<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 11, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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<S> <C> <C>
WESTERN ATLAS INC. DELAWARE 95-3899675
WESTERN ATLAS CAPITAL TRUST I DELAWARE TO BE APPLIED FOR
(Exact name of the registrants as (State or other jurisdiction of (I.R.S. employer identification
specified in their respective charters) incorporation or organization) numbers)
</TABLE>
10205 WESTHEIMER ROAD
HOUSTON, TEXAS 77042
(713) 972-4000
(Address, including zip code, and telephone number, including area code, of
registrants' principal executive offices)
JAMES E. BRASHER, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
10205 WESTHEIMER ROAD
HOUSTON, TEXAS 77042
(713) 972-4000
(Name, address, including zip code, and telephone number, including area code,
of agent for service for each registrant)
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Copies to:
<TABLE>
<S> <C>
C. NEEL LEMON III, ESQ. ARTHUR H. ROGERS, ESQ.
THOMPSON & KNIGHT, P.C. FULBRIGHT & JAWORSKI L.L.P.
1700 PACIFIC AVENUE, SUITE 3300 1301 MCKINNEY STREET, SUITE 5100
DALLAS, TEXAS 75201-4693 HOUSTON, TEXAS 77010-3095
(214) 969-1700 (713) 651-5151
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C>
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PROPOSED
MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE(1) FEE
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Units(2)(3)................................................. $460,000,000 $135,700
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Quarterly Income Preferred Securities of Western Atlas
Capital Trust I(3)(4)
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Purchase Contracts of Western Atlas Inc.(3)(5)
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Junior Subordinated Deferrable Interest Debentures of
Western Atlas Inc.(6)
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Western Atlas Inc. Guarantee with respect to the Quarterly
Income Preferred Securities of Western Atlas Capital
Trust I(7)
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Common Stock, $1.00 par value, of Western Atlas Inc.(8)..... $460,000,000 $135,700
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Series A Junior Participating Preferred Stock Purchase
Rights(9)
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Total............................................... $920,000,000 $271,400
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933. The Stated Amount
of the Units will be set to equal the last reported sale price of the Common
Stock on the New York Stock Exchange on the date of such determination. Each
Purchase Contract will be settled on the Stock Purchase Date for up to one
share of Common Stock based upon the Settlement Rate.
(2) Includes Units that the Underwriters may purchase to cover over-allotments,
if any.
(3) Each Unit consists initially of a QUIPS and a Purchase Contract.
(4) Each QUIPS represents a preferred undivided beneficial interest in the
assets of Western Atlas Capital Trust I.
(5) Each Purchase Contract obligates Western Atlas Inc. to sell, and the holder
thereof to purchase, on the Stock Purchase Date such number of shares of
Common Stock of Western Atlas Inc. equal to the Settlement Rate.
(6) The Junior Subordinated Deferrable Interest Debentures to be issued by
Western Atlas Inc. will be purchased by Western Atlas Capital Trust I with
the proceeds of the sale of the QUIPS, and may be later distributed among
the holders of the QUIPS for no separate consideration upon a dissolution of
Western Atlas Capital Trust I and the distribution of the assets thereof.
(7) No separate consideration will be received for the Guarantee of Western
Atlas Inc.
(8) Such currently indeterminate number of shares of Common Stock as will be
issued by Western Atlas Inc. upon settlement of the Purchase Contracts.
(9) Pursuant to Western Atlas Inc.'s Preferred Stock Purchase Rights Plan, one
Preferred Stock Purchase Right will be issued with each share of Common
Stock. No additional consideration will be received for the Preferred Stock
Purchase Rights.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 11, 1998
UNITS
WESTERN ATLAS INC.
WESTERN ATLAS LOGO WESTERN ATLAS CAPITAL TRUST I
% ADJUSTABLE CONVERSION-RATE EQUITY SECURITY UNITS
---------------------
Each Unit will have a Stated Amount of $ (equal to the last reported
per share sale price of the Common Stock on the NYSE on the date of this
Prospectus). Each Unit will initially consist of (a) a Purchase Contract under
which the holder will purchase from Western Atlas Inc. (the "Company") on the
Stock Purchase Date of , 2001, for cash in an amount equal to the Stated
Amount, between of a share and one share of Common Stock (depending on the
Applicable Market Value of the Common Stock on the Stock Purchase Date, as
described herein), subject to adjustment in certain circumstances, and (b)
Quarterly Income Preferred Securities ("QUIPS"(SM)*) of Western Atlas Capital
Trust I (the "Trust") having a QUIPS Liquidation Amount equal to the Stated
Amount, a QUIPS Distribution Rate of % per annum and a QUIPS and Debenture
Maturity Date of , 2003, subject to a Call Option granted by the
holder of the Unit to the Call Option Holder under which the Call Option Holder
will be entitled to acquire such QUIPS. For so long as any Purchase Contract
remains in effect, such Purchase Contract and the QUIPS or other Pledged
Securities securing it (and, for so long as a Call Option relating to such
Pledged Securities is exercisable, the obligations of the holder to the Call
Option Holder thereunder) will not be separable and may be transferred only as
an integrated Unit. See "Description of the Units".
For the period from the date of issuance of the Units to the Stock Purchase
Date, each holder of a Unit (other than a Stripped Unit) will be entitled to
receive cash payments of % of the Stated Amount per annum, payable in
arrears on the Quarterly Payment Dates of , , and
of each year (unless deferred as described herein). Such payments will
consist of payments on the QUIPS or other Pledged Securities plus Contract Fees
payable by the Company or net of Contract Fees payable by the holders, as the
case may be. If a holder of a Unit does not provide cash to settle the
underlying Purchase Contract in the manner described herein on the Stock
Purchase Date, cash proceeds from the QUIPS or other Pledged Securities
underlying such Unit will be applied on the Stock Purchase Date to the purchase
of Common Stock pursuant to such Purchase Contract. See "Description of the
Units".
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE UNITS.
Concurrently with the offering made hereby, the Company also is offering for
sale an aggregate of $200 million of % Senior Notes due 2008. The Notes
Offering is being made by a separate prospectus. Neither the Notes Offering nor
the offering made hereby is conditioned on the consummation of the other
offering.
Prior to the offering made hereby there has been no public market for the
Units. Application will be made to list the Normal Units on the NYSE under the
symbol " ". The Common Stock is listed on the NYSE under the symbol "WAI".
The last reported sale price of the Common Stock on the NYSE on March 10, 1998
was $79 15/16 per share.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<CAPTION>
INITIAL PUBLIC PROCEEDS
OFFERING FROM SALE OF UNDERWRITING PROCEEDS TO
PRICE OF UNITS(1) CALL OPTIONS DISCOUNT(2) COMPANY(1)(3)
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<S> <C> <C> <C> <C>
Per Unit.................................... $ $ $ $
Total(4).................................... $ $ $ $
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(1) Plus accrued distributions on the QUIPS and plus or net of accrued Contract
Fees, if any, from , 1998.
(2) The Company and the Trust have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting estimated expenses of $ payable by the Company.
(4) The Company and the Trust have granted the Underwriters an option for 30
days with respect to an additional Units, solely to cover
over-allotments. If such option is exercised in full, the total initial
public offering price of Units, proceeds from sale of Call Options,
underwriting discount and proceeds to Company will be $ ,
$ , $ and $ , respectively. See "Underwriting".
---------------------
The Units are offered severally by the Underwriters, as specified herein,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part. It is expected that the Units will be ready for
delivery in book-entry form only through the facilities of The Depository Trust
Company in New York, New York, on or about , 1998, against payment
therefor in immediately available funds.
- ---------------
*QUIPS is a servicemark of Goldman, Sachs & Co.
GOLDMAN, SACHS & CO.
CREDIT SUISSE FIRST BOSTON
MORGAN
STANLEY DEAN WITTER
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The date of this Prospectus is , 1998.
<PAGE> 3
FORWARD-LOOKING STATEMENTS
The statements included or incorporated in this Prospectus regarding future
financial performance and results and the other statements that are not
historical facts are "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Such statements may include, but are not limited to, projections of
earnings, revenues, income or loss, capital expenditures, plans for future
operations and financing needs or plans, as well as assumptions relating to the
foregoing. The words "expect", "project", "estimate", "intend", "plan",
"predict", "anticipate", "believe", "may" and similar expressions as they relate
to the Company or its management are also intended to identify forward-looking
statements. Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified. Future events
and actual results, performance and achievements could differ materially from
those set forth in, contemplated by or underlying the forward-looking
statements. Such factors include, but are not limited to, dependence upon oil
and gas industry spending, worldwide prices and demand for oil and gas, the
presence of competitors with greater financial and other resources,
technological changes and developments, operating risks inherent in the oilfield
services industry, operating risks related to oil and gas exploration and
production activities, regulatory uncertainties, worldwide political stability
and economic conditions, operating risks associated with international activity,
and other risks and uncertainties described in this Prospectus and in the
Company's other filings with the Securities and Exchange Commission (the
"Commission"). Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual outcomes may vary
materially from those indicated.
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE UNITS OR
THE COMMON STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN THE UNITS OR THE COMMON STOCK AND THE IMPOSITION OF PENALTY
BIDS, IN CONNECTION WITH THIS OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING".
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the Commission's regional offices at Seven World Trade
Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and copies may be obtained
at prescribed rates from the Public Reference Section of the Commission at its
principal office in Washington, D.C. In addition, such reports, proxy statements
and other information may be accessed electronically at the Commission's site on
the World Wide Web at http://www.sec.gov. The Company's reports are also on file
at the offices of the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(together with all amendments and exhibits, referred to herein as the
"Registration Statement") filed by the Company and the Trust with the Commission
under the Securities Act with respect to the securities being offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, certain parts of which are
omitted as permitted by the rules and regulations of the Commission. For further
information with respect to the Company, the Trust, and the securities being
offered hereby, reference is made to the Registration Statement which can be
inspected at the public reference facilities at the offices of the Commission
set forth above. Any statements contained herein concerning the provision of any
document filed as an exhibit to the Registration Statement or otherwise filed
with the Commission or incorporated by reference herein are not necessarily
complete, and, in each instance, reference is made to the copy of such document
so filed for a more complete description of the matter involved. Each such
statement is qualified in its entirety by such reference.
No separate financial statements of the Trust have been included herein.
The Company and the Trust do not consider that such financial statements would
be material to holders of the QUIPS because (i) all of the voting securities of
the Trust will be owned, directly or indirectly, by the Company, a reporting
company under the Exchange Act, (ii) the Trust is a newly formed special purpose
entity, has no operating history or independent operations and is not engaged in
and under the terms of the Declaration is prohibited from engaging in any
activity other than holding the Junior Subordinated Debentures and issuing
securities representing undivided beneficial interests in its assets and
investing the proceeds thereof in the Junior Subordinated Debentures, and (iii)
the Company's obligations described herein under the Declaration (including the
obligation to pay expenses of the Trust), the Indenture and any supplemental
indentures thereto, the Junior Subordinated Debentures issued to the Trust and
the Guarantee, taken together, constitute a full and unconditional guarantee by
the Company of payments due on the QUIPS. See "The Trust", "Description of the
Units -- Description of the Junior Subordinated Debentures", and "Description of
the Units -- Description of the Guarantee".
The Trust is not currently subject to the information reporting
requirements of the Exchange Act. The Trust will become subject to such
requirements upon the effectiveness of the Registration Statement, although the
Trust intends to seek and expects to receive an exemption therefrom.
iii
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company (File No. 1-12430) with the
Commission pursuant to the Exchange Act are incorporated by reference herein and
made a part hereof:
(1) Annual Report on Form 10-K for the fiscal year ended December 31,
1997, as amended by Form 10-K/A filed on March 11, 1998;
(2) Current Report on Form 8-K filed on March 10, 1998;
(3) The description of the Common Stock, $1.00 par value, of the
Company (the "Common Stock") contained in the Company's Registration
Statement on Form 10 filed with the Commission on October 12, 1993,
including any amendments or reports filed for the purpose of updating such
description; and
(4) The description of the Preferred Stock Purchase Rights of the
Company contained in the Company's Current Report on Form 8-K dated August
25, 1994, including any amendments or reports filed for the purpose of
updating such description.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the securities being
offered hereby shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date of filing of such documents,
unless any such document shall expressly state that it is not to be incorporated
by reference.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein) modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus or any amendment
or supplement hereto.
The Company undertakes to provide without charge to each person to whom a
copy of this Prospectus is delivered, upon the written or oral request of such
person, a copy of any or all of the documents incorporated herein by reference,
other than exhibits to such documents unless such exhibits are specifically
incorporated by reference into such documents. Requests for such documents
should be directed to the Company's principal executive offices located at 10205
Westheimer Road, Houston, Texas 77042, Attention: James E. Brasher, Senior Vice
President and General Counsel, telephone number: (713) 972-4000.
iv
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PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information, including the Company's
consolidated financial statements and notes thereto, included herein. Unless the
context otherwise requires, references in this Prospectus to the "Company" or
"Western Atlas" shall mean Western Atlas Inc. and its subsidiaries and "UNOVA"
shall mean UNOVA, Inc., which was spun-off from the Company in October 1997.
Unless otherwise indicated, all financial information and share data in this
Prospectus assume no exercise of the Underwriters' over-allotment option in this
Units offering. UNOVA's operations through October 31, 1997 are reported in the
Company's financial statements as discontinued operations.
THE COMPANY
Western Atlas is a leading supplier of oilfield services and reservoir
information technologies for the worldwide oil and gas industry. It operates
primarily through three divisions: Western Geophysical, Western Atlas Logging
Services, and E&P Services. The Company specializes in land, marine, and
transition-zone seismic data acquisition and processing services; open-hole and
cased-hole well-logging services; reservoir characterization; and exploration
and production techniques and management services. The Company's revenues have
grown from approximately $1.4 billion in 1996 to approximately $1.7 billion in
1997, an increase of 17%. During this period, earnings from continuing
operations before interest, taxes, depreciation, amortization, and non-recurring
items ("EBITDA") grew from approximately $457 million to approximately $570
million, an increase of 25%.
The Company, through its predecessors, has provided services to the oil and
gas industry since 1932. In October 1997, to focus exclusively on the oilfield
service sector, the Company distributed the common stock of UNOVA, its then
wholly-owned industrial automation systems subsidiary, to the shareholders of
the Company in a tax-free spin-off (the "Spin-off").
The Company's strategy is to maximize shareholder value by providing
value-added services to its clients, maintaining operational excellence, and
pursuing internal and external growth opportunities. The Company's reservoir
information services enable clients to more quickly locate hydrocarbons, reduce
exploration, development, and production risks, and maximize returns. Western
Atlas intends to enhance its significant market positions in its core businesses
by continuing to invest substantial amounts of intellectual and financial
capital into new services, products, and technologies.
The successful implementation of this strategy has provided the Company
with the following competitive strengths:
LARGEST AND MOST COMPREHENSIVE PROVIDER OF SEISMIC ACQUISITION
SERVICES. The Company, through its Western Geophysical division ("WG"), is
the largest provider of seismic acquisition services to the oil and gas
industry. On a worldwide basis, Western offers an advanced fleet of
purpose-built seismic vessels for deepwater streamer and ocean-bottom cable
("OBC") exploration, the industry's largest land-crew organization for
all-terrain surveys, and innovative technologies for seamless coverage
across shallow-water transition zones. The Company has further strengthened
its position in the offshore segment through the aggressive pursuit of
solid-streamer technology, vessel upgrades, OBC technologies (including
multicomponent sensor technologies), and time-lapse 3-D ("4-D") reservoir
monitoring services.
MOST EXTENSIVE MULTICLIENT SEISMIC DATA LIBRARY. WG has the most
extensive non-exclusive data library in the industry and continuously adds
new data thereto. The Company believes this library provides clients with
high-quality seismic data for oil and gas activities at cost-effective
prices. The Company's library is geographically diverse, contains a
significant amount
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of recently acquired data, and is well suited for a broad range of client
applications, particularly in those areas where higher levels of
exploration and development activity are expected in the near future.
INDUSTRY LEADING SEISMIC DATA PROCESSING. WG provides industry leading
seismic data processing services. The Company provides these services
worldwide through a network of in-field and dedicated data processing
centers, as well as client operated facilities. The Company's seismic data
processing capacity has increased by over 600% since 1995. In addition, the
Company believes its proprietary Omega(R) seismic processing system is
becoming an industry standard.
ADVANCED LOGGING AND PERFORATING SERVICES. The Company provides
advanced logging and perforating services to clients through its Western
Atlas Logging Services division ("WALS"). During the last four years, WALS
has invested significant amounts of financial and intellectual capital to
develop new logging, perforating, and other wireline technologies and
services. The Company believes that its logging services, instruments, and
geoscientific interpretation services are currently among the best
available in the industry.
STATE-OF-THE-ART INTEGRATED RESERVOIR STUDIES. Western Atlas has
developed methods to integrate geophysical, geological, and petrophysical
data into a single reservoir model which provides clients with a
multidimensional view of their reservoirs. In addition, the Company
believes these services will become an important component in the emerging
4-D reservoir monitoring market.
EXPLORATION AND PRODUCTION SERVICES. Through its E&P Services division
("E&PS"), the Company possesses exploration and production technology using
engineering, geophysical and geological disciplines, including integrated
reservoir and subsurface analysis, reservoir characterization and modeling,
and prospect generation and selection. As a service provider and as a
partner with oil and gas companies, E&PS utilizes its capabilities and
experience to identify potential hydrocarbon-bearing properties and enhance
the ability of oil and gas companies to explore, develop, and produce
hydrocarbons.
THE ACQUISITIONS
On March 8, 1998, the Company entered into an agreement to acquire the
stock of Wedge Dia-Log, Inc. ("Wedge Dia-Log") for approximately $218 million in
cash (the "Wedge Acquisition"). Wedge Dia-Log is a wireline company specializing
in cased-hole and pipe recovery services. Subject to the satisfaction of
customary conditions, including applicable regulatory approval, the Company
intends to close the Wedge Acquisition on or about April 1, 1998.
In addition, on March 8, 1998, the Company entered into an agreement to
acquire the stock of 3-D Geophysical, Inc. ("3-D Geophysical"), a supplier of
primarily land-based seismic data acquisition services (the "3-D Acquisition"
and, together with the Wedge Acquisition, the "Acquisitions"). The agreement
provides for an all-cash tender offer of $9.65 per share for an aggregate
consideration of approximately $115 million if all shares are acquired. The
Company intends to close the 3-D Acquisition following consummation of this
Units offering; however, such closing is subject to the tender of more than 50%
of the outstanding shares of common stock of 3-D Geophysical and other customary
conditions, including applicable regulatory approvals. The 3-D Acquisition, if
consummated, will enhance the Company's seismic data acquisition capabilities in
the United States, Canada, Mexico, and Peru.
THE TRUST
Western Atlas Capital Trust I is a statutory business trust created under
the laws of the State of Delaware pursuant to (i) a declaration of trust, dated
as of March 9, 1998, executed by Western
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Atlas Inc., as sponsor (the "Sponsor"), and certain of the trustees of the Trust
(the "Issuer Trustees") and (ii) the filing of a certificate of trust with the
Secretary of State of the State of Delaware on March 9, 1998. Such declaration
of trust will be amended and restated in its entirety (as so amended and
restated, the "Declaration") substantially in the form filed as an exhibit to
the Registration Statement of which this Prospectus forms a part. The
Declaration will be qualified as an indenture under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). The Trust exists for the exclusive
purposes of (i) issuing the Trust Securities representing undivided beneficial
interests in the assets of the Trust, (ii) investing the proceeds of the Trust
Securities in the Junior Subordinated Debentures and (iii) engaging in only
those other activities necessary or incidental thereto. Accordingly, the Junior
Subordinated Debentures will be the sole assets of the Trust and payments under
the Junior Subordinated Debentures will be the sole revenue of the Trust. All of
the Common Trust Securities will be directly or indirectly owned by the Company.
See "The Trust".
THE OFFERING
THE UNITS
Securities Offered......... % Adjustable Conversion-rate Equity Security
Units (the "Units", as more fully defined below).
