distribution of all of the Company's shares of Common Stock to the holders of
Litton common stock on a one-for-one basis (the "Litton Distribution"). Dr.
Hoch is a director and Chairman Emeritus of Litton, a director of the Bessemer
Trust Corporation and the Bessemer Trust Companies, and a director of UNOVA.
Dr. Hoch is also a trustee of Carnegie Mellon University.
DIRECTORS CONTINUING IN OFFICE
Class II. To serve until the annual meeting of shareholders in 1999 or until
their successors are duly elected and qualified.
JOSEPH T. CASEY, age 66. Director of the Company since 1994. Member of the
Executive Committee and the Nominating Committee. Consultant to Western Atlas
since October 1996.
Mr. Casey served as Vice Chairman and Chief Financial Officer of the Company
from the date of the Litton 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 of PSI, Inc., and is a trustee of Claremont McKenna
College and the Don Bosco Technical Institute.
JOHN R. RUSSELL, age 59. President and Chief Executive Officer of the Company
since the Spin-off. Member of the Executive Committee and the Nominating
Committee.
Mr. Russell served as Executive Vice President and Chief Operating Officer,
Oilfield Services, of the Company from 1994 until the Spin-off when he was
named President and Chief Executive Officer of the Company. Mr. Russell served
as Chief Executive Officer of Western Atlas International, Inc., the Company's
current principal operating subsidiary ("WAII"), from 1991 to 1994, and, since
1991, has served as WAII's President. Mr. Russell was Senior Vice President of
Litton and Group Executive of Litton's Resource Exploration Services Group from
1991 to 1994. Mr. Russell has served in various other positions with the
Company or its predecessors since 1969. Mr. Russell is a member of the
National Petroleum Council.
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Class III. To serve until the annual meeting of shareholders in 2000 or until
their successors are duly elected and qualified.
PAUL BANCROFT, III, age 68. 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 Kemper Investments.
ALTON J. BRANN, age 56. Chairman of the Board and a Director of the Company
since 1994. Chair of the Executive Committee and a member of the Nominating
Committee and the Audit and Compliance Committee.
Mr. Brann has served as Chairman of the Board and Chief Executive Officer of
UNOVA since 1997. He served as Chief Executive Officer of the Company from
1994 until the Spin-off. 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 Litton 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
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 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 trustee of the Manufacturers Alliance and a senior member of
the Institute of Electrical and Electronics Engineers.
WILLIAM C. EDWARDS, age 69. 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.
5
<PAGE> 10
MEETINGS AND COMMITTEES OF THE BOARD
The Board met nine times during 1997 with an average attendance of 95.8%. The
Board also acted once 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 1997, reviews and, where appropriate, makes
recommendations to the Board regarding accounting policies and practices of the
Company, the activities of the Company's internal auditing staff, the
examination of the Company's financial statements by its independent auditors,
and the adequacy of the Company's system of internal controls and procedures.
The Committee proposes the appointment of the Company's independent 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 Company's Standards of Conduct; and the
Committee is empowered, in connection with such function, to evaluate the
reportable interests questionnaires completed by certain Company 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 three
nonemployee directors. In addition, Mr. Brann and Dr. Hoch serve as
consultants to the Compensation Committee. The Committee establishes policies
for executive compensation and approves the remuneration of all officers of the
Company. The Committee issues the Compensation Committee Report included in
this Proxy Statement and 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 Compensation Committee also selects key
employees who will be eligible to enter into change in control agreements with
the Company or be participants in the Company's Executive Severance Plan. The
Committee, which met six times and acted eight times by unanimous written
consent in 1997, 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 the powers of the Board that 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 or the shareholders. During
1997, the Executive Committee held two meetings and acted by unanimous written
consent on eighteen 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 and reviews the qualifications of candidates recommended
by others, including candidates recommended by shareholders of the Company.
The Nominating Committee will consider nominees recommended by shareholders
entitled to vote for the election of directors, provided that such
recommendations are made in accordance with the By-laws of the Company.
Generally, the By-laws provide that a shareholder must deliver written notice
to the Secretary of the Company not later than 70 days prior to the annual
meeting naming
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such shareholder's nominee(s) for director, and specifying certain information
concerning such shareholder and nominee(s). Accordingly, shareholder
nominee(s) for director to be presented at the 1999 annual meeting of
shareholders must be received by the Secretary of the Company no later than
March 4, 1999. The Nominating Committee did not meet during 1997.
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. Mr. Casey, as a nonemployee director
serving as a member of the Executive Committee, receives an additional annual
fee of $6,000, payable in quarterly installments. Mr. Brann, as a nonemployee
director who serves as Chair of the Executive Committee and Chairman of the
Board, receives additional annual fees of $15,000 and $60,000, respectively,
for such services, payable in quarterly installments. 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 any committee
of the Board, other than the Executive Committee, the attendance fee of such
Chair for each meeting of the corresponding 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.
During 1997, Dr. Hoch and Mr. Brann (after October 31, 1997) acted as
consultants to the Compensation Committee without the power to vote or
otherwise exercise authority with respect to any matter considered by the
Committee. Mr. Brann and Dr. Hoch are each paid a fee of $1,500 for each
meeting of the Compensation Committee they attend 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 Chair or a member of the Executive Committee.
Amounts deferred bear interest at the prime rate as reported by Morgan Guaranty
Bank on the first business day of each calendar quarter. Payments of deferred
amounts, including accrued interest, will be made in the number of annual
installments requested by the director, commencing after the director ceases to
be a member of the Board; provided, however, 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 (the
"Director Option Plan"), directors who are not employees of the Company or any
subsidiary thereof automatically receive annual grants of options to purchase
shares of Common Stock at the fair market value of such stock on the date of
grant. Pursuant to the Director Option Plan, each incumbent director of the
Company, except Messrs. Brann and Russell, received options to purchase 2,000
shares (subsequently adjusted to 2,464 shares pursuant to the Spin-off) of
Common Stock on May 13, 1997, at an exercise price of $67.88 per share, the
then prevailing market price of the Common Stock (subsequently adjusted to
$55.10 per share pursuant to the Spin-off). Subsequent option grants to each
outside director, expected to occur in May of 1998 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 the
Director Option Plan (and who is not an employee of the Company subsequent to
such preceding grant date) will receive an
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initial grant of options to purchase 10,000 shares. All options granted under
the Director 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
Company's policy for mandatory retirement of directors described below, then
all options held by such director under the Director Option Plan become
immediately 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 Director Option Plan become exercisable in full.
The Company has a policy that establishes a mandatory retirement date for each
member of the Board as the date of the annual meeting of the shareholders of
the Company next following such director's 72nd birthday.