Issuers.................... Western Atlas Inc. and Western Atlas Capital Trust
I.
Stated Amount.............. $ per Unit (the "Stated Amount").
Payments on the Units...... For the period from the date of issuance of the
Units to the Stock Purchase Date, each holder of a
Unit (other than a Stripped Unit) will be entitled
to receive cash payments of % of the Stated
Amount per annum, payable in arrears. Such payments
will consist of payments on the QUIPS or other
Pledged Securities plus Contract Fees payable by
the Company or net of Contract Fees payable by the
holders, as the case may be.
Quarterly Payment Dates.... , , , and of each year (the
"Quarterly Payment Dates"), subject to the deferral
provisions described below.
Stock Purchase Date........ , 2001 (the "Stock Purchase Date").
If a holder of a Unit does not provide cash to
settle the underlying Purchase Contract in the
manner described herein, cash proceeds from the
QUIPS or other Pledged Securities underlying such
Unit will be applied on the Stock Purchase Date to
the purchase of Common Stock pursuant to such
Purchase Contract.
Settlement Rate............ The number of shares of Common Stock issuable upon
settlement of each Purchase Contract (the
"Settlement Rate") will be between of a
share and one share of Common Stock (subject to
adjustment in certain circumstances). More
specifically, the Settlement Rate will be
calculated as follows, subject to adjustment under
certain circumstances:
(a) if the Applicable Market Value is greater than
or equal to $ (the "Threshold Appreciation
Price") (i.e., approximately % higher than the
Stated Amount), the Settlement Rate will be ;
(b) if the Applicable Market Value is less than the
Threshold Appreciation Price but greater than the
Stated Amount, the Settle-
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<PAGE> 9
ment Rate will equal the Stated Amount divided by
the Applicable Market Value (i.e., the Settlement
Rate will be calculated so that the Applicable
Market Value of the Common Stock purchasable under
each Purchase Contract would equal the Stated
Amount payable therefor); and
(c) if the Applicable Market Value is less than or
equal to the Stated Amount, the Settlement Rate
will be one.
"Applicable Market Value" means the average of the
Closing Prices per share of Common Stock on each of
the twenty consecutive Trading Day ending on the
last Trading Day immediately preceding the Stock
Purchase Date.
Relationship of Units
to Common Stock.......... Cash payments on the Units that are not Stripped
Units (consisting of payments on the QUIPS plus or
net of Contract Fees) will accrue at a rate per
annum that is greater than the current dividend
yield on the Common Stock. However, since the
number of shares of Common Stock issuable upon
settlement of each Purchase Contract may decline by
up to % as the Applicable Market Value
increases, the opportunity for equity appreciation
afforded by an investment in the Units is less than
that afforded by a direct investment in the Common
Stock.
Components of
the Units................ Each Unit will initially consist of:
(a) a Purchase Contract ("Purchase Contract") under
which (i) the holder will purchase from the Company
on the Stock Purchase Date, for cash in an amount
equal to the Stated Amount, a number of shares of
Common Stock equal to the Settlement Rate, and (ii)
the Company will pay to the holder or the holder
will pay to the Company (as specified in the final
Prospectus for the offering made hereby) contract
fees ("Contract Fees") on the Stated Amount at the
rate of % per annum (the "Contract Fee Rate"),
and (b) Quarterly Income Preferred Securities
("QUIPS"(SM), which term may refer to a single
security or more than one security as the context
may require) of the Trust having a QUIPS
Liquidation Amount equal to the Stated Amount, a
QUIPS Distribution Rate of % per annum and a
QUIPS and Debenture Maturity Date of ,
2003,
subject to a call option ("Call Option") granted by
the holder of the Unit to Goldman, Sachs & Co. (in
its capacity as the holder of the Call Options, the
"Call Option Holder") which (when aggregated with
the Call Options underlying all other Units) will
entitle the Call Option Holder to acquire the QUIPS
underlying the Units (or the Junior Subordinated
Debentures substituted therefor) on or before
, 2001 (the "Call Option Expiration
Date", which is 90 days before the Stock Purchase
Date), in exchange for a package of consideration
(the "Aggregate Consideration Deliverable on
Exercise of the Call Options") which will include
U.S. Treasury Securities ("Treasury Securities")
that will provide payments matching the aggregate
distributions due on the QUIPS through the Stock
Purchase Date and Treasury Securities that will
4
<PAGE> 10
provide payments equal to the aggregate Stated
Amount of the Units on the Stock Purchase Date.
The QUIPS underlying a Unit will be pledged to
, as collateral agent for the Company and
the Call Option Holder (together with any successor
thereto in such capacity, the "Collateral Agent"),
to secure the holder's obligations to the Company
and the Call Option Holder under the Purchase
Contract and Call Option underlying such Unit. The
QUIPS, or any securities substituted therefor as
securities pledged to the Collateral Agent to
secure such obligations, are herein referred to as
"Pledged Securities". If Treasury Securities are
exchanged for Pledged Securities upon exercise of
the Call Options or Junior Subordinated Debentures
are distributed in respect of Pledged Securities
upon dissolution of the Trust, the Treasury
Securities so exchanged or the Junior Subordinated
Debentures so distributed will automatically be
substituted as Pledged Securities in place of the
securities that theretofore had been Pledged
Securities.
The obligations of the holders of Units under the
Purchase Contracts, if not paid in cash by such
holders, will be funded out of payments made in
respect of the Pledged Securities.
For so long as a Purchase Contract remains in
effect, such Purchase Contract and the QUIPS or
other Pledged Securities securing it (and, for so
long as a Call Option relating to such Pledged
Securities is exercisable, the obligations of the
holder to the Call Option Holder thereunder) will
not be separable and may be transferred only as an
integrated Unit.
Formation of the Units..... At the closing of the offering made hereby, the
Underwriters specified herein (the "Underwriters")
will (a) enter into Purchase Contracts with the
Company and (b) purchase QUIPS from the Trust for
cash. The Underwriters will fund that cash in part
by the sale of the Units offered hereby to the
initial investors thereof and in part by the sale
of Call Options (on behalf of such initial
investors) to the Call Option Holder. The Trust
will use that cash to purchase Junior Subordinated
Debentures from the Company. The QUIPS will then be
pledged to the Collateral Agent as contemplated
above.
The rights to purchase Common Stock under a
Purchase Contract, together with the ownership of
QUIPS or other Pledged Securities pledged to secure
the obligations referred to in (a) and (b) below,
subject to (a) the obligations owed to the Company
under such Purchase Contract, (b) the obligations
owed to the Call Option Holder under the Call
Option relating to such QUIPS or other Pledged
Securities and (c) the pledge arrangements securing
the foregoing obligations, are collectively
referred to herein as a "Normal Unit".
Each holder of Normal Units will have the right to
substitute, as Pledged Securities, Treasury
Securities that will generate payments matching
such holder's obligations under the underlying
Purchase Contracts, in return for the securities
that theretofore had been the Pledged Securities
underlying such Normal Units.
5
<PAGE> 11
For so long as the Call Options underlying such
Normal Units remain exercisable, such right may be
exercised only if the holder obtains an instrument
from the Call Option Holder releasing its security
interest in the Pledged Securities securing such
Call Options and agreeing that such Call Options no
longer underlie such Normal Units (or the Stripped
Units they become). The holder might obtain such an
instrument by separately documenting such Call
Options with the Call Option Holder (and, if
required by the Call Option Holder, entering into
credit support arrangements satisfactory to the
Call Option Holder backing such Call Options),
paying the Call Option Holder to cancel such Call
Options or otherwise. However, the Call Option
Holder will be under no obligation to deliver such
an instrument, and there can be no assurance that a
holder will be able to induce the Call Option
Holder to do so. If a holder of Normal Units
exercises such holder's right to substitute
Treasury Securities as Pledged Securities in the
manner described herein, the securities that
theretofore had been the Pledged Securities
underlying such Normal Units will be released from
the pledge arrangement described herein and
delivered to such holder, and such holder's
remaining rights and obligations under the Normal
Units will thereupon become "Stripped Units" that
will no longer generate cash payments to such
holder and that will no longer be listed on the
NYSE or be fungible with Normal Units.
The Normal Units and any Stripped Units are
collectively referred to herein as the "Units".
Contract Fees.............. The holders of Units may be required to pay
Contract Fees to the Company, or the Company may be
required to pay Contract Fees to the holders of
Units, as specified under "Description of the
Units -- General".
Any obligation of the holders of Units to pay
Contract Fees to the Company will be funded out of
payments made in respect of the Pledged Securities.
If payments made in respect of the Pledged
Securities are insufficient to cover the obligation
of the holders of the Units to pay Contract Fees,
such obligation will be deferred until the earlier
of the date sufficient cash is available and the
Stock Purchase Date.
Any obligation of the Company to pay Contract Fees
to the holders of Units will be unsecured and
junior in right of payment to all Senior
Indebtedness of the Company. The Company will
generally have the right to defer the payment of
Contract Fees at any time or from time to time for
a period not extending beyond the Stock Purchase
Date.
Any deferred Contract Fees payable by the holders
of Units or the Company will bear additional
Contract Fees at the rate of % per annum (the
"Deferral Rate") (compounding on each succeeding
Quarterly Payment Date) until paid.
Termination................ The Purchase Contracts (including the right to
receive and the obligation to pay accrued or
deferred Contract Fees and the right and obligation
to purchase Common Stock) will automatically
6
<PAGE> 12
terminate upon the occurrence of certain events of
bankruptcy, insolvency or reorganization with
respect to the Company. Upon such termination, the
Call Options will terminate and the Collateral
Agent will release the Pledged Securities held by
it to the Unit Agent for distribution to the
holders.
THE QUIPS
The Trust.................. The QUIPS will be issued by the Trust, a Delaware
statutory business trust. The Junior Subordinated
Deferrable Interest Debentures due , 2003
(the "Junior Subordinated Debentures") of the
Company will be the sole assets of the Trust, and
payments on the Junior Subordinated Debentures will
be the sole revenue of the Trust. The Company will
own all of the common undivided beneficial
interests in the assets of the Trust (the "Common
Trust Securities" and, collectively with the QUIPS,
the "Trust Securities").
The QUIPS.................. The QUIPS will represent preferred undivided
beneficial interests in the assets of the Trust.
Distributions on the QUIPS will be cumulative, will
accrue from the first date of issuance of the QUIPS
and will be payable at the annual rate of %
(the "QUIPS Distribution Rate") of the liquidation
amount of $ per QUIPS (the "QUIPS
Liquidation Amount"), payable quarterly in arrears
on each Quarterly Payment Date, subject to the
deferral provisions described below.
Interest and QUIPS
Distribution Deferral
Provisions............... The Company will generally have the right to defer
the payments of interest on the Junior Subordinated
Debentures at any time or from time to time for a
period not extending beyond the QUIPS and Debenture
Maturity Date. Upon any such deferral, quarterly
distributions on the QUIPS by the Trust will be
deferred. However, deferred payments of interest on
the Junior Subordinated Debentures and deferred
distributions on the QUIPS will bear additional
interest or distributions at a rate per annum equal
to the Deferral Rate (compounding on each
succeeding Quarterly Payment Date) until paid.
Mandatory Redemption....... The QUIPS will be mandatorily redeemable in whole
on , 2003 (the "QUIPS and Debenture
Maturity Date"), at a redemption price equal to the
aggregate QUIPS Liquidation Amount thereof plus
unpaid distributions accrued thereon to such date,
out of the proceeds of the repayment of the Junior
Subordinated Debentures at maturity.
Exchange of QUIPS for
Junior Subordinated
Debentures............... The Company will have the right at any time to
terminate the Trust and cause the Junior
Subordinated Debentures to be distributed to the
holders of the QUIPS and Common Trust Securities in
liquidation of the Trust.
Right to Exercise Junior
Subordinated Debenture
Put Options.............. Each holder of QUIPS will have the option to
require the Trust to distribute the underlying
Junior Subordinated Debentures to the
7
<PAGE> 13
Put Agent, on the Stock Purchase Date or on the
date that is three months after the Stock Purchase
Date, in exchange for such QUIPS, in connection
with the concurrent exercise of the Junior
Subordinated Debenture Put Option related thereto.
Junior Subordinated
Debentures............... The Junior Subordinated Debentures will be issued
by the Company under an indenture (the "Indenture")
between Chase Manhattan Bank and Trust Company,
National Association, as trustee (together with any
successor thereto in such capacity, the "Debenture
Trustee"), and the Company, in an aggregate
principal amount equal to the aggregate liquidation
amount of the Trust Securities. The Junior
Subordinated Debentures will bear interest at a
rate per annum that is equal to the QUIPS
Distribution Rate, payable quarterly in arrears on
the Quarterly Payment Dates, subject to the
deferral provisions described above. The Junior
Subordinated Debentures will mature on the QUIPS
and Debenture Maturity Date and will not be
redeemable at the option of the Company prior to
such date. The Junior Subordinated Debentures will
be unsecured and junior in right of payment to all
Senior Indebtedness of the Company.
Junior Subordinated
Debenture Put Options.... Each holder of Junior Subordinated Debentures will
have the right to require the Company to repurchase
such Junior Subordinated Debentures, in whole or in
part, on the Stock Purchase Date or on the date
that is three months after the Stock Purchase Date,
for a purchase price equal to the Applicable Put
Price for such Junior Subordinated Debentures. The
Applicable Put Price for any Junior Subordinated
Debentures being sold on the Stock Purchase Date
will equal the aggregate principal amount of such
Junior Subordinated Debentures plus unpaid interest
accrued thereon to the Stock Purchase Date. The
Applicable Put Price for any Junior Subordinated
Debentures being sold on the date that is three
months after the Stock Purchase Date will be
calculated based on a formula described herein. See
"Description of the Units -- Description of the
Junior Subordinated Debentures -- Junior
Subordinated Debenture Put Options".
The Guarantee.............. Pursuant to a guarantee agreement (the "Guarantee")
between the Company and Chase Manhattan Bank and
Trust Company, National Association, as trustee
(together with any successor thereto in such
capacity, the "Guarantee Trustee"), the Company
will guarantee the payment of distributions and
other payments on the QUIPS to the extent that the
Trust has funds on hand sufficient therefor.
GENERAL
Listing.................... Application will be made to list the Normal Units
on the New York Stock Exchange (the "NYSE").
Federal Income Tax
Consequences............. For a discussion of the United States federal
income tax consequences associated with the
purchase, ownership and disposition of the Units,
QUIPS, Purchase Contracts and Common Stock, see
8
<PAGE> 14
"Certain Federal Income Tax Consequences".
Prospective investors should be aware that no
statutory, judicial or administrative authority
directly addresses the tax treatment of Units or
instruments similar to Units for United States
federal income tax purposes. ACCORDINGLY,
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR
TAX ADVISORS CONCERNING THE TAX CONSEQUENCES OF AN
INVESTMENT IN THE UNITS, INCLUDING THE APPLICATION
OF STATE, LOCAL AND FOREIGN OR OTHER TAX LAWS AND
THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER
TAX LAWS.
Use of Proceeds............ The Company intends to use the net proceeds of this
Units offering (estimated to be $387.4 million) and
the net proceeds of the Notes Offering (estimated
to be $198.5 million) to fund the Acquisitions
totaling approximately $333 million (assuming 100%
of the shares of 3-D Geophysical are acquired in
the 3-D Acquisition) and to repay approximately
$253 million of commercial paper and other
borrowings. See "Use of Proceeds".
Notes Offering............. Concurrently with the offering of Units made
hereby, the Company also is offering for sale an
aggregate of $200 million of % Senior Notes
due 2008 (the "Notes Offering"). The Notes Offering
is being made by means of a separate prospectus.
Neither the Notes Offering nor the offering made
hereby is conditioned on consummation of the other
offering. There can be no assurance that the Notes
Offering will be consummated. This Prospectus does
not constitute an offer to sell or the solicitation
of an offer to buy the Notes being offered in the
Notes Offering.
9
<PAGE> 15
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth summary consolidated financial data for the
Company and its subsidiaries as of and for the three years ended December 31,
1997. The summary financial data have been derived from the Company's audited
consolidated financial statements included herein. On October 31, 1997, the
shares of common stock of UNOVA were distributed to the Company's shareholders
pursuant to the Spin-off. UNOVA's operations through October 31, 1997 are
reported in the Company's financial statements as discontinued operations. The
following data is based on continuing operations and should be read in
conjunction with "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.......................................... $1,658,150 $1,418,108 $1,282,927
Operating profit................................. 200,619 147,446 134,903
Earnings from continuing operations before income
taxes.......................................... 151,245 116,537 103,208
Earnings from continuing operations.............. 91,811 69,922 61,409
OTHER DATA:
EBITDA(1)........................................ $ 569,556 $ 456,659 $ 408,453
Ratio of EBITDA to interest expense(2)........... 13.3 14.1 12.2
Ratio of earnings to fixed charges(3)............ 4.1 4.5 4.0
Capital expenditures and cost of multiclient
seismic data acquired.......................... $ 705,027 $ 475,475 $ 323,483
Depreciation, depletion and amortization(4)...... 368,937 309,213 273,550
BALANCE SHEET DATA (END OF PERIOD)(5):
Working capital.................................. $ 114,164 $ 774,954 $ 827,526
Total assets..................................... 2,330,707 2,499,210 2,268,580
Total debt....................................... 808,122 503,644 498,813
Shareholders' equity............................. 886,867 1,502,938 1,356,847
</TABLE>
- ---------------
(1) "EBITDA" means earnings from continuing operations before interest, taxes,
depreciation, amortization, and non-recurring items and should not be
considered as an alternative to net income or any other generally accepted
accounting principles measure of performance as an indicator of the
Company's operating performance or as a measure of liquidity. The Company
believes EBITDA is a widely accepted financial indicator of a company's
ability to service debt. EBITDA is not necessarily comparable to similarly
titled measures of other companies.
(2) Ratio of EBITDA to interest expense represents an industry ratio that
provides an investor with information as to the Company's current ability
to meet its financing costs.
(3) For the purpose of this calculation, "earnings" consist of net income from
continuing operations before income taxes plus fixed charges excluding
capitalized interest. "Fixed charges" consist of interest expense,
capitalized interest, amortization of deferred loan costs, and the portions
of operating leases that management believes are representative of the
interest factor thereon.
(4) During the fourth quarter of 1997, the Company extended the estimated
useful lives of certain assets. This change in accounting estimate resulted
in an increase in the Company's earnings from continuing operations of $2.8
million or $0.05 diluted earnings per share for 1997.
(5) On October 31, 1997, the shares of common stock of UNOVA were distributed
to the Company's shareholders in connection with the Spin-off.
10
<PAGE> 16
RISK FACTORS
Before purchasing any of the Units offered hereby, prospective purchasers
of Units should consider, in addition to the other information with respect to
the Company and its business contained or incorporated by reference in this
Prospectus, including the information set forth under Forward-Looking
Information and Risk Factors in the Company's 1997 Annual Report on Form 10-K,
as amended, the following factors relating to the Company and the terms of the
Units offered hereby.
RISK OF DECLINE IN EQUITY VALUE
The market value of the Common Stock receivable upon settlement of the
Purchase Contracts may be materially different than the purchase price payable
for such Common Stock. If the Applicable Market Value of the Common Stock on the
Stock Purchase Date is less than the Stated Amount (i.e., less than the Closing
Price of the Common Stock on the date of this Prospectus), each holder of Units
will, on the Stock Purchase Date, be required to purchase shares of Common Stock
for an amount greater than the aggregate Applicable Market Value of such shares.
Accordingly, a holder of Units assumes the risk that the market value of the
Common Stock may decline, and such decline could be substantial.
LIMITATION ON EQUITY APPRECIATION POTENTIAL
Since the number of shares of Common Stock issuable upon settlement of each
Purchase Contract may decline by up to % as the Applicable Market Value
increases, the opportunity for equity appreciation afforded by an investment in
the Units is less than that afforded by a direct investment in the Common Stock.
LIMITATION ON VALUE OF QUIPS AS A RESULT OF CALL OPTIONS
If the value of the QUIPS underlying the Normal Units is greater than the
Aggregate Consideration Deliverable on Exercise of the Call Options (as
expected), it is likely that the Call Option Holder will exercise its Call
Options. In that case, the Call Option Holder rather than holders of Normal
Units will realize the benefit of that greater value.
PLEDGED SECURITIES ENCUMBERED
Although holders of Units will be beneficial owners of the underlying
Pledged Securities, those Pledged Securities will be pledged with the Collateral
Agent to secure the obligations of the holders under the Purchase Contracts and
the Call Options. Thus, for so long as the Purchase Contracts remain in effect,
holders will not be entitled to withdraw their Pledged Securities from this
pledge arrangement except in the limited circumstances described herein.
SUBORDINATION OF COMPANY OBLIGATIONS
The ability of the Trust to pay amounts due on the QUIPS (including,
without limitation, the ability of the Trust to pay amounts due upon exercise of
any Junior Subordinated Debenture Put Options) is dependent upon the Company
making payments on the Junior Subordinated Debentures as and when required.
The obligations of the Company under the Junior Subordinated Debentures and
the Guarantee will be unsecured and subordinate and rank junior in right of
payment to all present and future Senior Indebtedness of the Company to the
extent and in the manner set forth in the Indenture and the Guarantee,
respectively. In addition, if Contract Fees are payable by the Company on the
Purchase Contracts, the obligations of the Company to pay Contract Fees will be
unsecured and subordinate and rank junior in right of payment to all present and
future Senior Indebtedness of the Company to the extent and in the manner set
forth in the Master Unit Agreement. No payments on account of principal of,
premium, if any, or interest on the Junior Subordinated Debentures
11
<PAGE> 17
(including payments on exercise of Junior Subordinated Debenture Put Options)
may be made if there shall have occurred and be continuing a default in any
payment with respect to Senior Indebtedness, or an event of default with respect
to any Senior Indebtedness resulting in the acceleration of the maturity
thereof, or if any judicial proceeding shall be pending with respect to any
default. In the event of the acceleration of the maturity of Junior Subordinated
Debentures, the holders of all Senior Indebtedness outstanding at the time of
such acceleration will first be entitled to receive payment in full of all
amounts due in respect of such Senior Indebtedness before the holders of Junior
Subordinated Debentures will be entitled to receive or retain any payment in
respect of Junior Subordinated Debentures. Notwithstanding the foregoing,
amounts that would be due and payable to holders of Units in the absence of the
foregoing subordination provisions may be applied by such holders to offset
their obligations under their respective Purchase Contracts.
None of the Indenture, the Guarantee, the Declaration or the Master Unit
Agreement places any limitation on the amount of secured or unsecured debt,
including Senior Indebtedness, that may be incurred by the Company or any of its
subsidiaries. See "Description of the Units -- Description of the Junior
Subordinated Debentures -- Subordination" and "Description of the
Units -- Description of the Guarantee -- Status". At December 31, 1997, the
Company had approximately $808 million of Senior Indebtedness outstanding.
OPTION TO DEFER PAYMENTS
The Company will generally have the right to defer payments of interest on
the Junior Subordinated Debentures at any time or from time to time for a period
not extending beyond the QUIPS and Debenture Maturity Date. Upon any such
deferral, quarterly distributions on the QUIPS by the Trust will be deferred.
However, deferred payments of interest on the Junior Subordinated Debentures and
deferred distributions on the QUIPS will bear additional interest or
distributions at a rate per annum equal to the Deferral Rate (compounding on
each succeeding Quarterly Payment Date) until paid. See "Description of the
Units -- Description of the QUIPS -- Distributions" and "-- Description of the
Junior Subordinated Debentures -- Option to Extend Interest Payment Date".
If Contract Fees are payable by the Company on the Purchase Contracts, the
Company will generally have the right to defer the payment of such Contract Fees
at any time or from time to time for a period not extending beyond the Stock
Purchase Date. However, deferred payments of Contract Fees will bear additional
Contract Fees at the Deferral Rate (compounding on each succeeding Quarterly
Payment Date) until paid. If the Purchase Contracts are terminated (upon the
occurrence of certain events of bankruptcy, insolvency or reorganization with
respect to the Company), the right to receive Contract Fees, including deferred
Contract Fees, will terminate.
The Company believes that the likelihood that it will exercise its right to
defer payments of interest on the Junior Subordinated Debentures is remote and
that, therefore, the Junior Subordinated Debentures should not be considered to
be issued with original issue discount ("OID") unless it actually exercises such
deferral right. There is no assurance that the Internal Revenue Service (the
"IRS") will agree with such position. See "Certain Federal Income Tax
Consequences -- Interest Received on the QUIPS".
Should the Company elect to exercise its right to defer payments of
interest on the Junior Subordinated Debentures or Contract Fees, the market
price of the QUIPS or Junior Subordinated Debentures or, for so long as the
Purchase Contracts remain in effect, the Units is likely to be affected. A
holder that disposes of its QUIPS, Junior Subordinated Debentures or Units
during such deferral period, therefore, might not receive the same return on its
investment as a holder that continues to hold its QUIPS, Junior Subordinated
Debentures or Units. In addition, the mere existence of the Company's right to
defer such payments may cause the market price of the QUIPS, Junior Subordinated
Debentures or Units to be more volatile than the market prices of other
securities that are not subject to such deferrals.
12
<PAGE> 18
For information about certain adverse tax consequences that would result if
the Company exercises its right to defer payments of interest on the Junior
Subordinated Debentures, see "-- Tax Matters" and "Certain Federal Income Tax
Consequences -- Interest Received on the QUIPS".
MASTER UNIT AGREEMENT NOT QUALIFIED UNDER TRUST INDENTURE ACT; LIMITED
OBLIGATIONS OF UNIT AGENT
Although the QUIPS constituting a part of the Normal Units will be issued
pursuant to a Declaration qualified as an indenture under the Trust Indenture
Act, the Master Unit Agreement relating to the Units and the appointment of the
Unit Agent as the agent and attorney-in-fact for the holders of the Units will
not be qualified as an indenture under the Trust Indenture Act, and the Unit
Agent will not be required to qualify as a trustee thereunder. Accordingly,
holders of the Units will not have the benefits of the protections of the Trust
Indenture Act. Under the terms of the Master Unit Agreement, the Unit Agent will
have only limited obligations to the holders of the Units. See "Description of
the Units -- Certain Provisions of the Principal Agreements -- Information
Concerning the Unit Agent".
RIGHTS UNDER THE GUARANTEE
The Guarantee will guarantee payments due in respect of the QUIPS to the
holders of the QUIPS (including holders of Normal Units for so long as Normal
Units include QUIPS), but only to the extent that the Trust has funds on hand
legally available therefor. If the Company defaults on its obligation to pay
amounts payable in respect of the Junior Subordinated Debentures, the Trust will
not have sufficient funds to make the corresponding payments due in respect of
the QUIPS, and, in such event, holders of the QUIPS (including holders of Normal
Units for so long as Normal Units include QUIPS) will not be able to rely upon
the Guarantee for payment of such amounts.
LIMITED ENFORCEMENT RIGHTS IN RESPECT OF JUNIOR SUBORDINATED DEBENTURES
In the event a Debenture Event of Default shall have occurred and be
continuing and such event is attributable to the failure of the Company to pay
principal or interest on the Junior Subordinated Debentures on the respective
dates such principal or interest is payable (after giving effect to any
permitted deferral), then a holder of record of QUIPS (or, for so long as QUIPS
underlie Normal Units, a holder of record of Normal Units) may institute a legal
proceeding directly against the Company for enforcement of payment to such
holder of the portion of such principal or interest attributable to Junior
Subordinated Debentures having a principal amount equal to the aggregate QUIPS
Liquidation Amount of the QUIPS held by such holder (or underlying such holder's
Normal Units) (a "Direct Action"). Except as described herein, holders of QUIPS
will not be able to exercise directly any other remedy available to the holders
of the Junior Subordinated Debentures or to assert directly any other rights in
respect of the Junior Subordinated Debentures. See "Description of the
Units -- Description of the Junior Subordinated Debentures -- Enforcement of
Certain Rights by Holders of QUIPS" and "-- Debenture Events of Default" and
"-- Description of the Guarantee". The Declaration will provide that each holder
of QUIPS (including each holder of Normal Units for so long as Normal Units
include QUIPS) by acceptance thereof agrees to the provisions of the Indenture
and the Guarantee.
LIMITED VOTING AND OTHER RIGHTS
Holders of QUIPS (including holders of Normal Units for so long as Normal
Units include QUIPS) generally will have voting rights with respect to the QUIPS
relating only to the modification of the terms of the QUIPS and the exercise of
the Trust's rights as holder of the Junior Subordinated Debentures. Holders of
QUIPS will not be entitled to vote to appoint, remove or replace, or to increase
or decrease the number of, the Issuer Trustees or Administrators, which voting
rights are vested exclusively in the holder of the Common Trust Securities,
except as described under "Description of the Units -- Description of the
QUIPS -- Removal of Issuer Trustees and Adminis-
13
<PAGE> 19
trators". See "Description of the Units -- Description of the QUIPS -- Voting
Rights; Amendment of the Declaration".
Holders of Units will not be entitled to any rights with respect to the
Common Stock (including, without limitation, voting rights or rights to receive
any dividends or other distributions in respect thereof) until such time as the
Company shall have delivered shares of Common Stock upon settlement of the
Purchase Contracts on the Stock Purchase Date.
POSSIBLE ILLIQUIDITY OF THE SECONDARY MARKET
The Units are novel securities for which there is currently no secondary
market. It is not possible to predict how the Units will trade in the secondary
market or whether the market for the Units will be liquid or illiquid.
Application will be made to list the Normal Units on the NYSE. The Underwriters
have advised the Company and the Trust that the Underwriters intend to make a
market for the Normal Units; however, the Underwriters are not obligated to do
so and any market making may be discontinued at any time.
TAX MATTERS
Should the Company exercise its right to defer payments of interest on the
Junior Subordinated Debentures, each holder of QUIPS (including each holder of
Normal Units for so long as Normal Units include QUIPS) will be required to
accrue income (as OID) in respect of the deferred stated interest allocable to
its QUIPS for United States federal income tax purposes. As a result, during a
deferral period, each holder of QUIPS will recognize income for United States
federal income tax purposes in advance of the receipt of cash and will not
receive the cash related to such income from the Trust if the holder disposes of
the QUIPS prior to the record date for the payment of distributions thereafter.
See "Certain Federal Income Tax Consequences -- Interest Received on the QUIPS".
In the event that holders of Units are required to pay Contract Fees to the
Company, it is unlikely such holders will be entitled to a current deduction for
such payments. As a result, although the amount of cash distributions made to
holders will be reduced by the amount of Contract Fees payable to the Company,
holders will nevertheless recognize income each quarter equal to the full amount
of interest received or accrued with respect to the QUIPS underlying the Units
held by such holder. See "Certain Federal Income Tax Consequences -- Contract
Fees".
Because income with respect to the QUIPS will not be considered dividends
for United States federal income tax purposes, corporate holders of Normal Units
or QUIPS will not be entitled to a dividends-received deduction in respect of
such income.
THE TRUST
Western Atlas Capital Trust I is a statutory business trust created under
the laws of the State of Delaware pursuant to (i) a declaration of trust, dated
as of March 9, 1998, executed by the Sponsor and certain of the Issuer Trustees
and (ii) the filing of a certificate of trust with the Secretary of State of the
State of Delaware on March 9, 1998. Such declaration of trust will be amended
and restated in its entirety by the Declaration. The Declaration will be
qualified as an indenture under the Trust Indenture Act. The Trust exists for
the exclusive purposes of (i) issuing the Trust Securities representing
undivided beneficial interests in the assets of the Trust, (ii) investing the
proceeds of the Trust Securities in the Junior Subordinated Debentures and (iii)
engaging in only those other activities necessary or incidental thereto.
Accordingly, the Junior Subordinated Debentures will be the sole assets of the
Trust and payments under the Junior Subordinated Debentures will be the sole
revenues of the Trust. The Trust has a term of approximately seven years, but
may dissolve earlier as provided in the Declaration. All of the Common Trust
Securities will be directly or indirectly owned by the Company. The Common Trust
Securities will rank pari passu, and payments will be made thereon pro rata,
with the QUIPS, except that, if certain events of default under the Declaration
14
<PAGE> 20
have occurred and are continuing, the rights of the holders of the Common Trust
Securities to payment in respect of distributions and payments upon liquidation,
redemption and otherwise will be subordinated to the rights of the holders of
the QUIPS. The Company will directly or indirectly acquire all of the Common
Trust Securities; such Common Trust Securities will have an aggregate
liquidation amount equal to 3% of the total capital of the Trust.
The Trust's business and affairs will be conducted by the Issuer Trustees
and Administrators appointed by the Company as the holder of the Common Trust
Securities. The Issuer Trustees will be Chase Manhattan Bank and Trust Company,
National Association, as the Property Trustee (the "Property Trustee"), and
Chase Manhattan Bank Delaware, as the Delaware Trustee (the "Delaware Trustee"),
and the Administrators will be three individuals who are employees of the
Company (the "Administrators"). The Property Trustee will act as sole indenture
trustee under the Declaration for purposes of compliance with the provisions of
the Trust Indenture Act. The entity acting as Property Trustee will also act as
the Guarantee Trustee under the Guarantee, until removed or replaced by the
holder of the Common Trust Securities. See "Description of the
Units -- Description of the Guarantee" and "Description of the
Units -- Description of Junior Subordinated Debentures". The Company, as the
direct or indirect holder of the Common Trust Securities, or if an event of
default under the Declaration has occurred and is continuing, the holders of a
majority in Liquidation Amount of the Trust Securities, will be entitled to
appoint, remove or replace the Property Trustee and/or the Delaware Trustee. In
no event will the holders of the QUIPS (or Units) have the right to vote to
appoint, remove or replace the Administrators; such voting rights will be vested
exclusively in the Company, as the direct or indirect holder of the Common Trust
Securities. The duties and obligations of each Issuer Trustee and Administrator
are governed by the Declaration. The Company will pay directly all fees,
expenses, debts and obligations (other than the Trust Securities) related to the
Trust and the offering of the Units, including all ongoing costs, expenses and
liabilities of the Trust. Under the Declaration, all parties to the Declaration
will agree, and the holders of the Units upon purchase of their Units will be
deemed to have agreed, for United States Federal income tax purposes, to treat
the Trust as a grantor trust, the Junior Subordinated Debentures as indebtedness
and the Trust Securities as evidence of indirect beneficial ownership of the
Junior Subordinated Debentures. See "Description of the Units -- Description of
the Guarantee" and "-- Description of the QUIPS".
The Property Trustee will hold title to the Junior Subordinated Debentures
for the benefit of the holders of the Trust Securities and the Property Trustee
will have the power to exercise all rights, powers and privileges under the
Indenture as the holder of the Junior Subordinated Debentures. In addition, the
Property Trustee will maintain exclusive control of a segregated non-interest
bearing bank account (the "Property Account") to hold all payments made in
respect of the Junior Subordinated Debentures for the benefit of the holders of
the Trust Securities. The Property Trustee will make payments of distributions
and payments on liquidation, redemption and otherwise to the holders of the
Trust Securities out of funds from the Property Account. The Guarantee Trustee
will hold the Guarantee for the benefit of the holders of the QUIPS. See
"Description of the Units -- Description of the Junior Subordinated Debentures".
The rights of the holders of the QUIPS, including economic rights, rights
to information and voting rights, are set forth in the Declaration, the Delaware
Business Trust Act and the Trust Indenture Act. See "Description of the
Units -- Description of the QUIPS".
The principal place of business of the Trust is Western Atlas Capital Trust
I, c/o Western Atlas Inc., 10205 Westheimer Road, Houston, Texas 77042, and its
telephone number is (713) 972-4000.
15
<PAGE> 21
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Units,
after deducting estimated underwriting discounts and expenses of this offering
payable by the Company, are expected to be $387.4 million ($445.6 million if the
Underwriters' over-allotment option is exercised in full). Concurrently with the
offering of Units made hereby, the Company is also engaged in the Notes Offering
from which the net proceeds (assuming the Notes Offering is consummated) to be
received by the Company from the sale of the Notes, after deducting estimated
underwriting discounts and expenses of the Notes Offering payable by the
Company, are expected to be $198.5 million. The Company intends to use the
aggregate net proceeds from this Units offering and the Notes Offering to fund
the Acquisitions totaling approximately $333 million (assuming 100% of the
shares of 3-D Geophysical are acquired in the 3-D Acquisition) and to repay
approximately $253 million of commercial paper and other borrowings ($311
million if the Underwriters' over-allotment option in connection with this Units
offering is exercised in full). As of March 9, 1998, the Company's outstanding
commercial paper borrowings totaled $363 million and interest rates on such
borrowings ranged from 5.65% to 6.19% with an effective weighted average
interest rate of 5.74%.
Neither this Units offering nor the Notes Offering is conditioned upon the
consummation of the other offering. If only the Units offering is consummated,
$333 million of the net proceeds will be used to pay the purchase price of the
two Acquisitions and the remaining $54.4 million ($112.6 million if the
Underwriters' over-allotment option is exercised in full) will be used to repay
commercial paper and other borrowings.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock has been listed for trading on the NYSE since March 17,
1994 under the symbol WAI. Based upon information reported in the Bloomberg
consolidated transaction reporting system, the high and low sales prices of the
Common Stock, as adjusted to reflect the Spin-off, for each quarterly period
from January 1, 1996 to the date hereof were:
<TABLE>
<CAPTION>
PRICE RANGE
------------------------
HIGH LOW
---- ---
<S> <C> <C>
Year Ended December 31, 1996
First quarter............................................. $48 33/64 $39 1/32
Second quarter............................................ 51 1/4 43 17/32
Third quarter............................................. 49 7/8 42 1/4
Fourth quarter............................................ 57 7/32 48 33/64
Year Ended December 31, 1997
First quarter............................................. $58 63/64 $45 7/8
Second quarter............................................ 57 45/64 45 3/32
Third quarter............................................. 71 51/64 56 43/64
Fourth quarter............................................ 81 1/2 63 7/8
Year Ended December 31, 1998
First quarter (through March 10, 1998).................... $81 3/4 $58 9/16
</TABLE>
As of March 10, 1998, there were approximately 21,200 holders of record of
the outstanding shares of Common Stock. The last reported sales price of the
Common Stock on the NYSE on March 10, 1998 was $79.9375 per share.
The Company has never paid any cash dividends to its shareholders. The
declaration and payment of future dividends on the Common Stock of the Company
will be at the discretion of the Board of Directors of the Company and will
depend upon the Company's earnings, financial condition and capital
requirements, and other factors the Board of Directors deems relevant. The
Company's general policy is to retain most of its earnings to finance the growth
and development of its business.
16
<PAGE> 22
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at December 31, 1997 and as adjusted to reflect the sale by the Company
of an aggregate of $400 million of the Units offered hereby and the sale by the
Company of an aggregate of $200 million of the Notes in the Notes Offering, and
the application of the net proceeds therefrom, after deducting estimated
underwriting discounts and expenses of the offering made hereby and the Notes
Offering. The capitalization information set forth in the table below is
qualified by, and should be read in conjunction with, the more detailed
consolidated financial statements and notes thereto included elsewhere or
incorporated by reference herein. See "Use of Proceeds".