Under the Company's 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 Board 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 a change in control of
the Company and the subsequent resignation, removal, or failure of a director
who is less than 65 years old to be re-elected in connection with and as a
result of such change in control, then 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 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 or as an advisory
director plus, with respect to the period prior to the Litton 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, see the information under the caption
"Certain Relationships and Transactions" on page 22 of this Proxy Statement.
ITEM 2. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS.
At its meeting on February 18, 1998, the Board, upon recommendation of its
Audit and Compliance Committee, approved the appointment of Deloitte & Touche
LLP as independent auditors for the Company for the 1998 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
Litton Distribution and is familiar with the business and operations of the
Company. If the shareholders do not
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approve the selection of Deloitte & Touche LLP, the selection of another
independent auditor will be considered by the Audit and Compliance Committee.
Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting. Such representatives will be offered the opportunity to make a
statement and will be available to respond to appropriate questions.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR: RATIFICATION OF THE APPOINTMENT OF
DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS.
ITEM 3. SHAREHOLDER PROPOSAL REGARDING CLASSIFIED BOARD.
The Company has been advised that John J. Gilbert, who states he is the owner
of 20 shares of Common Stock, and Margaret and/or John J. Gilbert (address, 29
East 64th Street, New York, New York 10021-7043) as executors of the Estate of
Lewis D. Gilbert, which is stated to own 20 shares of Common Stock and both
trustees U/W of Gaston J. Gilbert which is stated to own 212 shares of Common
Stock, and/or Harold J. Mathis (address, P.O. Box 1209, Richmond, Texas 77406),
who is stated to be the owner of 300 shares of Common Stock and to represent
Central Gulf Marine, which is stated to be the owner of 100 shares of 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:
"Strong support along the lines we suggest were [sic] shown at the last annual
meeting when 32%, 12,333,218 shares, were cast in favor 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, and Hanover Direct. Among the
latest to end theirs is Occidental Petroleum, Time Warner, and Fluor. Western
Atlas should follow their example. Also, in the merger of NYNEX into Bell
Atlantic, the annual election of directors, instead of the stagger system that
NYNEX had, was adopted.
"A few years ago my 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.
9
<PAGE> 14
"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 [sic] 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 [sic] 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.
"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 [sic] 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.
"Corporations currently electing their directors annually include Compaq
Computer, Bank of America, Motorola, AT&T, American Express, Atlantic
Richfield, General Electric, Johnson and Johnson, Haliburton [sic],
Schlumberger, Bankers Trust Co., Hewlett Packard, Exxon, IBM, General Motors,
Chevron, Chase Manhattan Corporation, Cell Net [sic] Data Systems and Litton
Industries. There are even four of our Western Atlas directors who serve on
two of these boards.
"If you agree, PLEASE MARK YOUR PROXY FOR THIS RESOLUTION; otherwise it is
automatically cast against it, unless you have marked to abstain."
THE BOARD OPPOSES THE FOREGOING PROPOSAL SUBMITTED BY THESE SHAREHOLDERS FOR
THE FOLLOWING REASONS:
The Board 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 possibly
seeking to acquire control of the Company to negotiate with the Board (rather
than inaugurating an election contest or unsolicited bid). Such negotiations
should provide the Board with the opportunity to evaluate any proposals
presented and seek the most favorable result for the Company's shareholders.
THE BOARD RECOMMENDS THAT YOU VOTE "AGAINST" THE SHAREHOLDER PROPOSAL SET FORTH
ABOVE.
10
<PAGE> 15
ADDITIONAL INFORMATION FOR SHAREHOLDERS
EXECUTIVE OFFICERS OF THE COMPANY.
Set forth below is certain information relating to the current executive
officers of the Company. Biographical information with respect to Mr. Russell
is set forth above under "Item 1. Election of Directors." The executive
officers of the Company are elected each year by the Board at its first meeting
following the Annual Meeting of Shareholders to serve during the ensuing year
and until their respective successors are elected and qualified. There are no
family relationships between any of the executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position(s)
<S> <C> <C>
John R. Russell 59 President and Chief Executive Officer
Orval F. Brannan 58 Senior Vice President and President of the Company's
E&P Services division
James E. Brasher 49 Senior Vice President and General Counsel
William H. Flores 44 Senior Vice President and Chief Financial Officer
Damir S. Skerl 58 Senior Vice President
Richard C. White 42 Senior Vice President and President of the Company's
Western Geophysical division
Thomas B. Hix, Jr. 50 Vice President of Finance and Administration
Gary E. Jones 43 Vice President and President of the Company's Western
Atlas Logging Services division
</TABLE>
ORVAL F. BRANNAN has been Senior Vice President of the Company since 1994,
President of the E & P Services division of WAII since 1995, and Executive Vice
President of WAII since 1996. Prior thereto, Mr. Brannan served as President
of the Company's Western Geophysical division from 1991 to 1995. Mr. Brannan
has served in various other positions with the Company or its predecessors
since 1966.
JAMES E. BRASHER has been Senior Vice President and General Counsel of the
Company since the Spin-off. Prior thereto, Mr. Brasher served as Vice
President of the Company from 1996 to 1997 and Vice President and Group Counsel
of WAII from 1994 to 1997. He served as Secretary and General Counsel of WAII
from 1987 to 1994. Mr. Brasher has served in various other positions with the
Company or its predecessors since 1980.
11
<PAGE> 16
WILLIAM H. FLORES has been Senior Vice President and Chief Financial Officer of
the Company since the Spin-off, and he has served as Senior Vice President and
Chief Financial Officer for WAII since August 1997, when he joined the Company.
Prior thereto, Mr. Flores served as an officer of Marine Drilling Companies,
Inc., a publicly-traded offshore drilling contractor, or its predecessors since
1980. Most recently, Mr. Flores served as Marine Drilling Companies, Inc.'s
Executive Vice President and Chief Financial Officer.
DAMIR S. SKERL has been Senior Vice President of the Company since 1994 and
President of the Company's Western Atlas Logging Services division from 1992 to
1997. Mr. Skerl has served as Executive Vice President of WAII since 1996.
Mr. Skerl has served in various other positions with the Company or its
predecessors since 1969.
RICHARD C. WHITE has been Senior Vice President of the Company since May 1996
and President of the Company's Western Geophysical division since 1995. Prior
thereto, Mr. White served as Vice President of the Company from 1995 to 1996,
Senior Vice President of WAII since 1995, and Chief Operating Officer for the
global activities of Western Geophysical from 1994 to 1995. Mr. White has
served in various other positions with the Company or its predecessors since
1978.
THOMAS B. HIX, JR. has been Vice President of Finance and Administration of the
Company since the Spin-off. Mr. Hix has served as Vice President Finance of
WAII since 1994. Prior thereto, Mr. Hix served as Vice President, Finance and
Chief Financial Officer of WAII from 1990 to 1994. Mr. Hix has served in
various other positions with the Company or its predecessors since 1969.
GARY E. JONES has been Vice President of the Company and President of the
Western Atlas Logging Services division of WAII since 1997. Prior thereto, Mr.
Jones served as Vice President of Business Development of WAII from 1996 to
1997 and Vice President of Latin America Operations of the Western Geophysical
division from 1992 to 1996. Mr. Jones has served in various other positions
with the Company or its predecessors since 1980.
EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE.
In accordance with applicable regulations of the Securities and Exchange
Commission ("SEC"), the following table presents a summary of compensation paid
or awarded to, or accrued by, the following persons for services in 1997: (a)
Messrs. Brann and Russell who each served as Chief Executive Officer of the
Company (Mr. Brann from January 1, 1997, through October 31, 1997, the date of
the Spin-off, and Mr. Russell since October 31, 1997), (b) those individuals
who were serving as executive officers at December 31, 1997, and were the four
most highly compensated executive officers of the Company in 1997, other than
the Chief Executive Officer, and (c) Norman L. Roberts, who served as an
executive officer of the Company until the date of the Spin-off and who, but
for the fact that he was not serving as an executive officer of the Company on
December 31, 1997, would have been included in the summary compensation table
for the year ended December 31, 1997 (collectively, the "Named Executive
Officers"). The table shows amounts earned by such persons in all capacities
in which they served during the past three years.
12
<PAGE> 17
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation
Compensation Awards
I II III IV
Securities
Underlying All Other
Salary Bonus Options Compensation
Name and Principal Position Year ($) ($)(a) (#)(b) ($)(c)
<S> <C> <C> <C> <C> <C>
Alton J. Brann 1997 596,656 728,000 61,601 14,954
Chairman of the Board and 1996 687,030 928,125 61,601 17,382
former Chief Executive 1995 649,065 669,638 61,601 17,130
Officer
John R. Russell 1997 451,252 531,250 123,203 150,357
President and Chief Executive 1996 414,344 450,000 36,960 130,078
Officer 1995 386,556 468,750 36,960 90,393
Orval F. Brannan 1997 330,961 325,000 12,319 319,153
Senior Vice President 1996 306,398 277,200 20,944 125,898
1995 298,320 290,000 24,640 69,985
Damir S. Skerl 1997 308,564 300,000 20,943 105,453
Senior Vice President 1996 292,618 233,200 20,944 84,097
1995 282,496 265,000 24,640 65,731
Richard C. White 1997 270,432 250,000 18,480 87,634
Senior Vice President 1996 235,813 229,000 18,480 61,825
1995 208,732 204,000 28,335 43,403
Norman L. Roberts 1997 258,221 229,000 18,480 7,535
former Senior Vice President 1996 295,846 292,887 18,480 9,057
and General Counsel 1995 285,774 220,455 18,480 10,090
Thomas B. Hix, Jr. 1997 200,365 187,500 4,927 67,839
Vice President, Finance and 1996 189,460 166,275 7,391 54,303
Administration 1995 177,156 177,500 -0- 41,417
</TABLE>
(a) Bonuses awarded to the Named Executive Officers, with respect to 1997, were
paid as follows: an amount equal to 50% of the recipient's annual base pay
in effect on January 1, 1997, was paid in February 1998, and the remainder
will be paid one year later, provided the recipient is then in the employ
of the Company (or in the case of Messrs. Brann and Roberts, the employ of
UNOVA), or has terminated such 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, 1997, an amount
equal to one half of such base pay was paid in February 1998; 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
1999; and the remainder, in February 2000.
(b) In connection with the Spin-off, all employee and director options
outstanding immediately prior to the Spin-off were adjusted by increasing
the number of shares subject to the options and decreasing the exercise
price per share so as to preserve the difference between the aggregate
exercise price of the options and the aggregate market value of the shares
subject to the options.
13
<PAGE> 18
(c) Included in this column for 1997 are the following: (i) Company
contributions for the 1997 plan year to the following respective accounts
in the defined retirement plans of WAII described in "Retirement Benefits -
Profit Sharing Plan" and "Retirement Benefits - Benefit Restoration Plan":
Mr. Russell, $150,357; Mr. Brannan, $130,830; Mr. Skerl, $105,453; Mr.
White, $87,013; and Mr. Hix, $67,424; (ii) present value costs of the
Company's portion of 1997 premiums for split-dollar life insurance for
Messrs. Brann, Brannan, and White of $1,874, $2,021 and $621, respectively;
(iii) premiums paid by the Company for basic life insurance for Mr. Hix in
the amount of $416; (iv) the amount of $2,327 representing premiums paid by
the Company with respect to the participation in the Company's Executive
Medical Plan of each of Messrs. Brann and Roberts; (v) the following
amounts representing interest imputed to and taxable to the holder of loans
from the Company: Mr. Brann, $9,461, and Mr. Roberts, $3,916; (vi) Company
matching contributions of $1,292 made to the respective accounts of Messrs.
Brann and Roberts under a plan intended to qualify under Section 401(k) of
the Code that was maintained, prior to the Spin-off, by the Company and
assumed by UNOVA in connection with the Spin-off; (vii) payment to Mr.
Brannan of an annual foreign pay differential of $98,750, a temporary
housing allowance of $13,792, and a living allowance of $73,760 in
connection with his assignment in London, England. In addition, the
Company has agreed with Mr. Brannan to protect him from adverse tax
consequences that he may experience as a result of his foreign country
assignment. The amount of Mr. Brannan's benefit, if any, in connection
with the foregoing has not yet been determined.
14
<PAGE> 19
STOCK OPTION INFORMATION.
The following table shows stock option grants during 1997 under the Western
Atlas Inc. 1993 Stock Incentive Plan to the Named Executive Officers. In
connection with the Spin-off, all employee and director options outstanding
immediately prior to the Spin-off were adjusted by increasing the number of
shares subject to such options and decreasing the exercise price per share
related to such options so as to preserve the difference between the aggregate
exercise price of the options and the aggregate market value of the shares
subject to said option.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
Percentage
of Total
Number of Options
Securities Granted to Grant Date
Underlying Employees Exercise Present
Options Granted in Fiscal Price Expiration Value
Name (#)(a) Year ($/sh) Date ($)(b)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alton J. Brann 61,601 (e) 5.78% 60.9477 7/9/2007 1,514,500
John R. Russell 1,639 (c) 0.15% 60.9477 7/9/2007 40,316
121,564 (f) 11.40% 60.9477 7/9/2007 2,988,684
Orval F. Brannan 1,639 (c) 0.15% 60.9477 7/9/2007 40,316
10,680 (g) 1.00% 60.9477 7/9/2007 262,584
Damir S. Skerl 1,639 (c) 0.15% 60.9477 7/9/2007 40,316
19,304 (h) 1.81% 60.9477 7/9/2007 474,614
Richard C. White 1,639 0.15% 60.9477 7/9/2007 40,316
16,840 (i) 1.58% 60.9477 7/9/2007 414,034
Norman L. Roberts 18,480 (e) 1.73% 60.9477 7/9/2007 454,350
Thomas B. Hix, Jr. 1,488 (d) 0.14% 60.9477 7/9/2007 36,590
3,439 (j) 0.32% 60.9477 7/9/2007 84,570
</TABLE>
(a) All options granted to the Named Executive Officers were granted at an
exercise price equal to the mean of the highest and the lowest sales
prices of the Common Stock on the New York Stock Exchange composite
tape 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
generally has the meaning described on page 18 of this Proxy
Statement.