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
----------------------------
ACTUAL AS ADJUSTED(1)
---------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt............................................. $ 106,592 $ 180,492(2)
Long-term debt
% Senior Notes due 2008................................. -- 200,000
Other(3).................................................. 701,530 448,630
---------- ----------
Total debt........................................ 808,122 829,122
---------- ----------
Company-obligated, mandatorily redeemable capital securities
of Western Atlas Capital Trust I holding solely Company
debentures................................................ $ -- $ 400,000
---------- ----------
Shareholders' equity:
Common stock -- $1.00 par value; 150,000,000 shares
authorized, 54,587,518 shares issued and outstanding... $ 54,588 $ 54,588
Paid-in capital........................................... 685,283 685,283
Retained earnings......................................... 150,502 150,502
Pension liability adjustment.............................. (3,506) (3,506)
---------- ----------
Total shareholders' equity........................ 886,867 886,867
---------- ----------
Total capitalization............................ $1,694,989 $2,115,989
========== ==========
</TABLE>
- ---------------
(1) As adjusted data assumes that of the $585.9 million ($644.1 million if the
Underwriters' over-allotment option in connection with the Units offering is
exercised in full) net proceeds raised pursuant to this Units offering and
the Notes Offering, $333 million will be used to fund the Acquisitions and
$253 million ($311 million if the Underwriters' over-allotment option in the
Units offering is exercised in full) will initially be utilized to repay
commercial paper and other borrowings. Subsequent to the offerings, the
Company will re-borrow portions of the debt repaid hereunder to the extent
that capital expenditures and expenditures for multiclient seismic data
exceed available working capital and cash flow from operations.
(2) Includes $73.9 million of debt applicable to the Acquisitions which will be
included in the Company's consolidated financial statements after the
consummation of the Acquisitions. These amounts have been classified as
short-term debt as the Company intends to refinance such debt with longer
term debt.
(3) Consists of (i) commercial paper and other short-term notes payable, (ii)
7.875% notes due 2004, (iii) 8.55% debentures due 2024, and (iv) other
borrowings.
17
<PAGE> 23
PROPOSED ACCOUNTING TREATMENT
The financial statements of the Trust will be reflected in the Company's
consolidated financial statements, with the QUIPS shown on the Company's balance
sheet under the caption "Company-obligated, mandatorily redeemable capital
securities of Western Atlas Capital Trust I holding solely Company debentures".
The financial statement footnotes to the Company's consolidated financial
statements will reflect that the sole asset of the Trust will be the Junior
Subordinated Debentures. Dividends on the QUIPS will be reflected as a charge to
the Company's consolidated income, identified as "Distributions on capital
securities", whether paid or accrued.
The Purchase Contracts are forward transactions in the Company's Common
Stock. Under generally accepted accounting principles, the Purchase Contracts
will not be recorded on the Company's consolidated balance sheets but will be
disclosed in the notes to the Company's consolidated financial statements. Upon
settlement of a Purchase Contract, the Company will receive the Stated Amount on
such Purchase Contract and will issue the requisite number of shares of Common
Stock. The Stated Amount thus received will be credited to stockholders' equity
allocated between the common stock and paid-in capital accounts.
Prior to the issuance of shares of Common Stock upon settlement of the
Purchase Contracts, it is anticipated that the Units will be reflected in the
Company's diluted earnings per share calculations using the treasury stock
method. Under this method, the number of shares of Common Stock used in
calculating diluted earnings per share is deemed to be increased by the excess,
if any, of the number of shares issuable upon settlement of the Purchase
Contracts over the number of shares that could be purchased by the Company in
the market (at the average market price during the period) using the proceeds
receivable upon settlement. Consequently, it is anticipated there will be no
dilutive effect on the Company's diluted earnings per share except during
periods when the average market price of Common Stock is above the Threshold
Appreciation Price.
18
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth summary consolidated financial data for the
Company and its subsidiaries (i) as of and for the four years ended December 31,
1997, (ii) as of and for the five months ended December 31, 1993, and (iii) as
of and for the year ended July 31, 1993. The summary financial data have been
derived from the Company's audited consolidated financial statements as of
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997 included herein. The following data should be read in
conjunction with the consolidated financial statements and notes thereto
included herein.
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED DECEMBER 31, ENDED YEAR ENDED
----------------------------------------- DECEMBER 31, JULY 31,
1997 1996 1995 1994 1993(1) 1993(1)
-------- -------- -------- -------- ------------ ----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Operating results:
Revenue...................................... $1,658.2 $1,418.1 $1,282.9 $1,194.5 $ 495.2 $1,161.7
======== ======== ======== ======== ======== ========
Earnings (loss) from continuing operations... $ 91.8 $ 69.9 $ 61.4 $ 39.7 $ (190.6) $ 40.8
Earnings (loss) from discontinued
operations(2).............................. (154.9) 55.8 38.4 38.0 7.3 33.1
-------- -------- -------- -------- -------- --------
Earnings (loss) before cumulative effect of a
change in accounting principle............. (63.1) 125.7 99.8 77.7 (183.3) 73.9
Cumulative effect of a change in accounting
principle(3)............................... -- -- -- -- -- (1.1)
-------- -------- -------- -------- -------- --------
Net earnings (loss).................... $ (63.1) $ 125.7 $ 99.8 $ 77.7 $ (183.3) $ 72.8
======== ======== ======== ======== ======== ========
Common share data -- diluted(4):
Earnings (loss) per share from continuing
operations................................. $ 1.65 $ 1.29 $ 1.14 $ .82 $ (4.18) $ .87
Earnings (loss) per share from discontinued
operations(2).............................. (2.78) 1.03 .72 .78 .16 .70
-------- -------- -------- -------- -------- --------
Earnings (loss) per share before cumulative
effect of a change in accounting
principle.................................. (1.13) 2.32 1.86 1.60 (4.02) 1.57
Cumulative effect of a change in accounting
principle(3)............................... -- -- -- -- -- (.02)
-------- -------- -------- -------- -------- --------
Total.................................. $ (1.13) $ 2.32 $ 1.86 $ 1.60 $ (4.02) $ 1.55
======== ======== ======== ======== ======== ========
Shares used to compute earnings (loss) per
share(4)..................................... 55.6 54.3 53.8 48.5 45.6 47.0
Financial position at period end:
Total assets................................. $2,330.7 $2,499.2 $2,268.6 $2,141.6 $2,007.5 $1,756.7
Total debt................................... 808.1 503.6 498.8 531.7 771.1 185.4
Shareholders' equity......................... 886.9 1,502.9 1,356.8 1,248.3 957.4 1,087.4
Working capital.............................. 114.2 775.0 827.5 729.0 752.4 714.7
Current ratio................................ 1.2 2.9 3.8 3.3 3.5 5.1
Other selected information:
EBITDA(5).................................... $ 569.6 $ 456.7 $ 408.5 $ 341.3 $ 86.7 $ 313.0
Ratio of earnings to fixed charges(6)........ 4.1 4.5 4.0 2.4 -- 6.6
Research and technology expenditures......... $ 59.2 $ 54.8 $ 59.8 $ 59.1 $ 28.2 $ 61.7
Depreciation, depletion, and
amortization(7)............................ 368.9 309.2 273.6 232.6 87.7 185.2
Capital expenditures......................... 430.0 279.6 171.1 146.7 111.8 130.2
Cost of multiclient seismic data acquired.... 275.1 195.9 152.3 114.2 38.3 27.0
Number of employees at period end............ 10,600 9,100 8,500 8,900 7,800 8,800
</TABLE>
(See Notes on following page)
19
<PAGE> 25
- ---------------
(1) The Company became a publicly-traded company in March 1994, concurrent with
the distribution of its Common Stock to the shareholders of Litton
Industries, Inc. ("Litton"). The Company's fiscal year-end was changed from
July 31 to December 31 in 1993. Interest expense, income taxes, and certain
general and administrative corporate costs incurred by Litton were allocated
to the Company for periods presented prior to January 1, 1994.
(2) On October 31, 1997, the shares of common stock of UNOVA were distributed to
the Company's shareholders. UNOVA's operations through October 31, 1997 are
reported in the Company's financial statements as discontinued operations in
connection with the Spin-off. Accordingly, the accounts of UNOVA's
operations were reclassified as earnings from discontinued operations.
Corporate general and administrative costs of the Company were not allocated
to UNOVA for any of the periods presented.
(3) The provisions of SFAS No. 106, Employer's Accounting for Postretirement
Benefits Other Than Pensions, were adopted in fiscal year 1993. Immediate
recognition of the transition liability was elected. All amounts pertain to
continuing operations.
(4) The number of shares of Common Stock outstanding prior to 1994 was based on
the weighted-average number of shares of Litton common stock outstanding for
fiscal 1993.
(5) "EBITDA" means earnings from continuing operations before interest, taxes,
depreciation, depletion, amortization, and non-recurring items and should
not be considered as an alternative to net income or any other generally
accepted accounting principles measure of performance as an indicator of the
Company's operating performance or as a measure of liquidity. The Company
believes EBITDA is a widely accepted financial indicator of a company's
ability to service debt. EBITDA is not necessarily comparable to similarly
titled measures of other companies.
(6) For purposes of this calculation, "earnings" consist of net income from
continuing operations before income taxes plus fixed charges excluding
capitalized interest. "Fixed charges" consist of interest expense,
capitalized interest, amortization of deferred loan costs, and the portions
of operating leases that management believes are representative of the
interest factor thereon. Earnings for the five months ended December 31,
1993 were inadequate to cover fixed charges by $252.8 million.
(7) During the fourth quarter of 1997, the Company extended the estimated useful
lives of certain assets. This change in accounting estimate resulted in an
increase in the Company's earnings from continuing operations of $2.8
million or $0.05 diluted earnings per share for 1997.
20
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations should be read in conjunction with the Company's Consolidated
Financial Statements for the years ended December 31, 1997, 1996, and 1995 and
the related notes thereto included herein.
OVERVIEW
On October 31, 1997, the Company effected the Spin-off. The operations of
UNOVA were reported in the Company's Consolidated Financial Statements as
discontinued operations. Accordingly, the accounts of these operations have been
reclassified as earnings from discontinued operations. See "-- Discontinued
Operations" below for a discussion of the Spin-off.
RESULTS OF CONTINUING OPERATIONS
The Company's continuing operations discussed herein reflect the Company's
ongoing oilfield service-related businesses only. All references to earnings per
share are on a diluted basis unless specified otherwise.
1997 COMPARED TO 1996
Net earnings from continuing operations totaled $91.8 million, or $1.65 per
share, for the year ended December 31, 1997, an increase of 31% compared to 1996
net earnings of $69.9 million, or $1.29 per share.
Total revenue for 1997 was $1,658.2 million, an increase of 17% over 1996
revenue of $1,418.1 million. Businesses acquired in 1997 contributed
approximately $26.6 million of the revenue improvement. Approximately 68% of the
Company's consolidated revenue was derived from international activities in
1997, compared to 70% in 1996. Consolidated international revenue increased 15%
in 1997 over 1996.
Operating profit from continuing operations was $200.6 million in 1997
compared to $147.4 million in 1996. Approximately 60% of the Company's
consolidated operating profit was derived from international activities in 1997,
compared to 56% in 1996.
WESTERN GEOPHYSICAL -- WG's 1997 revenue increased 17% and operating profit
increased 31% in 1997 compared to the prior year period. In addition to
improvements in the overall seismic market, seismic operations were favorably
impacted by the expansion of the ocean-bottom cable market, the emergence of the
4-D seismic market, the Company's proprietary development of new solid-streamer
technology for its marine seismic vessels, and advancements in data processing
technology.
WALS -- WALS' revenue increased 17% and operating profit increased 36% in
1997 compared to the prior year. During 1997, WALS benefited from several
long-term contracts derived from the success of the Company's new logging
technologies. In addition, WALS focused on geographic expansion opportunities
during 1997 primarily in Latin America, the Middle East, Southeast Asia, and
Africa.
E&PS -- During 1996 and 1997, E&PS did not have a portfolio of developed
prospects generating income. As a result, during 1996 and 1997, E&PS continued
to realize operating losses, including full cost ceiling impairments of $12.5
million in 1997 and $7.0 million in 1996, related to E&PS projects. The Company
is continuing to invest capital to develop this division and expects E&PS to
become profitable during 1998.
21
<PAGE> 27
1996 COMPARED TO 1995
Net earnings from continuing operations totaled $69.9 million, or $1.29 per
share, for the year ended December 31, 1996, an increase of 14% compared to 1995
net earnings of $61.4 million, or $1.14 per share.
Total revenue for 1996 was $1,418.1 million, an increase of 11% over 1995
revenue of $1,282.9 million. Approximately 70% of the Company's consolidated
revenue was derived from international activities in 1996, compared to 68% in
1995. Consolidated international revenue increased 13% in 1996 over 1995.
Operating profit was $147.4 million in 1996 compared to $134.9 million in
1995. Approximately 56% of the Company's consolidated operating profit was
derived from international activities in 1996, compared to 64% in 1995.
WESTERN GEOPHYSICAL -- WG revenue for 1996 increased 15% and operating
profit increased 14% over the prior year. Seismic operations benefited from a
number of highly successful multiclient geophysical surveys, the expansion of
its ocean-bottom cable acquisition and processing technology, and its growth in
the global land market.
WALS -- WALS began to realize the benefits of introducing its
new-generation tools in 1996 with slightly higher revenue and operating profit
than in 1995. Revenue increased 6% over 1995 revenue. Operating profit increased
2% in 1996 compared to the prior year.
E&PS -- During 1995 and 1996, the Company built the infrastructure
necessary to participate with clients on exploration and production projects in
the U.S. and internationally. Although revenue increased in 1996 compared to
1995, E&PS had operating losses in both 1996 and 1995. The operating loss in
1996 was due in part to full cost ceiling impairments of $7.0 million.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative ("G&A") expense decreased as a percent of sales
from 5.1% in 1996 to 4.0% in 1997. Actual expenditures in 1997 were $66.8
million compared to $72.0 million in 1996. G&A expenses were consistent from
1995 to 1996.
RESEARCH AND TECHNOLOGY
Research and technology ("R&T") expense increased 8% in 1997 to $59.2
million compared to $54.8 million in 1996. For the year ended December 31, 1996,
R&T expense decreased $5.0 million, or 8%, compared to 1995.
DEPRECIATION, DEPLETION, AND AMORTIZATION
Depreciation, depletion, and amortization expense for 1997 increased $59.7
million, or 19%, over 1996. Expense increased $35.7 million, or 13%, from 1995
to 1996. Increased capital spending in both years raised the depreciable asset
bases for equipment and multiclient seismic data resulting in the higher
depreciation, depletion, and amortization expense. During the fourth quarter of
1997, the Company extended the estimated useful lives of certain assets to more
closely reflect management's current estimate of their expected lives. The
effect of this change in accounting estimate resulted in an increase in the
Company's earnings from continuing operations of $2.8 million, or $0.05 earnings
per share, for 1997.
INTEREST EXPENSE
Interest expense in 1997 increased $10.5 million from 1996 due to higher
average debt levels. Interest expense in 1996 was slightly lower than 1995 as
slightly higher average debt balances were offset by a slightly lower weighted
average interest rate.
22
<PAGE> 28
INCOME TAXES
The effective income tax rate for continuing operations in 1997 was 39.3%
as compared to 40.0% in 1996 and 40.5% in 1995. The effective rates differ from
the federal statutory rates in all years due primarily to taxes on foreign
operations, the nondeductibility of goodwill amortization, and, other
nondeductible expenses.
DISCONTINUED OPERATIONS
Discontinued operations consist of the Company's industrial automation
systems business, UNOVA, up to the date of the Spin-off. Corporate general and
administrative costs of the Company were not allocated to UNOVA for any of the
periods presented. Management, however, estimates that approximately 85% of the
corporate general and administrative costs prior to the Spin-off were
attributable to UNOVA. Furthermore, Spin-off related costs of $8.35 million were
charged to continuing operations during the second quarter of 1997. Interest
expense attributable to UNOVA and therefore reclassified to discontinued
operations in the Company's Consolidated Statements of Operations totaled $17.2
million, $11.5 million, and $12.2 million for the years ended December 31, 1997,
1996, and 1995, respectively. Interest income attributable to UNOVA of $2.7
million, $4.4 million, and $2.8 million for the years ended December 31, 1997,
1996, and 1995, respectively, has also been reclassified to discontinued
operations.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
OVERVIEW
The Company ended 1997 with cash and cash equivalents of $33.5 million
compared with $16.3 million in 1996 and $13.2 million in 1995. During 1997, the
Company used approximately $206.9 million more cash than it generated from
operations. Major expenditures included $430.0 million for capital expenditures,
$275.1 million for acquisitions of multiclient seismic data, and $55.4 million
for business acquisitions. In addition, $66.7 million of cash was used to
finance working capital primarily for increases in accounts receivable. The
Company increased its net borrowings by $298.4 million primarily through its
commercial paper program. Shareholders' equity decreased $616.1 million due to
the Spin-off as offset by earnings during the year.
Total debt was $808.1 million as of December 31, 1997, compared to $503.6
million at December 31, 1996. Total debt constituted approximately 48% and 25%
of total capitalization at the end of 1997 and 1996, respectively. Debt
increased in 1997 due primarily to acquisitions of industrial automation
businesses made before the Spin-off. The Company acquired Norand Corporation on
March 3, 1997 for $280 million and United Barcode Industries on April 4, 1997
for $107 million. These companies were integrated into the Company's industrial
automation systems operations and included in the Spin-off. Both transactions
were funded using a combination of committed credit facilities, short-term
uncommitted credit lines, and excess cash.
STRATEGY
During periods of growth, the Company has historically spent substantial
amounts for capital expenditures and acquisitions of multiclient seismic data in
order to remain competitive. The Company estimates that during 1998 it will
spend approximately $760 million for these purposes. The Company believes that
its current working capital resources, expected cash flow from operations, and
existing lines of credit will be sufficient to meet its 1998 needs for capital
expenditures and acquisitions of multiclient seismic data. In addition, the
Company may acquire complementary businesses as part of its long-term growth
strategy. The Company's capital needs with respect to business acquisitions may
exceed the Company's resources discussed above. Moreover, there is no assurance
that the Company will be able to finance such business acquisitions on terms it
finds acceptable and, in the event of a downturn in industry conditions, that
the capital resources discussed above will be adequate to meet the foregoing
capital needs.
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<PAGE> 29
ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which for the Company is effective in 1998. SFAS No. 130
establishes standards for the reporting and displaying of comprehensive income
and its components. The Company will analyze SFAS No. 130 during 1998 to
determine what, if any, additional disclosures will be required thereunder.
The FASB issued in June 1997, SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes new requirements on
the reporting of information about operating segments, products and services,
geographic areas, and major customers. In February 1998, SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits," was
issued which revises required disclosures about pensions and postretirement
benefit plans. SFAS No. 131 and 132 are effective for the Company starting in
1998. The Company will analyze these pronouncements during 1998 to determine
what, if any, additional disclosures will be required thereunder.
YEAR 2000
The Company is currently utilizing a combination of internal and external
resources to comprehensively identify and timely resolve the potential impact of
the year 2000 on the processing of date-sensitive information by the Company's
computerized information and support systems. The year 2000 problem is the
result of software that uses two digits (rather than four) to define the
applicable year. Any software or hardware that utilizes time-sensitive coding
may recognize a date using "00" as the year 1900 rather than the year 2000,
which could result in miscalculations or system failures. Based on preliminary
information, costs of addressing potential problems are not currently expected
to have a material adverse impact on the Company's financial position, results
of operations, or cash flows in future periods. If, however, the Company, its
customers, or vendors are unable to adequately resolve such processing issues in
a timely manner, the Company's operations and financial results may be adversely
affected.
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<PAGE> 30
BUSINESS
The Company is a leading supplier of oilfield services and reservoir
information technologies for the worldwide oil and gas industry. It operates
primarily through three divisions: Western Geophysical, Western Atlas Logging
Services, and E&P Services. The Company specializes in land, marine and
transition-zone seismic data acquisition and processing services; open-hole and
cased-hole well-logging services; reservoir characterization; and exploration
and production techniques and management services. The Company's revenues have
grown from approximately $1.4 billion in 1996 to approximately $1.7 billion in
1997, an increase of 17%. During this period, EBITDA grew from approximately
$457 million to approximately $570 million, an increase of 25%. For the year
ended December 31, 1997, the Company's international activity generated revenue
and operating profit of $1,129 million and $119 million, respectively. Domestic
activity produced revenue and operating profit of $529 million and $82 million,
respectively.