15
<PAGE> 20
(b) Pursuant to applicable SEC rules, 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 that 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 33%, determined from
historical stock price fluctuations, and a 6.3% risk-free interest
rate, determined from market information prevailing on the grant date,
were used. No adjustments were made for the non-transferability or
risk of forfeiture of the stock options. This model assumed all
options are exercised on 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 above table.
(c) Incentive Stock Options. These options become 100% exercisable on the
fifth anniversary of the date of grant.
(d) Incentive Stock Options. These options become exercisable in two
installments: 503 shares on the fourth anniversary of the date of
grant; and 985 shares on the fifth anniversary of the date of grant.
(e) Nonqualified Stock Options. These options become exercisable in five
equal installments of the shares subject thereto on the first through
the fifth anniversaries of the date of grant.
(f) Nonqualified Stock Options. These options become exercisable in five
installments: 24,644 shares on the first anniversary of the date of
grant; 24,640 shares each on the second through the fourth
anniversaries of the date of grant; and 23,000 shares on the fifth
anniversary of the date of grant.
(g) Nonqualified Stock Options. These options become exercisable in four
installments of 2,464 shares each on the first through the fourth
anniversaries of the date of grant, and in one installment of 824
shares on the fifth anniversary of the date of grant.
(h) Nonqualified Stock Options. These options become exercisable in five
installments: 4,191 shares on the first anniversary of the date of
grant; 4,188 shares each on the second through the fourth
anniversaries of the date of grant; and 2,549 shares on the fifth
anniversary of the date of grant.
(i) Nonqualified Stock Options. These options become exercisable in four
installments of 3,696 shares each on the first through the fourth
anniversaries of the date of grant, and in one installment of 2,056
shares on the fifth anniversary of the date of grant.
(j) Nonqualified Stock Options. These options become exercisable in four
installments: 987 shares on the first anniversary of the date of
grant; 985 shares each on the second and third anniversaries of the
date of grant; and 482 shares on the fourth anniversary of the date of
grant.
16
<PAGE> 21
The following table provides information with respect to options to purchase
Common Stock exercised by any of the Named Executive Officers during 1997 and
with respect to the number and value of unexercised options held by each Named
Executive Officer at December 31, 1997.
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 on Options at In-the-Money Options at
Exercise Value December 31, 1997 December 31, 1997
(#)(b) Realized (#) ($)
Name ($) -----------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alton J. Brann 4,046 216,231 214,490 267,958 9,206,803 8,517,051
John R. Russell -0- -0- 85,317 210,365 3,842,283 11,435,791
Orval F. Brannan -0- -0- 21,751 66,952 804,289 2,107,712
Damir S. Skerl -0- -0- 21,751 75,576 804,289 2,220,275
Richard C. White -0- -0- 10,722 66,892 375,007 1,987,810
Norman L. Roberts 8,214 451,189 35,773 67,450 1,723,181 1,990,106
Thomas B. Hix, Jr. -0- -0- 4,561 20,076 161,732 589,164
</TABLE>
(a) The number and value of unexercised options to purchase Common Stock
at the end of 1997 are shown in the table. In addition, Messrs. Brann
and Roberts held options to purchase shares of Litton common stock,
adjusted in connection with the Litton Distribution and granted to
them prior to the Litton Distribution, as follows:
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Litton Options at In-the-Money Litton Options at
December 31, 1997 December 31, 1997
(#) ($)
---------------------------------- ---------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
----------------------- --------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Alton J. Brann 23,440 10,000 884,368 333,421
Norman L. Roberts 16,000 -0- 633,398 -0-
</TABLE>
17
<PAGE> 22
(b) In addition, during 1997, Mr. Roberts exercised Litton options to purchase
6,000 shares, thereby realizing $243,337. During 1997, Mr. Russell
exercised his remaining Litton options granted prior to the Litton
Distribution to purchase 14,700 shares, thereby realizing $393,505.
EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS.
Each of the Named Executive Officers, except Messrs. Brann and Roberts, is
currently a party to a change in control agreement with the Company
(collectively, the "Agreements"). The change in control agreements entered
into between the Company and each of Messrs. Brann and Roberts terminated
effective as of the Spin-off. 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 compensation or benefits.
Generally, under the Agreements, a change in control is deemed to have occurred
if: (a) a majority of the Board becomes comprised 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 (as
such term is defined in the Agreement), or if the executive terminates his or
her employment for good reason (as such term is defined in the Agreement)
(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 incentive, savings, retirement, and other welfare plan benefits).
Further, an additional payment is required in such amount that after the
payment of all taxes, income and excise with respect to such benefits, the
executive will be in the same after-tax position as if no excise tax under the
Internal Revenue Code of 1986, as amended (the "Code"), had been imposed. In
the event of termination of employment by reason of death or disability or for
cause, the Agreement terminates and the sole obligation of the Company is to
pay any amounts theretofore accrued thereunder.
18
<PAGE> 23
RETIREMENT BENEFITS.
PROFIT SHARING PLAN.
Each of the Named Executive Officers, except Messrs. Brann and Roberts,
participates 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 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 that allows participant contributions, a participant may elect to defer
annually, subject to the 401(k) maximum amount, from 1% to 10% (8% for certain
highly-compensated employees such as the Named Executive Officers) of his or
her eligible compensation for deposit in the participant's 401(k) account. 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 each of the Named Executive
Officers, except Messrs. Brann and Roberts, are included in column IV of the
Summary Compensation Table set forth above for the years indicated. Additional
employer contributions, if any, will be made to each participant's Profit
Sharing Plan account based on a formula which 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. A
participant's 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.
BENEFIT RESTORATION PLAN.