The Company, through its predecessors, has provided services to the oil and
gas industry since 1932 and was incorporated in Delaware as a wholly-owned
subsidiary of Litton in 1984. The Company became a publicly-traded company in
March 1994, concurrent with the distribution of its Common Stock to the
shareholders of Litton in a tax-free spin-off. On October 31, 1997, Western
Atlas distributed all of the shares of UNOVA, its then wholly-owned industrial
automation systems subsidiary, as a stock dividend to the Company's shareholders
in the Spin-off. As a result of the Spin-off, UNOVA became an independent
publicly-traded company.
The Company's strategy is to maximize shareholder value by providing
value-added solutions to its customers, maintaining operational excellence, and
pursuing internal and external growth opportunities. The Company's reservoir
information services enable customers to more quickly locate hydrocarbons,
reduce exploration, development, and production risks, and maximize returns.
Western Atlas intends to enhance its significant market positions in its core
businesses by continuing to invest substantial amounts of intellectual and
financial capital into new services, products, and technologies.
WESTERN GEOPHYSICAL
The Company is a leading provider of seismic exploration and production
services throughout the world. In recent years, Western Atlas has advanced
seismic technology to accurately delineate subtle anomalies and break through
barriers such as salt bodies and unconsolidated sediments, providing more
detailed geological information. On a worldwide basis, Western Atlas offers the
most advanced fleet of purpose-built seismic vessels for deepwater streamer and
OBC exploration, the industry's largest land-crew organization for all-terrain
surveys, and innovative technologies for seamless coverage across shallow-water
transition zones. The Company processes filed data using a combination of
on-site facilities and an extensive global network of computer centers.
In October 1997, the Company acquired all of the outstanding stock of
GeoSignal, Inc., a seismic data processing company, and Seismic Resources, Inc.,
a provider of multiclient seismic data, in exchange for Common Stock of the
Company.
WG's seismic exploration and production services are described in more
detail below:
Advanced Deepwater Fleet. WG was the first in the industry to deploy a new
class of super-seismic vessels to meet the high-volume, high-resolution needs of
large-scale 3-D surveys. These vessels are equipped with enhanced streamer
deployment capability increased productivity, which is particularly important
for the short seismic shooting season in the North Sea. In the Gulf of Mexico,
where long offsets are needed for subsalt imaging, the Company's vessels are
towing record streamer deployments. The vessels include the state-of-the-art
MIDAS(SM) system for automated task handling, fully integrated onboard
processing, and remote control through a high-speed satellite data link. The
extentions of processing capabilities to the field facilitates on-site quality
control and more rapid delivery of interpretable seismic data.
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<PAGE> 31
All-Terrain Land Surveys. WG has conducted land surveys throughout most oil
and gas producing regions of the world. The Company's decentralized management
structure enables its personnel to satisfy customer requirements by combining
presurvey planning, energy sources, advanced data recording systems, and infield
data processing. As a result, Western Atlas is able to provide high quality
seismic data for the largest 3-D surveys in the Middle East as well as short
lines in Canada. Field practices are designed to comply with applicable health,
safety, and environmental standards.
OBC and Transition-Zone Expertise. The Company is a leading provider of OBC
technology. Western Atlas uses the OBC method to complement streamer surveys in
water depths to 150 meters. In conjunction with the OBC surveys, the Company's
acquisition of proprietary Dual Sensor(SM) processing provides high quality data
by processing the combined hydrophone and geophone signals, cancelling multiple
reflections, and recording the widest bandwidth in the industry. In transition
zones such as marshlands and swamps, the Company's innovative survey designs and
operations experience have achieved high-quality, seamless coverage in some of
the world's most difficult areas, thereby enabling oil and gas companies to
discern hydrocarbon indicators and drill wells with increased probability of
success.
Multicomponent Surveys. The Company is at the forefront of multicomponent
surveys to acquire both compressional (P) and shear (S) wave seismic data. On
land, 3-component geophones are used. In the marine environment, a hydrophone is
added to each receiver station to create a 4-component data acquisition system.
The Company then uses Dual Sensor processing to remove water-bottom multiples
and increase the dynamic range of the P-wave data. By acquiring S-wave data as a
supplement to P-wave data, the Company is able to distinguish between lithology
and pore fluid effects, allowing for enhanced reservoir characterization and
thereby reducing exploration risk. S-wave data also aid in determining the
density and orientation of fractures.
Software Solutions. WG has developed a comprehensive seismic software
library to provide advanced data processing solutions for a wide variety of
geologic environments and field conditions. The acquisition of GeoSignal, Inc.
increased the Company's portfolio of seismic refraction processing software.
This software incorporates the latest developments in geophysical research and
reflects continual improvements based on practical experience. The Company
licenses this software to a variety of customers, including oil companies and
national petroleum agencies.
3-D Depth Imaging. Western Atlas has developed the technical expertise to
image complex geologic formations. The Company's resources -- geophysical
research, state-of-the-art parallel computers, and 3-D visualization
technology -- provide cost-effective techniques for depth imaging reservoirs
beneath faults, salt intrusions, and other obstructions.
Spec Data Library and Data Storage. WG has accumulated the industry's
largest databank of non-exclusive data for oil and gas prospects throughout the
world, including extensive 3-D surveys in the Gulf of Mexico and the North Sea.
This database offers prospective purchasers of oil and gas properties and other
customers extensive information for evaluating properties. The database was
enlarged through the acquisition of Seismic Resources, Inc., which specializes
in non-exclusive surveys in the Mississippi Delta region. In addition, the
Company has secure data storage and computerized data management services.
4-D Advantage. Reservoir monitoring by the integration of time-lapse or 4-D
seismic surveys offers the potential for improving understanding of hydrocarbon
recovery. WG has developed full-service resources for 4-D monitoring through
years of research, operational experience throughout the world, and the
acquisition of the latest 4-D software technology, including software from EnTec
Energy Consultants, Ltd., for integrated reservoir studies and the
industry-leading Lamont 4-D(TM*) software for tracking fluid movement.
- ---------------
* Lamont 4-D is a trademark of Columbia University. Western Atlas uses it under
exclusive license.
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<PAGE> 32
WESTERN ATLAS LOGGING SERVICES
Since 1932, WALS has helped petroleum companies improve the economics of
exploration and production operations by building a geoscientific knowledge base
about their wells and reservoirs. With the increased importance of using
downhole data to locate pay zones and produce hydrocarbons cost effectively,
Western Atlas has developed a new generation of geoscience data acquisition and
integrated data analysis systems. To help derive the maximum benefits of these
new technologies, Western Atlas has created a worldwide network of geoscience
centers staffed by geologists, geophysicists, and reservoir engineers with
practical project experience in reducing risks and increasing hydrocarbon
reserves. WALS conducts operations in all types of drilling and production
environments, including highly deviated and extended-reach wells.
In May 1997, the Company acquired Sungroup Energy Services Company, a
Canadian well-logging, production testing, and completion services provider.
Additionally, in December 1997, the Company acquired Heartland Kingfisher Inc.,
a Canadian well-logging company. ParaMagnetic Logging, Inc., a well-logging
research company, was acquired in October 1997 in exchange for stock of the
Company. These acquisitions are expected to provide growth opportunities for the
Company in the cased-hole logging and perforating markets.
Specific types of services provided by WALS include:
Formation Evaluation. WALS' formation evaluation services provide key
information to help clients better understand and manage reservoirs. This
information includes hydrocarbon saturation, porosity, permeability, pay
thickness, mechanical rock properties, and formation productivity. This
information can also be used as benchmarks for future comparisons in monitoring
production and optimizing recovery.
Petrophysical Analysis. WALS uses advanced petrophysical data analysis to
help quantify pay zones in reservoirs ranging from thin-bed clastics and
low-resistivity contrast formations to fractured carbonates. These services
include imaging and analyzing an extensive range of productive zones in
developed fields and exploration wells. The resulting petrophysical analyses can
be readily integrated with other geoscientific information to improve reservoir
economics.
Downhole Seismic Services. WALS offers a wide range of borehole and
cross-well seismic services, including reservoir connectivity mapping, vertical
seismic profiles, velocity surveys, saltdome imaging, and
seismic-while-drilling, for both exploration and field development applications.
Completion Services. WALS' completion technologies are designed to help
optimize production. Services include cement evaluation, perforating,
mechanical, pressure-control services, and correlation logs. WALS' trained
engineers work with customers to plan and conduct well completion operations
taking into account safety and environmental guidelines.
Reservoir Monitoring. WALS' reservoir monitoring technologies enable
customers to monitor reserves, assess the need for remedial services, and
evaluate enhanced recovery operations. WALS establishes the production baseline
through evaluation logs, casing inspection and production logs. WALS can
thereafter monitor changes in the well or reservoir through subsequent logging
and inspection.
Geoscience Services. Western Atlas has established geoscience centers in
strategic locations throughout the world, where specialists in geology,
geophysics, petrophysics, reservoir engineering, and related fields apply
advanced techniques in an integrated environment to help clients cut costs,
reduce risks, increase production, and improve recovery.
E&P SERVICES
E&PS seeks clients and partners for oil and gas exploration and production
opportunities who will value the subsurface information technologies that E&PS
possesses to exploit the full potential
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<PAGE> 33
of hydrocarbon bearing properties. E&PS is organized into multidisciplinary
project teams of geophysicists, geologists, and reservoir engineers that offer a
wide range of experience in exploration and production techniques, including
integrated geoscience subsurface analysis, reservoir characterization, economic
and risk analysis, drilling recommendations, and project management and
implementation. E&PS was started in 1995 as a provider of value-added consulting
services to clients, typically on a fee basis. The division currently provides
services to clients on a fee basis as well as invests financial and intellectual
capital into client projects on a shared-risk and/or partnered basis.
MARKET AND CUSTOMERS
The market for the Company's products and services is the worldwide oil and
gas industry. The Company has hundreds of customers consisting primarily of oil
and gas exploration and production companies, including large integrated oil and
gas entities, smaller independent companies, and government organizations. The
customer base is diversified with no single customer representing more than 10%
of the Company's revenue. The Company's top five customers constitute
approximately 21% of the Company's revenue.
Demand for the Company's services depends upon the level of spending by oil
and gas companies for exploration, production, development, and field management
activities. These activities depend in part on current and expected oil and gas
prices, the cost of exploring for, producing and delivering oil and gas, the
sale and expiration dates of leases and concessions for oil and gas exploration,
the discovery rate of new oil and gas reservoirs, domestic and international
political, regulatory and economic conditions, and the ability of oil and gas
companies to obtain capital. In addition, a decrease in oil and gas expenditures
could result from such factors as unfavorable tax and other legislation or
uncertainty concerning national energy policies. Prices for oil and gas are
subject to wide fluctuations in response to relatively minor changes in the
supply of and demand for oil and gas, market uncertainty, political conditions
in the Middle East and other oil producing regions of the world, the foreign
supply of oil and gas, and overall economic conditions. A further decline in oil
and gas prices or the continuation of current pricing conditions for an extended
period of time could cause the Company's customers to alter their spending plans
and result in a significant reduction in the demand for the Company's services.
COMPETITION
Competition in the seismic services market ranges from a few larger
companies with a broad spectrum of services, to smaller companies targeting
narrow market segments. Major competitors to WG in the seismic market are:
Geco-Prakla (a division of Schlumberger Limited), Compagnie Generale de
Geophysique, and Petroleum Geo-Services ASA. The Company believes WG is the
largest participant in this market, measured by revenue. In addition, there are
numerous smaller competitors. Competition in the oilfield logging services
market ranges from a few larger companies with a broad spectrum of services, to
numerous smaller companies targeting narrow market segments. The Company's
largest competitors in this market include Schlumberger Limited and Halliburton
Company. The Company believes WALS has the second largest revenue share of this
market. The Company believes seismic and logging projects are won primarily on
the basis of price, technology, quality, service, turnaround time, and
availability of personnel and equipment.
METHODS OF DISTRIBUTION
The Company principally markets its products and services directly to its
customers on a global basis.
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<PAGE> 34
RAW MATERIALS
WALS' manufacturing operations design, develop, and manufacture most of the
proprietary tools and instruments used by WALS to provide its services. A wide
variety of raw materials are used in the manufacture of these products which are
obtained from a variety of suppliers. No single supplier provides 10% or more of
the Company's raw materials. The Company believes that it could make
satisfactory alternative arrangements in the event of interruption in the supply
of such materials.
INTELLECTUAL PROPERTY
The Company owns significant intellectual property relating to its products
and services that has been secured over a period of years. This intellectual
property has been of value in the growth of the Company's business and is
expected to be of value in the future. However, the Company's business generally
is not dependent upon the protection of any single item or small number of items
of intellectual property, and would not be materially affected by the expiration
or termination of any single item or small number of items of intellectual
property.
RESEARCH AND TECHNOLOGY
Direct expenditures on R&T activities amounted to $59.2 million, $54.8
million, and $59.8 million in the years ended December 31, 1997, 1996, and 1995,
respectively.
SEASONALITY AND BACKLOGS
Although the Company's operations in any particular geographic area may be
affected by seasonal factors, the global nature of its operations tends to
reduce overall seasonal effects. Because the Company's revenue is predominantly
service related, the Company does not consider backlog to be a significant
measure of future sales.
ENVIRONMENTAL MATTERS
During the fiscal year ended December 31, 1997, the amounts incurred in
complying with laws and regulations pertaining to environmental standards did
not have a material effect upon the Company's cash flows or earnings.
EMPLOYEES
As of December 31, 1997, the Company had approximately 10,600 full-time
employees.
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<PAGE> 35
MANAGEMENT
The following table lists the current directors and executive officers of
the Company:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
John R. Russell............. 59 President and Chief Executive Officer and Director
William H. Flores........... 44 Senior Vice President and Chief Financial Officer
James E. Brasher............ 49 Senior Vice President, General Counsel and Assistant
Secretary
Orval F. Brannan............ 58 Senior Vice President
Damir S. Skerl.............. 58 Senior Vice President
Richard C. White............ 42 Senior Vice President and President of WG
Gary E. Jones............... 43 Vice President and President of WALS
Paul Bancroft III........... 68 Director
Alton J. Brann.............. 56 Director and Chairman of the Board
Joseph T. Casey............. 66 Director
William C. Edwards.......... 69 Director
Claire W. Gargalli.......... 55 Director
Orion L. Hoch............... 69 Director
</TABLE>
JOHN R. RUSSELL has served as President and Chief Executive Officer of the
Company since October 1997 and is currently a member of the Executive and
Nominating Committees. Mr. Russell served as Executive Vice President and Chief
Operating Officer of the Oilfield Services group of the Company from 1990 until
October 1997. From 1991 to 1994, Mr. Russell served as Senior Vice President of
Litton Industries, Inc. and as Chief Executive Officer of Western Atlas
International, Inc., a wholly owned subsidiary of the Company ("WAII").
WILLIAM H. FLORES has served as Senior Vice President and Chief Financial
Officer of the Company since October 1997 and Chief Financial Officer of WAII
since August 1997. From 1990 to 1997, Mr. Flores served as a director and as
Senior Vice President and Chief Financial Officer, and from 1996 to 1997 he
served as Executive Vice President, of Marine Drilling Companies, Inc.
JAMES E. BRASHER has served as Senior Vice President and General Counsel of
the Company since October 1997. From 1994 to 1997, Mr. Brasher served as Vice
President and Group Counsel of WAII, and from 1987 to 1994 he served as
Secretary and General Counsel of WAII.
ORVAL F. BRANNAN has served as Senior Vice President of the Company since
1994 and President of E&PS since 1995. Mr. Brannan served as Senior Vice
President of WAII since 1992 and President of WG from 1991 to 1995. Mr. Brannan
serves as the Chairman of the Board of Directors of PetroAlliance Services
Company Ltd., a 50% owned subsidiary of the Company that provides oilfield
services in the former Soviet Union.
DAMIR S. SKERL has served as Senior Vice President of the Company since
1994. In addition, Mr. Skerl served as President of WALS from 1992 to 1997.
RICHARD C. WHITE has served as Senior Vice President of the Company since
May 1996 and President of WG since 1995. From 1995 to 1996, Mr. White served as
Vice President of the Company. In addition, from 1994 to 1995, he served as
Chief Operating Officer of WG and in 1993 as Senior Vice President of the
Company's North and South American Operations.
GARY E. JONES has served as Vice President of the Company and President of
WALS since 1997. From 1996 to 1997, Mr. Jones served as Vice President of
Business Development of WAII and from 1992 to 1996 as Vice President of Latin
America Operations of WG.
PAUL BANCROFT, III has served as a director of the Company since 1994 and
is currently Chairman of the Compensation Committee and a member of the Audit
and Compliance and Nominating Committees. Mr. Bancroft served as President,
Chief Executive Officer, and a director of Bessemer
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<PAGE> 36
Securities Corporation from 1976 until 1988. Currently, he is an independent
venture capitalist and consultant and a director of several investment funds
sponsored by Scudder, Kemper Investments.
ALTON J. BRANN has served as Chairman of the Board and a director of the
Company since 1994 and is currently the Chairman of the Executive Committee and
a member of the Audit and Compliance and Nominating Committees. From 1994 to
October 1997, Mr. Brann served as Chief Executive Officer of the Company. Mr.
Brann has served as Chairman of the Board and Chief Executive Officer of UNOVA
since October 1997. From 1990 and 1992, respectively, he served as President and
Chief Executive Officer of Litton. Mr. Brann is a director and Chairman of the
Executive Committee of the Board of Directors of Litton.
JOSEPH T. CASEY has served as a director of the Company since 1994 and is
currently a member of the Executive and Nominating Committees. Mr. Casey served
as Vice Chairman and Chief Financial Officer of both the Company and Litton from
1994 and 1988, respectively, until his retirement in September 1996. He is
currently a director of Litton and of PSI, Inc. Mr. Casey has served as a
consultant to the Company since October 1996.
WILLIAM C. EDWARDS has served as a director of the Company since 1994 and
is currently the Chairman of the Nominating Committee and member of the Audit
and Compliance and Compensation Committees. Mr. Edwards is Chairman of the Board
of Xeruca Corporation and director of Trust Company of the West and CellNet Data
Systems. He is also a director and treasurer of Population Action International.
CLAIRE W. GARGALLI has served as a director of the Company since 1994 and
is currently the Chairperson of the Audit and Compliance Committee and member of
both the Compensation and Nominating Committees. Since 1990, Ms. Gargalli has
served as the Vice Chairman of Diversified Search and Diversified Health Search
Companies, executive search consulting firms, and is a director of Praxair, Inc.
and Renal Treatment Centers.
ORION L. HOCH has served as a director of the Company since 1994 and is
currently a member of the Nominating Committee. Dr. Hoch served as Chief
Executive Officer of Litton from 1988 to 1994 and as Chairman of the Executive
Committee of UNOVA since October 1997. He is currently a director of Litton,
Bessemer Trust Company, Woodbridge, New Jersey, and of Bessemer Trust Company,
N.A., New York.
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<PAGE> 37
DESCRIPTION OF THE UNITS
The summaries of certain provisions of documents described below are not
necessarily complete, and in each instance reference is hereby made to the
copies of such documents (including the definitions therein of certain terms)
which are on file with the Commission. Wherever particular sections of, or terms
defined in, such documents are referred to herein, such sections or defined
terms are incorporated by reference herein. Capitalized terms not defined herein
have the meanings assigned to such terms in the Principal Agreements (as defined
herein).
GENERAL
Each Unit will have a Stated Amount of $ (equal to the last reported
per share sale price of the Common Stock on the NYSE on the date of this
Prospectus). Each Unit will initially consist of (a) a Purchase Contract under
which (i) the holder will purchase from the Company on the Stock Purchase Date
of , 2001, for cash in an amount equal to the Stated Amount, between
of a share and one share of Common Stock of the Company (depending on the
Applicable Market Value of the Common Stock on the Stock Purchase Date, as
described below), subject to adjustment in certain circumstances, and (ii) the
Company will pay to the holder or the holder will pay to the Company (as
specified in the final Prospectus for the offering made hereby) Contract Fees on
the Stated Amount at the Contract Fee Rate of % per annum as described below
(see "-- Description of the Purchase Contracts"), and (b) QUIPS having a QUIPS
Liquidation Amount equal to the Stated Amount, a QUIPS Distribution Rate
of % per annum and a QUIPS and Debenture Maturity Date of , 2003
(see "-- Description of the QUIPS"), subject to a Call Option granted by the
holder of the Unit to the Call Option Holder which (when aggregated with the
Call Options underlying all other Units) will entitle the Call Option Holder to
acquire the QUIPS underlying the Units (or the Junior Subordinated Debentures
substituted therefor), on or before the Call Option Expiration Date of
, 2001 (i.e., 90 days before the Stock Purchase Date), in exchange
for the Aggregate Consideration Deliverable on Exercise of the Call Options (see
"-- Description of the Call Options"). For so long as a Purchase Contract
remains in effect, such Purchase Contract and the QUIPS or other Pledged
Securities securing it (and, for so long as a Call Option relating to such
Pledged Securities is exercisable, the obligations of the holder to the Call
Option Holder thereunder) will not be separable and may be transferred only as
an integrated Unit.
For the period from the date of issuance of the Units to the Stock Purchase
Date, each holder of a Unit (other than a Stripped Unit) will be entitled to
receive cash payments of % of the Stated Amount per annum, payable in
arrears on the Quarterly Payment Dates of , , and
of each year (unless deferred as described herein). Such payments will
consist of payments on the QUIPS or other Pledged Securities plus Contract Fees
payable by the Company or net of Contract Fees payable by the holders, as the
case may be. See "-- Description of the QUIPS -- Distributions", "-- Description
of the Call Options" and "-- Description of the Purchase Contracts -- Contract
Fees". If a holder of a Unit does not provide cash to settle the underlying
Purchase Contract in the manner described herein, cash proceeds from the QUIPS
or other Pledged Securities underlying such Unit will be applied on the Stock
Purchase Date to the purchase of Common Stock pursuant to such Purchase
Contract.
The QUIPS underlying a Unit will constitute Pledged Securities that will be
pledged to the Collateral Agent to secure the holder's obligations to the
Company and the Call Option Holder under the Purchase Contract and Call Option
underlying such Unit. If Treasury Securities are exchanged for Pledged
Securities upon exercise of the Call Options or Junior Subordinated Debentures
are distributed in respect of Pledged Securities upon dissolution of the Trust,
the Treasury Securities so exchanged or the Junior Subordinated Debentures so
distributed will automatically be substituted as Pledged Securities in place of
the securities that theretofore had been Pledged Securities.
Each holder of Units, by acceptance thereof, will, under the terms of the
Principal Agreements and the Purchase Contracts and any Call Options underlying
such Units, be deemed to have
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<PAGE> 38
(a) irrevocably agreed to be bound by the terms of the Principal Agreements and
such Purchase Contracts and Call Options for so long as such holder remains a
holder of such Units, and (b) duly appointed the Unit Agent as such holder's
agent and attorney-in-fact to enter into and perform such Purchase Contracts and
Call Options on behalf of and in the name of such holder.
Subject to applicable law (including, without limitation, United States
Federal securities law), the Company or its subsidiaries may at any time and
from time to time purchase outstanding Units by tender, in the open market or by
private agreement.
FORMATION OF THE UNITS
At the closing of the offering made hereby, the Underwriters will (a) enter
into Purchase Contracts with the Company and (b) purchase QUIPS from the Trust
for cash. The Underwriters will fund that cash in part by the sale of the Units
offered hereby to the initial investors thereof and in part by the sale of Call
Options (on behalf of such investors) to the Call Option Holder. The Trust will
use that cash to purchase Junior Subordinated Debentures from the Company. The
QUIPS will then be pledged to the Collateral Agent to secure the obligations
owed to the Company under the Purchase Contracts and the obligations owed to the
Call Option Holder under the Call Options. The rights to purchase Common Stock
under a Purchase Contract, together with the QUIPS or other Pledged Securities
pledged to secure the obligations referred to in (a) and (b) below, subject to
(a) the obligations owed to the Company under such Purchase Contract, (b) the
obligations owed to the Call Option Holder under the Call Option relating to
such QUIPS or other Pledged Securities and (c) the pledge arrangements securing
the foregoing obligations, are collectively referred to herein as a "Normal
Unit".
Each holder of Normal Units will have the right, at any time on or prior to
the second Business Day immediately preceding the Stock Purchase Date, to
substitute, as Pledged Securities, Treasury Securities that will generate
payments matching such holder's obligations under the underlying Purchase
Contracts, in return for the securities that theretofore had been the Pledged
Securities underlying such Normal Units. For so long as the Call Options
underlying such Normal Units remain exercisable, such right may be exercised
only if the holder obtains an instrument from the Call Option Holder releasing
its security interest in the Pledged Securities securing such Call Options and
agreeing that such Call Options no longer underlie such Normal Units (or the
Stripped Units they become). The holder might obtain such an instrument by
separately documenting such Call Options with the Call Option Holder (and, if
required by the Call Option Holder, entering into credit support arrangements
satisfactory to the Call Option Holder backing such Call Options), paying the
Call Option Holder to cancel such Call Options or otherwise. However, the Call
Option Holder will be under no obligation to deliver such an instrument, and
there can be no assurance that a holder will be able to induce the Call Option
Holder to do so. If a holder of Normal Units exercises such holder's right to
substitute Treasury Securities for Pledged Securities in the manner described
herein, the securities that theretofore had been the Pledged Securities
underlying such Normal Units will be released from the pledge arrangement
described herein and delivered to such holder, and such holder's remaining
rights and obligations under the Normal Units will thereupon become "Stripped
Units" that will no longer generate cash payments to such holder and that will
no longer be listed on the NYSE or be fungible with Normal Units.
A holder of Normal Units may exercise the right referred to above by
presenting and surrendering the certificate evidencing such Normal Units, at the
offices of the Unit Agent, with the form of "Request to Create Stripped Units"
thereon completed and executed as indicated, and concurrently delivering to the
Collateral Agent (a) Treasury Securities that will generate, on the Stock
Purchase Date, an amount of cash equal to the aggregate Stated Amount of such
Units, (b) if Contract Fes are payable by the holders of the Units to the
Company, Treasury Securities that will generate, on each Quarterly Payment Date
falling after the date of delivery and on or before the Stock Purchase Date, an
amount of cash equal to the aggregate Contract Fees that are scheduled to be
payable in respect of the Purchase Contracts underlying such Normal Units
(assuming for this
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purpose that no Contract Fees will then have been deferred), (c) if such holder
is, at the date of delivery, deferring Contract Fees payable by such holder in
respect of such Normal Units, an amount of cash equal to (i) the aggregate
amount of such Contract Fees accrued to the date of delivery, if such date is a
Quarterly Payment Date, and (ii) the aggregate amount of such Contract Fees
accrued to the Quarterly Payment Date immediately preceding such date of
delivery plus interest thereon at the Deferral Rate for the period from and
including such Quarterly Payment Date to but excluding such date of delivery, if
such date is not a Quarterly Payment Date and (d) if the Call Options underlying
such Normal Units remain exercisable, the instrument from the Call Option Holder
referred to above; provided, however, that if Treasury Securities are the
Pledged Securities underlying such Normal Units, such right must be exercised
with respect to a number of Normal Units that will result in the release of
Treasury Securities in denominations of $1,000 and integral multiples thereof. A
certificate representing the Stripped Units that such Normal Units have become
will then be issued and delivered to such holder or such holder's designee and
the securities that theretofore had been the Pledged Securities underlying such
Normal Units will then be released from the pledge under the Pledge Agreement
and delivered to such holder or such holder's designee, upon payment by the
holder of any transfer or similar taxes payable in connection with the transfer
of Units or the securities that theretofore had been Pledged Securities to any
person other than such holder.
The Normal Units and any Stripped Units are collectively referred to herein
as the "Units".
The Company will enter into (a) an agreement (the "Master Unit Agreement")
with Chase Manhattan Bank and Trust Company, National Association as unit agent
(together with any successor thereto in such capacity, the "Unit Agent"),
governing the appointment of the Unit Agent as the agent and attorney-in-fact
for the holders of the Units, the Purchase Contracts, the transfer, exchange or
replacement of certificates representing the Units and certain other matters
relating to the Units and (b) an agreement (the "Pledge Agreement") among the
Company, the Collateral Agent and the Call Option Holder creating a pledge and
security interest for the benefit of the Company to secure the obligations of
holders of Units under the Purchase Contracts and a pledge and security interest
for the benefit of the Call Option Holder to secure the obligations of the
holders of Units under the Call Options. In addition the Unit Agent will enter
into an agreement (the "Call Option Agreement") with the Call Option Holder
governing the Call Options. The Master Unit Agreement, the Pledge Agreement and
the Call Option Agreement are collectively referred to herein as the "Principal
Agreements".
DESCRIPTION OF THE PURCHASE CONTRACTS
GENERAL
The Purchase Contracts will be governed by the Master Unit Agreement.
Each Purchase Contract underlying a Unit (unless earlier terminated) will
obligate the holder of such Unit to purchase, and the Company to sell, on the
Stock Purchase Date, for cash in an amount equal to the Stated Amount, a number
of newly issued shares of Common Stock equal to the Settlement Rate. The
Settlement Rate will be calculated as follows (subject to adjustment under the
circumstances described below under "-- Anti-Dilution Adjustments"):
(a) if the Applicable Market Value is greater than or equal to the
Threshold Appreciation Price of $ (i.e., approximately % higher than
the Stated Amount), the Settlement Rate will be ;
(b) if the Applicable Market Value is less than the Threshold
Appreciation Price but greater than the Stated Amount, the Settlement Rate
will equal the Stated Amount divided by the Applicable Market Value (i.e.,
the Settlement Rate will be calculated so that the Applicable Market Value
of the Common Stock purchasable under each Purchase Contract would equal
the Stated Amount payable therefor); rounded to the nearest 1/10,000th of a
share; and
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(c) if the Applicable Market Value is less than or equal to the Stated
Amount, the Settlement Rate will be one.
"Applicable Market Value" means the average of the Closing Prices per share
of Common Stock on each of the twenty consecutive Trading Days ending on the
last Trading Day immediately preceding the Stock Purchase Date. "Closing Price"
of the Common Stock on any date of determination means the closing sale price
(or, if no closing price is reported, the last reported sale price) of the
Common Stock on the NYSE on such date, or if the Common Stock is not listed for
trading on the NYSE on any such date, as reported in the composite transactions
for the principal United States securities exchange on which the Common Stock is
so listed, or if the Common Stock is not so listed on a United States national
or regional securities exchange, as reported by The NASDAQ Stock Market, or if
the Common Stock is not so reported, the last quoted bid price of the Common
Stock in the over-the-counter market as reported by the National Quotation
Bureau or similar organization, or if such bid price is not available, the
market value of the Common Stock on such date as determined by a nationally
recognized investment banking firm retained for this purpose by the Company. A
"Trading Day" means a day on which the Common Stock (a) is not suspended from
trading on any national or regional securities exchange or association or
over-the-counter market at the close of business and (b) has traded at least
once on the national or regional securities exchange or association or
over-the-counter market that is the primary market for the trading of the Common
Stock.
No fractional shares of Common Stock will be issued by the Company pursuant
to the Purchase Contracts. In lieu of a fraction of a share otherwise issuable
in respect of Purchase Contracts being settled by a holder of Units, the holder
will be entitled to receive an amount of cash equal to such fraction times the
Applicable Market Value.
Prior to the Stock Purchase Date, the Common Stock purchasable on
settlement of Purchase Contracts will not be deemed to be outstanding for any
purpose and no holder of Units will have any voting rights, rights to dividends
or other distributions or other rights or privileges of a stockholder of the
Company by virtue of holding such Units.
SETTLEMENT
In order to settle the Purchase Contracts underlying any Units, the holder
of such Units shall, by no later than 10:00 a.m., New York City time, on the
Stock Purchase Date, deliver payment (in the form of a certified or cashier's
check payable to the order of the Company in immediately available funds), at
the offices of the Unit Agent, of an amount equal to the aggregate Stated Amount
of such Units (plus, if there are unpaid Contract Fees accrued on such Purchase
Contracts and payable by the holder on the Stock Purchase Date and the cash
received by the Collateral Agent on such date in respect of the Pledged
Securities securing such Purchase Contracts is less than the amount of such
unpaid Contract Fees, an amount sufficient to cover such short-fall). The Common
Stock purchased on settlement of such Purchase Contracts will then be issued and
delivered to such holder or such holder's designee and the Pledged Securities
securing such Purchase Contracts (or, in the case of Treasury Securities, the
proceeds from the payment of such Treasury Securities at maturity, net of any
unpaid Contract Fees payable by the holder accrued thereon to the Stock Purchase
Date) will then be released from the pledge under the Pledge Agreement and
delivered to such holder or such holder's designee, upon presentation and
surrender of the certificate evidencing such Units and payment by the holder of
any transfer or similar taxes payable in connection with the issuance of Common
Stock or the transfer of Pledged Securities to any person other than such
holder.
On the Stock Purchase Date, if a holder of Units has not delivered cash to
settle the underlying Purchase Contracts in the manner described above and no
event described under "-- Termination" below has occurred, then (a) the Unit
Agent will notify the Collateral Agent and (i) if QUIPS underlie such Units, the
Collateral Agent, on behalf of such holder, will exercise such holder's right to
require the Trust to distribute Junior Subordinated Debentures having an
aggregate principal amount equal
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to the aggregate QUIPS Liquidation Amount of such QUIPS, in exchange for such
QUIPS, and, upon receiving such Junior Subordinated Debentures, will thereupon,
as Put Agent, exercise the Junior Subordinated Debenture Put Option with respect
thereto (see "-- Description of the QUIPS -- Right to Exercise Junior
Subordinated Debenture Put Options" and "--Description of the Junior
Subordinated Debentures -- Junior Subordinated Debenture Put Options") and (ii)
if Junior Subordinated Debentures underlie such Units, the Collateral Agent, on
behalf of such holder, will exercise the Junior Subordinated Debenture Put
Option with respect thereto (see "-- Description of the Junior Subordinated
Debentures -- Junior Subordinated Debenture Put Options"), (b) a portion of the
proceeds from the exercise of such Junior Subordinated Debenture Put Option (or,
if Treasury Securities underlie such Units, a portion of the proceeds from the
payment of such Treasury Securities at maturity) will be applied to satisfy in
full such holder's obligation to purchase Common Stock under such Purchase
Contracts and to pay any unpaid Contract Fees payable by such holder accrued
thereon to the Stock Purchase Date and (c) the remainder of such proceeds, if
any, will be paid to such holder; provided, however, that the holder's
obligation to satisfy such Purchase Contracts may be offset by any amounts due
and owing by the Company to such holder. Such Common Stock will then be issued
and delivered to such holder or such holder's designee, upon presentation and
surrender of the certificate evidencing such Units and payment by the holder of
any transfer or similar taxes payable in connection with the issuance of Common
Stock to any person other than such holder.
CONTRACT FEES
The holders of Units may be required to pay Contract Fees to the Company,
or the Company may be required to pay Contract Fees to the holders of Units, as
specified under "-- General" above.
Any obligation of the holders of Units to pay Contract Fees to the Company
will be funded out of payments made in respect of the Pledged Securities. If
payments made in respect of the Pledged Securities are insufficient to cover the
obligation of the holders of the Units to pay Contract Fees, such obligation
will be deferred until the earlier of the date sufficient cash is available and
the Stock Purchase Date. In the event that holders of Units are required to pay
Contract Fees to the Company, it is unlikely such holders will be entitled to a
current deduction for such payments. As a result, although the amount of cash
distributions made to holders will be reduced by the amount of Contract Fees
payable to the Company, holders will nevertheless recognize income each quarter
equal to the full amount of interest received or accrued with respect to the
QUIPS underlying the Units held by such holder. See "Certain Federal Income Tax
Consequences -- Contract Fees".
Any obligation of the Company to pay Contract Fees to the holders of Units
will be subordinated and junior in right of payment to the Company's obligations
under its Senior Indebtedness, in a manner substantially similar to the manner
in which the Junior Subordinated Debentures are subordinated as described under
"-- Description of the Junior Subordinated Debentures" below. So long as no
default in the Company's obligations under the Principal Agreements has occurred
and is continuing, the Company will have the right to defer the payment of
Contract Fees at any time or from time to time for a period not extending beyond
the Stock Purchase Date; provided, however, that in order to exercise such
right, the Company must give the Unit Agent notice at least five Business Days
prior to the earlier of (a) the date such payment would otherwise have been
payable, (b) the date the Company is required to give notice to any securities
exchange or to holders of Units of the record date or the date such payment is
payable and (c) such record date. During any such deferral period, the Company
may not take any of the actions that it would be prohibited from taking during
an Extension Period as described in the first paragraph under "--Description of
the Junior Subordinated Debentures -- Option To Extend Interest Payment Date"
below.
Contract Fees will be payable at the Contract Fee Rate set forth under
"-- General" above. Any deferred Contract Fees will bear additional Contract
Fees at the Deferral Rate (compounding on
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each succeeding Quarterly Payment Date) until paid. Contract Fees payable for
any period will be computed on the basis of a 360-day year of twelve 30-day
months. Contract Fees will accrue from and including the date of issuance of the
Units to but excluding the Stock Purchase Date and will be payable in arrears on
the Quarterly Payment Dates (unless deferred as described above). If the
Purchase Contracts are terminated, the right of holders of Units to receive
Contract Fees or the obligation of holders of Units to pay Contract Fees
(including any deferred Contract Fees) will also terminate.
ANTI-DILUTION ADJUSTMENTS
The formula for determining the Settlement Rate will be subject to
adjustment upon the occurrence of certain events, including: (a) the payment of
dividends (and other distributions) of Common Stock on Common Stock; (b) the
issuance to all holders of Common Stock of rights, warrants or options entitling
them, for a period of up to 45 days, to subscribe for or purchase Common Stock
at less than the Current Market Price (as defined) thereof; (c) subdivisions and
combinations of Common Stock; (d) distributions to all holders of Common Stock
of evidences of indebtedness of the Company, securities, cash or other assets
(excluding any dividend or distribution covered by clause (a) or (b) above and
any dividend or distribution paid exclusively in cash); (e) distributions
consisting exclusively of cash to all holders of Common Stock in an aggregate
amount that, together with (i) other all-cash distributions made within the
preceding 12 months and (ii) any cash and the fair market value, as of the
expiration of the tender or exchange offer referred to below, of consideration
payable in respect of any tender or exchange offer by the Company or a
subsidiary for the Common Stock concluded within the preceding 12 months,
exceeds 12.5% of the Company's aggregate market capitalization (such aggregate
market capitalization being the product of the Current Market Price of the
Common Stock multiplied by the number of shares of Common Stock then
outstanding) on the date of such distribution; and (f) the successful completion
of a tender or exchange offer made by the Company or any subsidiary for the
Common Stock which involves an aggregate consideration that, together with (i)
any cash and the fair market value of other consideration payable in respect of
any tender or exchange offer by the Company or a subsidiary for the Common Stock
concluded within the preceding 12 months and (ii) the aggregate amount of any
all-cash distributions to all holders of the Company's Common Stock made within
the preceding 12 months, exceeds 12.5% of the Company's aggregate market
capitalization on the date of expiration of such tender or exchange offer.
In the case of certain reclassifications, consolidations, mergers, sales or
transfers of assets or other transactions pursuant to which the Common Stock is
converted into the right to receive other securities, cash or property, each
Purchase Contract then outstanding would, without the consent of the holders of
Units, become a contract to purchase only the kind and amount of securities,
cash and other property receivable upon consummation of the transaction by a
holder of the number of shares of Common Stock which would have been received by
the holder of the related Unit immediately prior to such transaction if such
holder had then settled such Purchase Contract.