In addition to the Profit Sharing Plan, WAII has a noncontributory and unfunded
plan for employees, including each of the named Executive Officers, except
Messrs. Brann and Roberts, whose annual base salary is at least $100,000 and
who have been selected as participants by the president of WAII (the "Benefit
Restoration Plan"). The 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 that would otherwise be provided under the Profit Sharing Plan if the
maximum compensation, allocation, and deduction limitations imposed by the Code
with respect to the Profit Sharing Plan were disregarded. Under the Benefit
Restoration Plan, individual accounts are established by WAII for each
participant and are credited with the amounts that 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 Benefit Restoration Plan correspond to the vesting
schedule and benefit payment form under the Profit Sharing Plan. The accounts
of each of the Named Executive Officers, except Messrs. Brann and Roberts,
under the Benefit Restoration Plan were credited with amounts included in
column IV of the Summary Compensation Table set forth above for the years
indicated. The Benefit Restoration Plan also provides that (i) in the event of
a change in control (as defined therein) of the Company, amounts credited to
participants' accounts, including accounts of the Named Executive
19
<PAGE> 24
Officers, which are not yet fully vested, will be deemed to be fully vested,
and (ii) if a participant's employment with the Company terminates under
circumstances that result in the receipt of certain payments by such
participant under an Agreement (as defined above), the Company will pay to such
participant an amount equal to any amount such participant forfeits under the
Profit Sharing Plan plus an amount equal to 15% of such participant's
compensation covered by the Profit Sharing Plan for the year in which such
termination of employment occurs if such participant is not eligible to receive
an allocation of any employer contribution to be made to the Profit Sharing
Plan for such year.
SUPPLEMENTAL RETIREMENT PLAN.
Each of the Named Executive Officers, except Messrs. Brann and Roberts, also
participates in the Supplemental Retirement Plan of WAII (the "Supplemental
Plan"), 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 a maximum
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 performance-based 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 that 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
Benefit Restoration Plan described above (collectively, the "Offsetting
Benefits"); provided, however, that in the case of Messrs. Russell, Brannan,
and Skerl, such maximum benefit will not be reduced by more than 60% as a
result 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 Offsetting Benefits
shall not exceed 65% of the participant's final average compensation. Thus, if
a participant's 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 Supplemental Plan but would receive the full
benefit payable under the Profit Sharing Plan and the Benefit Restoration Plan.
The maximum 55% benefit referred to above will also be reduced in specified
increments if a participant becomes entitled to benefits between ages 55 and 65
or with at least 15 but less than 25 years of service at retirement. In
addition, the Supplemental Plan provides that if a participant's employment
with the Company is terminated under circumstances resulting in the receipt of
certain payments by such participant under an Agreement (as defined above),
then certain conditions that such participant would otherwise be required to
meet in order to receive a benefit under the plan are eliminated.
The following table indicates the approximate annual benefit that would be
received by a participant in the 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 Offsetting Benefits to the extent described above and
by the participant's Social Security primary benefit, the following table does
not give effect to such reduction.
20
<PAGE> 25
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Years of Service
----------------------------------------------
Remuneration 15 20 25
--------------- ------------ ------------- -------------
<S> <C> <C> <C>
$ 400,000 $ 120,000 $ 170,000 $ 220,000
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>
The Named Executive Officers (excluding Messrs. Brann and Roberts who do not
participate in this plan) have the following credited years of service at March
19, 1998, for purposes of the Supplemental Plan: Mr. Russell, 29 years; Mr.
Brannan, 32 years; Mr. Skerl, 29 years; Mr. White, 20 years; and Mr. Hix, 29
years.
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, a loan in the aggregate principal amount of $150,000 was
outstanding at March 19, 1998, to James E. Brasher, Senior Vice President and
General Counsel of the Company. This loan is unsecured, currently bears
interest at the rate of 4% per annum, and is 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, bankruptcy,
or within 90 days of the death or incapacity of borrower, or (ii) December 31,
1998. The foregoing amount represents the largest amount of indebtedness of
such executive officer and all of the Company's present executive officers as a
group under such loan program outstanding since December 31, 1996.
In addition, in 1997, Mr. Brann and Mr. Roberts had outstanding loans from the
Company in the principal amount of $616,000 and $255,000, respectively, and two
other former executive officers of the Company also had loans totalling
$325,000. The foregoing loans were assumed by UNOVA in connection with the
Spin-off.
21
<PAGE> 26
CERTAIN RELATIONSHIPS AND TRANSACTIONS.
Mr. Brann, the Company's Chairman of the Board, serves as a director, Chairman
of the Board, and Chief Executive Officer of UNOVA. Dr. Hoch, a member of the
Company's Board, also serves as a director of UNOVA. For the purpose of
governing certain relationships between UNOVA and the Company after the
Spin-off, UNOVA and the Company entered into the agreements described below:
Distribution and Indemnity Agreement - UNOVA and the Company entered into a
Distribution and Indemnity Agreement providing for, among other things, the
principal corporate transactions required to effect the Spin-off and certain
other agreements governing the relationship between UNOVA and the Company with
respect to the Spin-off. Under the terms of said agreement, the Company is
responsible for certain costs related to the Spin-off and, in connection
therewith, accrued $8.35 million in the second quarter of 1997. During 1997,
UNOVA was indebted to the Company in connection with the Spin-off for up to
$230 million. Concurrent with the Spin-off, the Company received a $230 million
payment from UNOVA.
Tax-Sharing Agreement - As part of the Spin-off, UNOVA and the Company entered
into a Tax-Sharing Agreement that provides, among other things, for the
allocation between the parties of federal, state, local, and foreign tax
liabilities for all periods through the date of the Spin-off.
Benefits Agreement - UNOVA and the Company entered into an Employee Benefits
Agreement providing for the treatment of employee benefit matters and other
compensation arrangements for certain former and current employees of UNOVA and
its subsidiaries.
Intellectual Property Agreement - UNOVA and the Company entered into an
Intellectual Property Agreement providing for the transfer of ownership of
certain intellectual property without charge from the Company to UNOVA and its
subsidiaries, and to provide UNOVA and its subsidiaries the rights to use the
Western Atlas name for a period of six months after the Spin-off without
charge.
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, which has been renewed for an
additional one-year period ending on September 30, 1998. Under this agreement,
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 of the Company on such terms as are mutually
agreeable. During the term of the agreement, Mr. Casey agrees not to engage in
any activity for a business that competes with the business of the Company.
22
<PAGE> 27
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION.
The Compensation Committee of the Board of Directors of Western Atlas, 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.
The compensation program presently in effect at Western Atlas has three
elements: (1) base annual salary; (2) potential annual cash incentive awards
that 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.
The duties of the Compensation Committee for the 1997 fiscal year were
significantly affected by the decision of the Board, which was publicly
announced on May 5, 1997, that the industrial automation systems business
segment of the Company would be spun off to the Company's shareholders as a
dividend prior to the end of the year, and that in connection with such
Spin-off, Mr. Brann, the then Chief Executive Officer, and five additional
executive officers would, at the time of the Spin-off, resign their positions
at Western Atlas to become executive officers of the industrial automation
systems company (now known as UNOVA, Inc.).