If at any time the Company makes a distribution of property to its
stockholders which would be taxable to such stockholders as a dividend for
United States Federal income tax purposes (i.e., distributions of evidences of
indebtedness or assets of the Company, but generally not stock dividends or
rights to subscribe to capital stock) and, pursuant to the Settlement Rate
adjustment provisions of the Master Unit Agreement, the Settlement Rate is
increased, such increase may be deemed to be the receipt of taxable income to
holders of Units. See "Certain Federal Income Tax Consequences -- Adjustment of
Settlement Rate".
In addition, the Company may make such increases in the Settlement Rate as
the Board of Directors of the Company deems advisable to avoid or diminish any
income tax to holders of shares of Common Stock resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event treated as
such for income tax purposes or for any other reasons.
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Adjustments to the Settlement Rate will be calculated to the nearest
1/10,000th of a share. No adjustment in the Settlement Rate shall be required
unless such adjustment would require an increase or decrease of at least one
percent in the Settlement Rate; provided, however, that any adjustments which by
reason of the foregoing are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
The Company will be required, within ten Business Days following the
occurrence of an event that requires or permits an adjustment in the Settlement
Rate, to provide written notice to the Unit Agent of the occurrence of such
event and a statement in reasonable detail setting forth the method by which the
adjustment to the Settlement Rate was determined and setting forth the revised
Settlement Rate.
TERMINATION
The Purchase Contracts, and the rights and obligations of the Company and
of the holders of the Units thereunder (including the right to receive and the
obligation to pay Contract Fees or deferred Contract Fees thereunder and the
right and obligation of the holders to purchase and the Company to sell Common
Stock thereunder), will automatically terminate upon the occurrence of certain
events of bankruptcy, insolvency or reorganization with respect to the Company.
Upon such termination, the Call Options will terminate and the Pledged
Securities will be distributed in the manner described under "-- Pledged
Securities and Pledge Agreement -- Termination of Purchase Contracts".
DESCRIPTION OF THE CALL OPTIONS
At the closing of the Offering made hereby, the Underwriters (on behalf of
the initial investors in the Units) will sell the Call Options to the Call
Option Holder at a price equal to $ per Call Option. The Call Options
will be governed by the Call Option Agreement.
Each Call Option underlying a Normal Unit (unless earlier terminated), when
aggregated with the Call Options underlying all other Normal Units, will entitle
the Call Option Holder to acquire the QUIPS underlying the Normal Units (or the
Junior Subordinated Debentures substituted therefor), on or before the Call
Option Expiration Date, in exchange for the Aggregate Consideration Deliverable
on Exercise of the Call Options. The Aggregate Consideration Deliverable on
Exercise of the Call Options will be comprised of:
(a) Treasury Securities that will generate, on each Quarterly Payment
Date falling after the settlement date for the Call Options (the "Call
Settlement Date") and on or before the Stock Purchase Date, an amount of
cash equal to the aggregate distributions or interest payments that are
scheduled to be payable in respect of the QUIPS or Junior Subordinated
Debentures underlying the Normal Units on such Quarterly Payment Date
(assuming for this purpose that no distributions or interest payments will
then have been deferred);
(b) Treasury Securities that will generate, on the Stock Purchase
Date, an amount of cash equal to the aggregate QUIPS Liquidation Amount of
the QUIPS or principal amount of the Junior Subordinated Debentures
underlying the Normal Units; and
(c) if the Company is, at the Call Settlement Date, deferring
distributions on the QUIPS or interest payments on the Junior Subordinated
Debentures (see "-- Description of the QUIPS -- Distributions" and
"-- Description of the Junior Subordinated Debentures -- Option to Extend
Interest Payment Date"), an amount in cash equal to (i) the aggregate
deferred distributions on the QUIPS or deferred interest payments on the
Junior Subordinated Debentures underlying the Normal Units accrued to the
Call Settlement Date, if the Call Settlement Date is a Quarterly Payment
Date, and (ii) the aggregate deferred distributions on the QUIPS or
deferred interest payments on the Junior Subordinated Debentures underlying
the Normal Units accrued to the Quarterly Payment Date immediately
preceding the Call Settlement Date plus
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interest thereon at the QUIPS Distribution Rate for the period from and
including such Quarterly Payment Date to but excluding such Call Settlement
Date, if the Call Settlement Date is not a Quarterly Payment Date.
The Call Option Holder may exercise all of its Call Options (but not less
than all) by (a) delivering to the Unit Agent and the Collateral Agent, on or
prior to the Call Settlement Date, a notice stating that the Call Option Holder
is exercising its Call Options and specifying the Call Settlement Date therefor
(which may not be after the Call Option Expiration Date) and (b) delivering to
the Collateral Agent, by Noon, New York City time, on the Call Settlement Date,
the Aggregate Consideration Deliverable on Exercise of the Call Options.
Pursuant to the Pledge Agreement, upon receipt by the Collateral Agent of the
Aggregate Consideration Deliverable on Exercise of the Call Options, the
Collateral Agent will transfer the QUIPS (or Junior Subordinated Debentures)
underlying the Normal Units to the Call Option Holder or its designee free and
clear of the pledge and security interest created by the Pledge Agreement and
the Treasury Securities included in the Aggregate Consideration Deliverable on
Exercise of the Call Options shall automatically be substituted for such QUIPS
(or Junior Subordinated Debentures) as Pledged Securities, whereupon the Call
Option Holder shall cease to have a security interest in the Pledged Securities.
If the Call Options are exercised, the Unit Agent shall, not later than
three Business Days following the Call Settlement Date, mail notice of such
exercise to the holders of the Normal Units.
The Call Options, and the rights and obligations of the Call Option Holder
and of the holders of the Normal Units thereunder, will automatically terminate
upon the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company. See "-- Description of the Purchase
Contracts -- Termination" and "-- Pledged Securities and Pledge
Agreement -- Termination of Purchase Contracts".
PLEDGED SECURITIES AND PLEDGE AGREEMENT
GENERAL
Pursuant to the Pledge Agreement, the Pledged Securities will be pledged to
the Collateral Agent, for the benefit of the Company and the Call Option Holder,
to secure (a) the obligations of holders of Units to purchase Common Stock under
the Purchase Contracts, (b) any obligations of the holders of Units to pay
Contract Fees to the Company and (c) the obligations of holders of Normal Units
to deliver the underlying QUIPS (or Junior Subordinated Debentures) to the Call
Option Holder if the Call Options are exercised. The Pledged Securities will
initially consist of the QUIPS. If Treasury Securities are exchanged for Pledged
Securities upon exercise of the Call Options or in connection with the creation
of Stripped Units or Junior Subordinated Debentures are distributed in respect
of Pledged Securities upon dissolution of the Trust, the Treasury Securities so
exchanged or the Junior Subordinated Debentures so distributed will
automatically be substituted as Pledged Securities in place of the securities
that theretofore had been Pledged Securities and the securities that theretofore
had been Pledged Securities will automatically be released from the pledge and
security interest created by the Pledge Agreement.
The rights of the holders of the Units to the underlying Pledged Securities
will be subject to the pledge and security interest created by the Pledge
Agreement; no holder of Units will be permitted to withdraw the Pledged
Securities underlying such Units from the pledge arrangement except upon the
settlement or termination of the Purchase Contracts or as described under
"-- Formation of the Units" above. Subject to such pledge and security interest,
however, each holder of Units will have full beneficial ownership of the
underlying Pledged Securities and will be entitled (directly or through the
Collateral Agent) to all of the rights provided by such Pledged Securities, and
the Company and Call Option Holder will have no rights with respect to Pledged
Securities other than their respective security interests therein.
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QUARTERLY PAYMENTS ON PLEDGED SECURITIES
The Collateral Agent will, upon receipt of any quarterly distributions or
payments of interest on the Pledged Securities, (a) pay to the Company an amount
therefrom equal to the aggregate Contract Fees (if any) then due from the
holders of the Units to the Company and (b) pay the remainder to the Unit Agent,
which will in turn distribute that amount, together with the Contract Fees (if
any) then due from the Company to the holders of Units, to the holders of Units
entitled thereto. As long as Units remain in book-entry only form, the Record
Date for any payment will be one Business Day prior to such payment date.
SUBSTITUTION OF PLEDGED SECURITIES TO CREATE STRIPPED UNITS
For information about how a holder of Normal Units may substitute Treasury
Securities for Pledged Securities underlying Normal Units, thereby creating
Stripped Units, see "-- Formation of the Units" above.
SETTLEMENT OF PURCHASE CONTRACTS
On the Stock Purchase Date, the Pledged Securities (or, in the case of
Treasury Securities, the proceeds from the payment of such Treasury Securities
at maturity) will be released from the pledge and security interest created by
the Pledge Agreement and distributed or delivered as specified under
"-- Description of the Purchase Contracts -- Settlement".
TERMINATION OF PURCHASE CONTRACTS
Upon termination of the Purchase Contracts (see "-- Description of the
Purchase Contracts -- Termination"), the Collateral Agent will release the
Pledged Securities underlying the Units to the Unit Agent for distribution to
the holders of such Units, upon presentation and surrender of the certificates
evidencing such Units. If upon such termination any holder would otherwise be
entitled to receive a principal amount of Treasury Securities of any series that
is not an integral multiple of $1,000, the Unit Agent will distribute to such
holder Treasury Securities of such series in a principal amount equal to the
next lower integral multiple of $1,000, will sell the Treasury Securities of
such series not otherwise distributed to such holder (together with the Treasury
Securities of such series not otherwise distributed to other holders) and will
distribute to all such holders (in accordance with their respective interests
therein) the proceeds therefrom.
BOOK ENTRY SYSTEM
The Depository Trust Company (the "Depositary") will act as securities
depositary for the Units. The Units will be issued only as fully-registered
securities registered in the name of Cede & Co. or another nominee of the
Depositary. Fully-registered global security certificates ("Global Security
Certificates"), representing the total aggregate number of Units, will be
issued, will be deposited with the Depositary and will bear a legend regarding
the restrictions on exchanges and registration of transfer thereof referred to
below.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the Units so long as
such Units are represented by Global Security Certificates.
The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary holds securities that its participants ("Participants")
deposit with the Depositary. The Depositary also facilitates the settlement
among Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computer-
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<PAGE> 46
ized book-entry changes in Participants' accounts, thereby eliminating the need
for physical movement of securities certificates. Direct Participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations ("Direct Participants"). The Depositary is owned
by a number of its Direct Participants and by the NYSE, the American Stock
Exchange, Inc., and the National Association of Securities Dealers, Inc. Access
to the Depositary system is also available to others, such as securities brokers
and dealers, banks and trust companies that clear transactions through or
maintain a direct or indirect custodial relationship with a Direct Participant
either directly or indirectly ("Indirect Participants"). The rules applicable to
the Depositary and its Participants are on file with the Commission.
No Units represented by Global Security Certificates may be exchanged in
whole or in part for Units registered, and no transfer of Global Security
Certificates in whole or in part may be registered, in the name of any person
other than the Depositary or a nominee of the Depositary unless the Depositary
has notified the Company that it is unwilling or unable to continue as
depositary for such Global Security Certificates or has ceased to be qualified
to act as such as required by the Master Unit Agreement or there shall have
occurred and be continuing a default by the Company in respect of its
obligations under one or more Principal Agreements. All Units represented by
Global Security Certificates or any portion thereof will be registered in such
names as the Depositary may direct.
As long as the Depositary or its nominee is the registered owner of the
Global Security Certificates, such Depositary or such nominee, as the case may
be, will be considered the sole owner and holder of the Global Security
Certificates and all Units represented thereby for all purposes under the Units,
Purchase Contracts, Call Options and Principal Agreements. Except in the limited
circumstances referred to above, owners of beneficial interests in Global
Security Certificates will not be entitled to have such Global Security
Certificates or the Units represented thereby registered in their names, will
not receive or be entitled to receive physical delivery of certificates in
exchange therefor and will not be considered to be owners or holders of such
Global Security Certificates or any Units represented thereby for any purpose
under the Units, Purchase Contracts, Call Options and Principal Agreements. All
payments on the Units represented by the Global Security Certificates and all
deliveries of Pledged Securities or Common Stock to the holders thereof will be
made to the Depositary or its nominee, as the case may be, as the holder
thereof.
Ownership of beneficial interests in the Global Security Certificates will
be limited to Participants or persons that may hold beneficial interests through
institutions that have accounts with the Depositary. Ownership of beneficial
interests in Global Security Certificates will be shown only on, and the
transfer of those ownership interests will be effected only through, records
maintained by the Depositary or its nominee (with respect to Participants'
interests) or any such Participant (with respect to interests of persons held by
such Participants on their behalf). Procedures for settlement of Purchase
Contracts on the Stock Purchase Date will be governed by arrangements among the
Depositary, Participants and persons that may hold beneficial interests through
Participants designed to permit such settlement without the physical movement of
certificates. Payments, transfers, deliveries, exchanges and other matters
relating to beneficial interests in Global Security Certificates may be subject
to various policies and procedures adopted by the Depositary from time to time.
The Depositary has advised the Company that it will take any action permitted to
be taken by a holder of Units only at the direction of one or more Participants
to whose account with the Depositary interests in the Global Security
Certificates are credited and only in respect of such number of Units as to
which such Participant or Participants has or have given such direction. None of
the Company, the Trust, the Unit Agent or any agent of the Company, the Trust or
the Unit Agent will have any responsibility or liability for any aspect of the
Depositary's or any Participant's records relating to, or for payments made on
account of, beneficial interests in Global Security Certificates, or for
maintaining, supervising or reviewing any of the Depositary's records or any
Participant's records relating to such beneficial ownership interests.
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The information in this section concerning the Depositary and its
book-entry system has been obtained from sources that the Company and the Trust
believe to be reliable, but neither the Company nor the Trust takes
responsibility for the accuracy thereof.
CERTAIN PROVISIONS OF THE PRINCIPAL AGREEMENTS
GENERAL
Distributions on the Units will be payable, Purchase Contracts (and
documents related thereto) will be settled and transfers of the Units will be
registrable at the office of the Unit Agent in the Borough of Manhattan, The
City of New York. In addition, in the event that the Units do not remain in
book-entry form, payment of distributions on the Units may be made, at the
option of the Company, by check mailed to the address of the persons entitled
thereto as shown on the Unit Register.
In the event that any Quarterly Payment Date, the date of exercise of the
Call Options, the Stock Purchase Date or any Put Date is not a Business Day,
then payment of the Contract Fees payable on any such Quarterly Payment Date or
settlement of the Call Options, the Purchase Contracts or the Junior
Subordinated Debenture Put Options, as the case may be, will be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay), except that if such Business Day is in
the next succeeding calendar year, such payment or settlement will be made on
the immediately preceding Business Day, in each case with the same force and
effect as if made on such payment date. A "Business Day" shall mean any day
other than Saturday, Sunday or any other day on which banking institutions in
The City of New York are authorized or obligated by law or executive order to be
closed.
If a holder of Units fails to present and surrender the certificate
evidencing such Units to the Unit Agent on the Stock Purchase Date, the shares
of Common Stock issuable in settlement of the related Purchase Contracts will be
registered in the name of the Unit Agent and, together with any distributions
thereon, shall be held by the Unit Agent as agent for the benefit of such
holder, until such certificate is presented and surrendered or the holder
provides satisfactory evidence that such certificate has been destroyed, lost or
stolen, together with any indemnity that may be required by the Unit Agent and
the Company.
If the Purchase Contracts have terminated prior to the Stock Purchase Date,
the related Pledged Securities have been transferred to the Unit Agent for
distribution to the holders entitled thereto and a holder of Units fails to
present and surrender the certificate evidencing such Units to the Unit Agent,
the Pledged Securities otherwise deliverable to such holder and payments thereon
shall be held by the Unit Agent as agent for the benefit of such holder, until
such certificate is presented and surrendered or the holder provides the
evidence and indemnity described above.
The Unit Agent will have no obligation to invest or to pay interest on any
amounts held by the Unit Agent pending distribution.
No service charge will be made for any registration of transfer or exchange
of the Units, except for any tax or other governmental charge that may be
imposed in connection therewith.
MODIFICATION
The Principal Agreements will contain provisions permitting the parties
thereto, with the consent of the holders of not less than a majority of the
Units at the time outstanding (or, in the case of modifications affecting only
holders of Normal Units or Stripped Units, the consent of the holders of not
less than a majority of the Normal Units or Stripped Units, as the case may be,
at the time outstanding), to modify the terms of the Principal Agreements, the
Purchase Contracts and the Call Options, except that no such modification may,
without the consent of the holder of each outstanding Unit affected thereby, (a)
change any payment date, (b) change the amount or type of Pledged Securities
required to be pledged to secure obligations under the Units, impair the right
of the holder of any Units to receive distributions on the Pledged Securities
underlying such Units or
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otherwise adversely affect the holder's rights in or to such Pledged Securities,
(c) change the place or currency of payment for any Contract Fees or other
amounts payable in respect of the Units, increase any Contract Fees or other
amounts payable by holders in respect of Units or decrease any Contract Fees or
other amounts receivable by holders in respect of Units, (d) impair the right to
institute suit for the enforcement of any Purchase Contract, (e) reduce the
amount of Common Stock purchasable under any Purchase Contract, increase the
price to purchase Common Stock on settlement of any Purchase Contract, change
the Stock Purchase Date or otherwise adversely affect the holder's rights under
any Purchase Contract, (f) reduce the amount payable on exercise of any Call
Option, extend the Call Option Expiration Date or otherwise adversely affect the
holder's rights under any Call Option or (g) reduce the above-stated percentage
of outstanding Units the consent of whose holders is required for the
modification or amendment of the provisions of the Principal Agreements, the
Purchase Contracts or the Call Options.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
The Company will covenant in the Master Unit Agreement that it will not
merge or consolidate with any other entity or sell, assign, transfer, lease or
convey all or substantially all of its properties and assets to any person, firm
or corporation unless the Company is the continuing corporation or the successor
corporation is a corporation organized under the laws of the United States of
America or a state thereof and such corporation expressly assumes the
obligations of the Company under the Principal Agreements and the Purchase
Contracts, and the Company or such successor corporation is not, immediately
after such merger, consolidation, sale, assignment, transfer, lease or
conveyance, in default in the performance of any of its obligations thereunder.
TITLE
The Company, the Unit Agent, the Collateral Agent and the Call Option
Holder may treat the registered holder of any Units as the absolute owner
thereof for the purpose of making payment and settling the related Purchase
Contracts or Call Options and for all other purposes.
REPLACEMENT OF UNITS CERTIFICATES
In the event that physical certificates have been issued, any mutilated
certificate evidencing Units will be replaced by the Company at the expense of
the holder upon surrender of such certificate to the Unit Agent. Certificates
that become destroyed, lost or stolen will be replaced by the Company at the
expense of the holder upon delivery to the Company and the Unit Agent of
evidence of the destruction, loss or theft thereof satisfactory to the Company
and the Unit Agent. In the case of a destroyed, lost or stolen certificate, an
indemnity satisfactory to the Unit Agent and the Company may be required at the
expense of the holder of the Units evidenced by such certificate before a
replacement will be issued.
Notwithstanding the foregoing, the Company will not be obligated to issue
any Units on or after the Stock Purchase Date or after the Purchase Contracts
have terminated. In lieu of the delivery of a replacement certificate following
the Stock Purchase Date, the Unit Agent, upon delivery of the evidence and
indemnity described above, will deliver the Common Stock issuable pursuant to
the Purchase Contracts included in the Units evidenced by such certificate, or,
if the Purchase Contracts have terminated prior to the Stock Purchase Date,
transfer the Pledged Securities related to the Units evidenced by such
certificate.
GOVERNING LAW
The Principal Agreements, the Purchase Contracts and the Call Options will
be governed by, and construed in accordance with, the laws of the State of New
York.
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INFORMATION CONCERNING THE UNIT AGENT
Chase Manhattan Bank and Trust Company, National Association will initially
act as Unit Agent. The Unit Agent will act as the agent for the holders of Units
from time to time. The Master Unit Agreement will not obligate the Unit Agent to
exercise any discretionary actions in connection with a default under the terms
of the Principal Agreements, the Purchase Contracts, the Call Options or the
Pledged Securities.