In view of these circumstances, the Compensation Committee viewed its role
during 1997 as including the following responsibilities: (1) to assure that the
compensation of the executive officers who had been identified as candidates
for promotion and assumption of additional responsibilities at Western Atlas
after the Spin-off, as well as executive officers expected to be hired to fill
vacancies created by the Spin-off, would be competitive with the compensation
of comparable executives at a peer group of companies and would be appropriate
in view of such executives' accomplishments and contemplated responsibilities;
(2) to make reasonable efforts to ascertain that the compensation of
executives who join UNOVA as a result of the Spin-off is appropriate in view of
such executives' accomplishments and responsibilities; (3) to design and
implement certain compensation plans for UNOVA to assure uninterrupted
consistency of compensation practices for those who join UNOVA; and (4) to make
certain recommendations to the future Compensation Committee of the UNOVA Board
with respect to compensation matters.
In order to assist the Committee in fulfilling such tasks, the Committee
engaged an independent national compensation consulting firm to provide advice
and render reports as requested by the Committee. In addition to the customary
information provided by such firm, the independent consultant also prepared, at
the request of the Committee, a report with respect to the design of short- and
long-term compensation that would be appropriate for UNOVA, which compared the
compensation packages of highly compensated executives of UNOVA's competitors
with then existing compensation of the executives who were expected to join
UNOVA as a result of the Spin-off, with emphasis on short- and long-term
incentives.
BASE CASH COMPENSATION.
With respect to base compensation, the Committee determined, upon the
recommendation of Mr. Brann (who served as the Chief Executive Officer of
Western Atlas for the first 10 months of the 1997 fiscal year), neither to
increase nor to decrease the base compensation of Mr. Brann or the majority of
the
23
<PAGE> 28
Company's executive officers who were planning to accept employment with UNOVA.
The Committee noted the compensation consultant's finding that the existing
salaries of three of the five executives expected to be the most highly
compensated executive officers of UNOVA were above the predicted size-adjusted
median of comparable executives at the peer group of companies and that two of
such executives received a base salary that was somewhat below the competitive
level. The Committee granted salary increases of 10% and 5.7% to such two
executive officers below the competitive level and an increase of 3.5% to an
additional executive officer expected to join UNOVA.
The Committee also granted a salary increase of 10% to one named executive
officer expected to continue with Western Atlas after the Spin-off whose annual
salary, based on information provided to the Committee, was below the
competitive industry level and granted merit raises to three other Named
Executive Officers of 3.1% to 5.5%, including John R. Russell. Such salary
increases are reflected in the Summary Compensation Table on page 13 of this
Proxy Statement.
With respect to Mr. Russell, on August 14, 1997, the Committee took into
consideration his anticipated promotion to the position of President and Chief
Executive Officer of Western Atlas following the Spin-off. The Committee also
noted that the Oilfield Services segment was meeting its operational plan and
that Mr. Russell was then performing and was expected to continue to perform an
outstanding job of attracting and retaining personnel expected to comprise the
management of Western Atlas following the Spin-off of UNOVA. The Committee
also considered the level of compensation that was competitive in the oilfield
services industry. After full consideration of these matters, the Committee
increased the base compensation of Mr. Russell from $450,000 to $550,000 per
year (an increase of 22.2%), effective as of the date of the Spin-off. (Such
salary increase is reflected on the Summary Compensation Table on page 13 of
this Proxy Statement.) The Committee also raised the base compensation of one
additional officer by 30.9%, effective at the time of the Spin-off, in
anticipation of such officer's promotion as an executive officer of Western
Atlas following the Spin-off.
STOCK OPTIONS.
The Committee determined that the annual grant of stock options should be
effected in a manner consistent with the past practice of Western Atlas without
regard to the effects of the contemplated Spin-off. The Committee's usual
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.
After completing its review of stock-based incentives at peer group companies
and assessment of individual performance, the Committee decided that the
multiples of base salary of executive officers to be utilized in 1997 should
range from 2.1 to 15.6. The Committee then awarded on July 8, 1997, options to
purchase an aggregate of 347,426 shares of Common Stock to the Company's
executive officers as a group at an exercise price of $60.9477 per share, the
fair market value of the Company Common Stock on the date of grant. Of such
grant, options to purchase 61,601 shares were awarded to Mr. Brann and options
to purchase 123,203 shares were awarded to Mr. Russell. (The foregoing numbers
of shares subject to options and exercise price have been adjusted to account
for the Spin-off, as discussed in the following paragraph).
The Committee noted that under the Company's 1993 Stock Incentive Plan, the
Committee had the discretion to determine the manner in which outstanding
options would be adjusted to account for the
24
<PAGE> 29
financial effects of the Spin-off. The Committee noted that the situation was
somewhat complex, since a number of present and former employees of Litton
Industries, Inc., held options to purchase Western Atlas Common Stock they
received as an adjustment of Litton options in 1994 upon Litton's Distribution
of Western Atlas. Counsel advised the Committee that there could be legal
complications relating to any adjustment of Western Atlas options in a manner
that would cause all holders thereof to receive UNOVA options. The Committee
accordingly determined that all Western Atlas options would be adjusted by
decreasing the exercise price thereof and increasing the number of shares
subject thereto based upon a formula that took into consideration the relative
values at which the Western Atlas and UNOVA Common Stock actually traded during
certain prescribed days following the Spin-off.
The Committee subsequently spent considerable time in designing and adopting a
stock-based incentive plan for UNOVA. The Committee relied heavily upon the
recommendations of the independent compensation consultant with respect to the
number of shares to be available for stock options and the substantive terms of
the UNOVA plan. The Committee decided it was appropriate that it make
recommendations to the Compensation Committee of UNOVA, to be formed following
the Spin- off, since the Western Atlas Compensation Committee was familiar with
the qualifications and accomplishments of the executive officers intending to
join UNOVA and was also familiar with the methodology that had been followed in
the earlier Distribution of Western Atlas by Litton.
BONUSES FOR 1997.
The Committee considered at length the appropriate treatment of bonuses for
those executive officers who intended to join UNOVA. The Committee noted that
the officers who were members of the corporate headquarters staff had devoted
their attention to assure the success of both the oilfield services and
industrial automation systems businesses. The Committee also noted that, as a
formal matter, the prescribed "award period" during which individual
performance goals are measured under the 1995 Incentive Compensation Plan would
not run its full course, since the Spin-off was scheduled for consummation
prior to the end of the 1997 fiscal year. The Committee concluded that Mr.
Brann and other executive officers who were on the corporate headquarters staff
and who were joining UNOVA should receive bonuses prior to the effective date
of the Spin-off, with the annual bonus to be prorated for the period of the
fiscal year (10 months) preceding the Spin-off.
In determining the amount of such bonuses, the Committee noted that as of June
30, 1997, the Company's performance was consistent with its business plan and
the establishment of UNOVA as a separate entity from Western Atlas Inc. was
proceeding smoothly and on schedule. Thus the Committee awarded to Mr. Brann a
bonus of 125% of his base compensation, which was prorated for 10/12 of the
fiscal year. The amount awarded to Mr. Brann for this portion of 1997 was
$728,000. Other similarly situated executive officers, whose bonuses were
based on multiples of base salary ranging from 70% to 100%, were accorded like
treatment and awarded an aggregate prorated amount totaling $588,000. In
accordance with applicable SEC regulations, the bonuses awarded to Messrs.
Brann and Roberts are reflected in the Summary Compensation Table on page 13 of
this Proxy Statement.
The Committee further determined to make no awards prior to the Spin-off to
executive officers associated solely with the industrial automation systems
business segment of Western Atlas, believing that the awards should be made on
a 12- month basis at the discretion of the Compensation Committee of UNOVA
after the completion of the 1997 fiscal year. In addition, following the
Spin-off, the Committee
25
<PAGE> 30
adjusted the maximum potential bonuses of two executive officers expected to
remain with Western Atlas to reflect such officers' promotions and additional
responsibilities as a result of the Spin-off and added another executive
officer to the 1995 Incentive Compensation Plan who had recently been hired as
a result of the Spin-off.
Following the close of the fiscal year, the Committee reviewed a report, based
on advice of Western Atlas' independent public accountants, that the
performance goals for Western Atlas' executive officers had been achieved to an
extent that qualified all such officers to receive 100% of their maximum
potential bonuses as previously established. The performance goals are related
to the return on capital utilized of the particular operation with which the
executive is associated. On February 18, 1998, the Committee awarded bonuses
based on the achievement of the performance goals. Based upon the 1997 fiscal
year results of the Company's oilfield services business and Mr. Russell's
salary on January 1, 1997, Mr. Russell qualified to receive a bonus of 125% of
his base salary or $531,250. The Committee awarded the full amount to Mr.
Russell, particularly noting the exceptional efforts he had made to ensure the
successful operation following the Spin-off of Western Atlas as a corporation
engaged solely in the oilfield services business. Bonuses awarded to Mr.
Russell and the other named executive officers are reflected in the Summary
Compensation Table on page 13 of this Proxy Statement.
Dated: March 24, 1998
The COMPENSATION COMMITTEE
Paul Bancroft, III, Chair
Claire W. Gargalli
William C. Edwards
The foregoing "Report of the Compensation Committee on Executive Compensation"
and the information set forth below under "Stock Performance Graph" shall not
be deemed to be "soliciting material" or to be "filed" with the SEC or subject
to the SEC's proxy rules, except for the required disclosure herein, or to the
liabilities of Section 18 of the Securities Exchange Act of 1934 (the "Exchange
Act"), and such information shall not be deemed to be incorporated by reference
into any filing made by the Company under the Securities Act of 1933 or the
Exchange Act.
26
<PAGE> 31
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 & Gas (Drilling & Equipment) Index (formerly known as
the S&P, 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, 1997. 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 & Gas (Drilling & Equipment) Index.
Total shareholder return on the Common Stock was adjusted for the Spin-off and
calculated on the basis that in each case all dividends were reinvested.
[GRAPH]
<TABLE>
<CAPTION>
INDEXED RETURNS
Base Years Ending
Period ---------------------------------------
Company / Index 3/8/94 12/31/94 12/31/95 12/31/96 12/31/97
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Western Atlas Inc. $100 $91.77 $123.17 $172.87 $229.47
S&P Oil & Gas (Drilling & Equip.) $100 $95.02 $131.64 $186.30 $286.38
S&P 500 Index $100 $100.77 $138.64 $170.47 $227.34
</TABLE>
27
<PAGE> 32
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 19, 1998. Except as otherwise indicated, each individual named has sole
investment and voting power with respect to the securities shown.
<TABLE>
<CAPTION>
Amount and Nature Percent
of Beneficial of
Name of Beneficial Owner Ownership Class
(a) (b)
----------------------------------------------------------------------
<S> <C> <C> <C>
Paul Bancroft, III 34,032 *
Alton J. Brann 280,936 *
Orval F. Brannan 30,049 *
Joseph T. Casey 242,079 (c) *
William C. Edwards 23,012 (d) *
Claire W. Gargalli 21,712 *
Thomas B. Hix, Jr. 8,879 *
Orion L. Hoch 131,122 (e) *
John R. Russell 103,131 *
Damir S. Skerl 29,989 *
Richard C. White 18,421 *
All directors and executive officers
(14 persons) 941,182 1.72%
</TABLE>
(a) Includes shares of Common Stock subject to options that were exercisable on
March 19, 1998, or that become exercisable within 60 days thereafter, as
follows: Mr. Bancroft, 32,032 shares; Mr. Brann, 260,690 shares; Mr.
Brannan, 29,450 shares; Mr. Casey, 138,609 shares; Mr. Edwards, 19,712
shares; Ms. Gargalli, 19,712 shares; Mr. Hix, 7,640 shares; Dr. Hoch,
29,465 shares; Mr. Russell, 99,178 shares; Mr. Skerl, 29,450 shares; Mr.
White, 18,421 shares; and such group, 698,652 shares.
(b) Less than 1% unless indicated otherwise.
(c) 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 beneficial ownership
thereof for certain purposes within the meaning of applicable regulations
of the SEC.
(d) Includes 3,300 shares held by a general partnership of which Mr. Edwards is
a general partner.
(e) Includes 1,080 shares owned by Dr. Hoch's wife, as to which shares Dr. Hoch
disclaims beneficial ownership.
28
<PAGE> 33
BY OTHERS.
The following table sets forth each person or entity that as of December 31,
1997 reported beneficial ownership of more than 5% of the Common Stock.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent
Name of Beneficial Owner Ownership of Class
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Unitrin, Inc. 12,657,764 (a) 23.22%
One East Wacker Drive
Chicago, IL 60601
The Capital Group Companies, Inc. 7,689,000 (b) 14.09%
333 South Hope Street
Los Angeles, CA 90071
Merrill Lynch & Co. Inc. 4,176,141 (c) 7.65%
World Financial Center, North Tower
250 Vesey Street
New York, NY 10281
FMR Corp. 2,794,105 (d) 5.12%
82 Devonshire Street
Boston, MA 02109
</TABLE>
(a) Unitrin, Inc. ("Unitrin") has reported on 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.
(b) Based on information obtained from Amendment No. 4 to the joint statement
on Schedule 13G as filed on February 11, 1998, with the Securities and
Exchange Commission by The Capital Group Companies, Inc. ("Capital Group")
and Capital Research and Management Company ("Capital Research", a
wholly-owned subsidiary of Capital Group). Includes 7,689,000 shares of
which Capital Group is the beneficial owner as a result of its investment
management company subsidiaries. Capital Group has sole power to vote and
dispose of the shares, but disclaims beneficial ownership of the shares.
Also includes 5,861,400 shares of which Capital Research is the beneficial
owner as a result of serving as an investment adviser to various investment
companies registered under Section 8 of the Investment Company Act of 1940.
Capital Research has the sole power to dispose of such shares, no power to
vote the shares, and disclaimsbeneficial ownership of the shares. The
remaining shares are beneficially owned by Capital Research, Capital
Guardian Trust Company, and Capital International Research and Management,
Inc., each a wholly-owned direct or indirect subsidiary of Capital Group.
29
<PAGE> 34
(c) Based on information obtained from Amendment No. 4 to the joint statement
on Schedule 13G as filed on February 5, 1998, with the Securities and
Exchange Commission by Princeton Services, Inc., Merrill Lynch Asset
Management, L.P. (MLAM), and Merrill Lynch Growth Fund. Includes
4,176,141 shares of which MLAM is the beneficial owner as a result of
serving as an investment adviser to investment companies registered under
Section 8 of the Investment Company Act of 1940 and private accounts. MLAM
shares the power to vote and dispose of the shares. Princeton Services,
Inc., is a managing general partner of MLAM. Also includes 3,985,400
shares of which Merrill Lynch Growth Fund shares voting and investment
power.
(d) Based on information obtained from Amendment No. 5 to the joint statement
on Schedule 13G as filed on February 14, 1998, with the Securities and
Exchange Commission by FMR Corp., Edward C. Johnson 3d, and Abigail P.
Johnson. Includes 2,423,000 shares of which Fidelity Management & Research
Company ("Fidelity"), a wholly-owned subsidiary of FMR Corp., is the
beneficial owner as a result of acting as investment adviser to various
investment companies registered under Section 8 of the Investment Company
Act of 1940 (the "Funds"), and as a result of acting as sub- adviser to
Fidelity American Special Situations Trust ("FASST"). Edward C. Johnson
3d, FMR Corp., through its control of Fidelity, and the Funds each has sole
power to dispose of the 2,412,100 shares owned by the Funds. Neither FMR
Corp. nor Mr. Johnson has the sole power to vote or direct the voting of
the Fund's shares, which power resides with the Funds' Boards of Trustees.
Fidelity carries out the voting of the shares under written guidelines
established by the Funds' Boards of Trustees. FASST is a unit trust
established and authorized by the Department of Trade and Industry under
the laws of England. The investment adviser of FASST is Fidelity
Investment Services Limited, a subsidiary of Fidelity International Limited
("FIL"). FIL, FMR Corp, and FASST each has sole power to vote and to
dispose of the 10,900 shares held by FASST. FIL is the beneficial owner of
19,600 shares, which includes 10,900 shares held by FASST. FIL has the
sole power to vote and dispose of 8,700 shares. Also includes 362,405
shares of which Fidelity Management Trust Company ("FMTC"), a wholly-owned
subsidiary of FMR Corp., is the beneficial owner as a result of serving as
investment manager of institutional account(s). Mr. Johnson and FMR Corp.,
through its control of FMTC, has sole dispositive power over such shares
and sole power to vote 325,105 shares, and no power to vote or to direct
the voting of 37,300 shares owned by the institutional account(s).
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
Section 16(a) of the Exchange Act as amended requires the Company's executive
officers, directors, and persons who own beneficially more than 10% of a
registered class of the Company's equity securities to 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) reports they file. Based solely on a review of the copies of the Section
16(a) reports furnished to the Company and written representations by certain
reporting persons that no other reports were required during 1997, the Company
believes that all Section 16(a) filing requirements applicable to the Company's
executive officers and directors were satisfied in a timely basis with respect
to the fiscal year ended December 31, 1997, except for an inadvertant omission
to include one option grant in the initial Form 3 filed by Mr. Hix on a timely
basis and the inadvertant failure by Clayton A. Williams, a former executive
officer of the Company now employed by UNOVA, to report a purchase of 117
shares of Common Stock in September 1997. Mr. Williams has since reported such
purchase on Form 5 filed in March 1998.
30
<PAGE> 35
SHAREHOLDER PROPOSALS FOR 1999 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 materials
of the Company relating to the 1999 Annual Meeting, they must be received by
the Company not later than December 15, 1998. Such proposals should be
directed to the attention of the Secretary of the Company at 10205 Westheimer
Road, Houston, Texas 77042.
THE BOARD OF DIRECTORS
WESTERN ATLAS INC.
HOUSTON, TEXAS
APRIL 1, 1998
31
<PAGE> 36
[WESTERN ATLAS LOGO]
32
<PAGE> 37
[WESTERN ATLAS LOGO]
WESTERN ATLAS INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 12, 1998
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
William H. Flores, James E. Brasher and Lourdes T. Hernandez, 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
12, 1998, 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 ITEMS 1
AND 2 AND AGAINST ITEM 3.
- -------------------------------------------------------------------------------
FOLD AND DETACH PROXY CARD HERE
[WESTERN ATLAS LOGO]
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> 38
WESTERN ATLAS INC.
ANNUAL MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1 AND 2
AND "AGAINST" ITEM 3
- --------------------------------------------------------------------------------
1. Election of Directors: For Claire W. Gargalli and Orion L. Hoch for a [ ]
three-year term that expires in 2001
WITHHOLD AUTHORITY to vote for Claire W. Gargalli and Orion L. Hoch [ ]
Withhold authority to vote for the following nominee(s): __________________
- --------------------------------------------------------------------------------
2. Ratification of appointment of Deloitte & Touche LLP as
independent auditors.
[ ] [ ] [ ]
3. Shareholder proposal regarding declassification of the Board
of Directors.
[ ] [ ] [ ]
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR
ITEMS 1 AND 2 AND AGAINST ITEM 3.
- --------------------------------------------------------------------------------
[ ] I (WE) PLAN TO ATTEND THE ANNUAL MEETING OF SHAREHOLDERS ON
TUESDAY, MAY 12, 1998
Please sign your name as it appears hereon. Executors,
administrators, guardians, and others signing in a
fiduciary capacity should indicated such capacity when
signing. If shares are held jointly, each holder should
sign.
Date _________________
Signatures: __________
______________________
- --------------------------------------------------------------------------------
FOLD AND DETACH PROXY CARD HERE
[WESTERN ATLAS LOGO]
To: Western Atlas Inc. Shareholders
If you plan to attend the Annual Meeting of Shareholders to be held on Tuesday,
May 12, 1998, 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.