The Master Unit Agreement will contain provisions limiting the liability of
the Unit Agent. The Master Unit Agreement will contain provisions under which
the Unit Agent may resign or be replaced. Such resignation or replacement would
be effective upon the appointment of a successor.
INFORMATION CONCERNING THE COLLATERAL AGENT
will initially act as Collateral Agent. The Collateral
Agent will act solely as the agent of the Company or the Call Option Holder and
will not assume any obligation or relationship of agency or trust for or with
any of the holders of the Units except for the obligations owed by a pledgee of
property to the owner thereof under the Pledge Agreement and applicable law.
The Pledge Agreement will contain provisions limiting the liability of the
Collateral Agent. The Pledge Agreement will contain provisions under which the
Collateral Agent may resign or be replaced. Such resignation or replacement
would be effective upon the appointment of a successor.
DESCRIPTION OF THE QUIPS
GENERAL
The QUIPS will be issued by the Trust, a statutory business trust created
under Delaware law pursuant to the Declaration. The Trust's affairs are
conducted by the Issuer Trustees, which are currently Chase Manhattan Bank and
Trust Company, National Association, as the Property Trustee, and Chase
Manhattan Bank Delaware, as the Delaware Trustee, and the three Administrators,
who are employees of the Company. The Trust exists for the exclusive purposes of
(a) issuing and selling the Trust Securities consisting of the QUIPS and the
Common Trust Securities, (b) using the proceeds from the sale of the Trust
Securities to acquire the Junior Subordinated Debentures issued by the Company
and (c) engaging in only those other activities necessary, advisable or
incidental thereto. Accordingly, the Junior Subordinated Debentures will be the
sole assets of the Trust, and payments under the Junior Subordinated Debentures
will be the sole revenue of the Trust. All of the Common Trust Securities will
be owned by the Company.
The QUIPS will represent preferred undivided beneficial interests in the
assets of the Trust and the holders thereof will be entitled to a preference
over the Common Trust Securities in certain circumstances with respect to
distributions and amounts payable on redemption of the Trust Securities or
liquidation of the Trust. See "-- Subordination of Common Trust Securities"
below. The QUIPS will be issued pursuant to, and be governed by, the
Declaration. The Declaration will be qualified under the Trust Indenture Act.
Each QUIPS will have a QUIPS Liquidation Amount that is equal to the Stated
Amount. The QUIPS will rank pari passu, and payments will be made thereon pro
rata, with the Common Trust Securities except as described under
"-- Subordination of Common Trust Securities" below. Legal title to the Junior
Subordinated Debentures will be held by the Property Trustee in trust for the
benefit of the holders of the QUIPS and the Common Trust Securities.
The QUIPS will be subject to mandatory redemption on the QUIPS and
Debenture Maturity Date of , 2003, at a redemption price equal to
the aggregate QUIPS Liquidation Amount thereof plus unpaid distributions accrued
thereon to but excluding such date, out of the proceeds of the repayment of the
Junior Subordinated Debentures at maturity. The Junior Subordinated
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Debentures are not redeemable at the option of the Company prior to the QUIPS
and Debenture Maturity Date.
DISTRIBUTIONS
Distributions on the QUIPS will be cumulative, will accumulate from the
first date of issuance of the QUIPS and will be payable quarterly in arrears on
the Quarterly Payment Dates, at the QUIPS Distribution Rate of % per annum
of the QUIPS Liquidation Amount, to the holders of the QUIPS on the relevant
record dates. Unless the QUIPS are not Pledged Securities and are issued in
certificated form, the record date for any payment of Distributions will be one
Business Day prior to such payment date. The amount of Distributions payable for
any period will be computed on the basis of a 360-day year of twelve 30-day
months. In the event that any date on which Distributions are payable on the
QUIPS is not a Business Day, payment of the Distributions payable on such date
will be made on the next succeeding day that is a Business Day (and without any
interest or other payment in respect of any such delay), except that if such
Business Day is in the next succeeding calendar year, such payment will be made
on the immediately preceding Business Day, in each case with the same force and
effect as if made on the date such payment was originally payable (each date on
which Distributions are payable in accordance with the foregoing, a
"Distribution Date").
So long as no Debenture Event of Default shall have occurred and be
continuing, the Company will have the right under the Indenture to elect to
defer the payment of interest on the Junior Subordinated Debentures at any time
and from time to time for a period not extending beyond the QUIPS and Debenture
Maturity Date (each such period of deferral, an "Extension Period"). See
"-- Description of the Junior Subordinated Debentures -- Option to Extend
Interest Payment Date" and "Certain Federal Income Tax
Considerations -- Distributions on the QUIPS". Upon any such election, quarterly
Distributions on the QUIPS will be deferred by the Trust during such Extension
Period. Distributions to which holders of the QUIPS are entitled during any such
Extension Period will accumulate additional Distributions thereon at the
Deferral Rate, compounded on each succeeding Distribution Date. The term
"Distributions", as used in this Description of the QUIPS, shall include any
such additional Distributions and any Additional Sums paid on the Junior
Subordinated Debentures.
During any Extension Period, the Company may not take any of the prohibited
actions described under "-- Description of the Junior Subordinated
Debentures -- Certain Covenants of the Company".
Although the Company may in the future exercise its option to defer
payments of interest on the Junior Subordinated Debentures, the Company has no
such current intention.
The revenue of the Trust available for distribution to holders of the QUIPS
will be limited to payments under the Junior Subordinated Debentures. If the
Company does not make interest payments on the Junior Subordinated Debentures,
the Property Trustee will not have funds available to pay Distributions on the
QUIPS. The payment of Distributions (if and to the extent the Trust has funds on
hand legally available for the payment of such Distributions) will be guaranteed
by the Company on a limited basis as set forth herein under "-- Description of
the Guarantee".
MANDATORY REDEMPTION
Upon the repayment of the Junior Subordinated Debentures, the proceeds from
such repayment shall be applied by the Property Trustee to redeem a Like Amount
of the Trust Securities, at a redemption price (the "Final Redemption Price")
which shall be equal to the principal of and accrued and unpaid interest on the
Junior Subordinated Debentures.
"Like Amount" means (i) with respect to the redemption of the Trust
Securities, Trust Securities having an aggregate liquidation amount equal to the
principal amount of Junior Subordinated Debentures to be paid in accordance with
their terms and (ii) with respect to a distribution of
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Junior Subordinated Debentures upon the liquidation of the Trust, Junior
Subordinated Debentures having a principal amount equal to the aggregate
liquidation amount of the Trust Securities of the holder to whom such Junior
Subordinated Debentures are distributed.
RIGHT TO EXERCISE JUNIOR SUBORDINATED DEBENTURE PUT OPTIONS
Each holder of QUIPS will have the right to require the Trust to distribute
Junior Subordinated Debentures having an aggregate principal amount equal to the
aggregate QUIPS Liquidation Amount of such QUIPS to the Put Agent, on the Stock
Purchase Date or on the date which is three months after the Stock Purchase Date
(the "Final Put Date" and, together with the Stock Purchase Date, the "Put
Dates"), in exchange for such QUIPS, in connection with the concurrent exercise
by the Put Agent on behalf of such holder of the Junior Subordinated Debenture
Put Option related thereto.
A holder of QUIPS may exercise the right referred to above by presenting
and surrendering the certificate evidencing such QUIPS, at the offices of the
Property Trustee, with the form of "Notice to Require Exercise of Junior
Subordinated Debenture Put Option" on the reverse side of the certificate
completed and executed as indicated, by 10:00 a.m., New York City time, on the
applicable Put Date. If such right is properly exercised, the applicable Junior
Subordinated Debentures will be distributed to an agent for the holder appointed
by the Company for such purpose (the "Put Agent", who shall, if the right is
exercised on the Stock Purchase Date, be the Collateral Agent), and the Put
Agent will then exercise by the Put Agent on behalf of such holder the Junior
Subordinated Debenture Put Option related thereto on behalf of the holder.
LIQUIDATION OF THE TRUST AND DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES
The Company will have the right at any time to dissolve the Trust and,
after satisfaction of liabilities to creditors of the Trust as required by
applicable law, cause the Junior Subordinated Debentures to be distributed to
the holders of the Trust Securities in liquidation of the Trust.
The Trust shall automatically dissolve upon the first to occur of: (a)
certain events of bankruptcy, dissolution or liquidation of the Company or the
Trust; (b) the distribution of a Like Amount of the Junior Subordinated
Debentures to the holders of the Trust Securities, if the Company, as Sponsor,
has given written direction to the Property Trustee to dissolve the Trust (which
direction is optional and wholly within the discretion of the Company, as
Sponsor); (c) redemption of all of the Trust Securities as described under
"-- Mandatory Redemption" above; (d) expiration of the term of the Trust; and
(e) the entry of an order for the dissolution of the Trust by a court of
competent jurisdiction.
If a dissolution occurs as described in clauses (a), (b), (d) or (e) of the
preceding paragraph, the Trust shall be liquidated by the Administrators as
expeditiously as practicable by distributing, after satisfaction of liabilities
to creditors of the Trust as provided by applicable law, to the holders of the
Trust Securities a Like Amount of the Junior Subordinated Debentures (such
amount being the "Liquidation Distribution"). If the Liquidation Distribution
can be paid only in part because the Trust has insufficient assets on hand
legally available to pay in full the aggregate Liquidation Distribution, then
the amounts payable directly by the Trust on the QUIPS and the Common Trust
Securities shall be paid on a pro rata basis, except that if a Debenture Event
of Default has occurred and is continuing, the QUIPS shall have a priority over
the Common Trust Securities. See "-- Subordination of Common Trust Securities"
below.
After the liquidation date is fixed for any distribution of Junior
Subordinated Debentures to holders of the Trust Securities, (a) the Trust
Securities will no longer be deemed to be outstanding, (b) each registered
global certificate, if any, representing Trust Securities and held by the
Depositary or its nominee will receive a registered global certificate or
certificates representing the Junior Subordinated Debentures to be delivered
upon such distribution and (c) any certificates representing Trust Securities
not held by the Depositary or its nominee will be deemed to represent Junior
Subordinated Debentures having a principal amount equal to the aggregate
liquidation
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amount of such Trust Securities, and bearing accrued and unpaid interest in an
amount equal to the accumulated and unpaid Distributions on such Trust
Securities until such certificates are presented to the Administrators or their
agent for cancellation, whereupon the Company will issue to such holder, and the
Debenture Trustee will authenticate, a certificate representing such Junior
Subordinated Debentures.
REDEMPTION PROCEDURES
The QUIPS shall be redeemed at the Final Redemption Price with the proceeds
from the contemporaneous repayment of the Junior Subordinated Debentures. The
redemption of QUIPS shall be made and the Final Redemption Price shall be
payable on the QUIPS and Debenture Maturity Date only to the extent that the
Trust has funds legally available for the payment of such applicable Redemption
Price.
If the Trust gives a notice of redemption in respect of the QUIPS, then, by
12:00 noon, New York City time, on the QUIPS and Debenture Maturity Date, to the
extent funds are legally available, with respect to the QUIPS held by the
Depositary or its nominees, the Property Trustee will pay or cause the Paying
Agent to pay the Final Redemption Price to the Depositary. With respect to the
QUIPS held in certificated form, the Property Trustee, to the extent funds are
legally available, will give irrevocable instructions and authority to the
Paying Agent and will irrevocably deposit with the Paying Agent for the QUIPS
funds sufficient to pay or cause the Paying Agent to pay the Final Redemption
Price to the holders thereof upon surrender of their certificates evidencing the
QUIPS. See "-- Payment and Paying Agency" below. If notice of redemption shall
have been given and funds deposited with the Property Trustee to pay the Final
Redemption Price, then all rights of the holders of the QUIPS will cease, except
the right of the holders of QUIPS to receive the Final Redemption Price, but
without interest on the Final Redemption Price, and the QUIPS will cease to be
outstanding. In the event that the QUIPS and Debenture Maturity Date is not a
Business Day, then the Final Redemption Price payable on such date will be paid
on the next succeeding day that is a Business Day (and without any interest or
other payment in respect of any such delay). In the event that payment of the
Final Redemption Price is improperly withheld or refused and not paid either by
the Trust or by the Company pursuant to the Guarantee as described under
"-- Description of the Guarantee", Distributions on the QUIPS will accumulate on
the Final Redemption Price at the QUIPS Distribution Rate from the QUIPS and
Debenture Maturity Date to the date the Final Redemption Price is actually paid.
SUBORDINATION OF COMMON TRUST SECURITIES
Payment of Distributions on, and the Final Redemption Price of, the QUIPS
and the Common Trust Securities, as applicable, shall be made pro rata based on
the liquidation amount of the QUIPS and Common Trust Securities; provided,
however, that if on any Distribution Date or QUIPS and Debenture Maturity Date a
Debenture Event of Default (solely as the result of an event described in
clauses (a), (b) or (c) thereto) shall have occurred and be continuing, no
payment of any Distribution on, or Final Redemption Price of, any of the Common
Trust Securities, and no other payment on account of the redemption, liquidation
or other acquisition of the Common Trust Securities, shall be made unless
payment in full in cash of all accumulated and unpaid Distributions on all of
the outstanding QUIPS for all Distribution periods terminating on or prior
thereto or, in the case of the QUIPS and Debenture Maturity Date, the full
amount of the Final Redemption Price therefor, shall have been made or provided
for, and all funds available to the Property Trustee shall first be applied to
the payment in full in cash of all Distributions on, or Final Redemption Price
of, the QUIPS then due and payable.
In the case of any Event of Default, the Company as holder of the Common
Trust Securities will be deemed to have waived any right to act with respect to
such Event of Default until the effect of such Event of Default shall have been
cured, waived or otherwise eliminated. Until any such Event of Default has been
so cured, waived or otherwise eliminated, the Property Trustee shall act solely
on
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behalf of the holders of the QUIPS, and only the holders of the QUIPS will have
the right to direct the Property Trustee to act on their behalf.
EVENTS OF DEFAULT; NOTICE
The occurrence of a Debenture Event of Default (see "-- Description of the
Junior Subordinated Debentures -- Debenture Events of Default") constitutes an
"Event of Default" under the Declaration; provided that pursuant to the
Declaration, the holder of the Common Trust Securities will be deemed to have
waived any Event of Default with respect to such Common Trust Securities until
all Events of Default with respect to the QUIPS have been cured, waived or
otherwise eliminated. Until such Events of Default have been so cured, waived or
otherwise eliminated, the Property Trustee will be deemed to be acting solely on
behalf of the holders of the QUIPS and only the holders of such QUIPS will have
the right to direct the Property Trustee with respect to certain matters under
the Declaration, and therefore the Indenture. The holders of a majority in QUIPS
Liquidation Amount of the QUIPS will have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Property
Trustee or to direct the exercise of any trust or power conferred upon the
Property Trustee under the Declaration, including the right to direct the
Property Trustee to exercise the remedies available to it as holder of the
Junior Subordinated Debentures. If the Property Trustee fails to enforce its
rights under the Junior Subordinated Debentures after the holders of a majority
in QUIPS Liquidation Amount of QUIPS have so directed the Property Trustee, a
holder of record of such QUIPS (or, for so long as QUIPS underlie Normal Units,
a holder of record of Normal Units) may, to the fullest extent permitted by law,
institute a legal proceeding against the Company to enforce the Property
Trustee's rights under the Junior Subordinated Debentures without first
instituting any legal proceeding against the Property Trustee or any other
person or entity. Notwithstanding the foregoing, if an Event of Default has
occurred and is continuing, and such event is attributable to the failure of the
Company to pay interest or principal on the Junior Subordinated Debentures on
the respective dates such interest or principal is payable (after giving effect
to any Extension Period), then a holder of record of QUIPS (or, for so long as
QUIPS underlie Normal Units, a holder of record of Normal Units) may institute a
Direct Action against the Company for payment to such holder of the portion of
such principal or interest attributable to Junior Subordinated Debentures having
a principal amount equal to the aggregate QUIPS Liquidation Amount of the QUIPS
held by such holder (or underlying such holder's Normal Units). In connection
with such Direct Action, the Company will be subrogated to the rights of such
holder of QUIPS or Normal Units under the Declaration to the extent of any
payment made by the Company to such holder of QUIPS or Normal Units in such
Direct Action; provided, however, that no such subrogation right may be
exercised so long as an Event of Default has occurred and is continuing. The
holders of QUIPS will not be able to exercise directly any other remedy
available to the holders of the Junior Subordinated Debentures.
Upon occurrence of an Event of Default, the Property Trustee, so long as it
is the sole holder of Junior Subordinated Debentures, will have the right under
the Indenture to declare the principal of (or premium, if any) and interest on
the Junior Subordinated Debentures to be immediately due and payable.
Within ten Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of the QUIPS, the Administrators
and the Company, as Sponsor, unless such Event of Default shall have been cured
or waived. The Company, as Sponsor, and the Administrators are required to file
annually with the Property Trustee a certificate as to whether or not they are
in compliance with all the conditions and covenants applicable to them under the
Declaration.
If a Debenture Event of Default has occurred and is continuing, the QUIPS
shall have a preference over the Common Trust Securities as described under
"-- Liquidation of the Trust and Distribution of Junior Subordinated Debentures"
and "-- Subordination of Common Trust Securities" above.
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REMOVAL OF ISSUER TRUSTEES AND ADMINISTRATORS
Unless a Debenture Event of Default shall have occurred and be continuing,
any Issuer Trustee may be removed at any time by the holder of the Common Trust
Securities. If a Debenture Event of Default has occurred and is continuing, the
Property Trustee and the Delaware Trustee may be removed at such time by the
holders of a majority in QUIPS Liquidation Amount of the outstanding QUIPS. In
no event will the holders of the QUIPS have the right to vote to appoint, remove
or replace the Administrators, which voting rights are vested exclusively in the
Company as the holder of the Common Trust Securities. No resignation or removal
of an Issuer Trustee and no appointment of a successor trustee shall be
effective until the acceptance of appointment by the successor trustee in
accordance with the provisions of the Declaration.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any Person into which the Property Trustee or the Delaware Trustee that is
not a natural person may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which such Issuer Trustee shall be a party, or any Person
succeeding to all or substantially all the corporate trust business of such
Issuer Trustee, shall be the successor of such Issuer Trustee under the
Declaration, provided such Person shall be otherwise qualified and eligible.
MERGERS, CONVERSIONS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE
TRUST
The Trust may not merge or convert with or into, consolidate, amalgamate,
or be replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to any company or other Person, except
as described below or as otherwise described under "-- Liquidation of the Trust
and Distribution of Junior Subordinated Debentures". The Trust may, at the
request of the Company, as Sponsor and holder of the Common Trust Securities,
but without the consent of the holders of the QUIPS, merge or convert with or
into, consolidate, amalgamate, or be replaced by or convey, transfer or lease
its properties and assets as an entirety or substantially as an entirety to a
trust organized as such under the laws of any State; provided, that (a) such
successor entity either (i) expressly assumes all of the obligations of the
Trust with respect to the QUIPS or (ii) substitutes for the QUIPS other
securities having substantially the same terms as the QUIPS (the "Successor
Securities") so long as the Successor Securities rank the same as the QUIPS rank
in priority with respect to distributions and payments upon liquidation,
redemption and otherwise, (b) the Company expressly appoints a trustee of such
successor entity possessing the same powers and duties as the Property Trustee
with respect to the Junior Subordinated Debentures, (c) the Successor Securities
are listed, or any Successor Securities will be listed upon notification of
issuance, on any national securities exchange or other organization on which the
QUIPS are then listed or quoted, if any, (d) such merger, conversion,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
cause the QUIPS (including any Successor Securities) or Units to be downgraded
by any nationally recognized statistical rating organization, if then so rated,
(e) such merger, conversion, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the QUIPS (including any Successor Securities)
in any material respect, (f) such successor entity has a purpose substantially
identical to that of the Trust, (g) prior to such merger, conversion,
consolidation, amalgamation, replacement, conveyance, transfer or lease, the
Company has received an opinion from independent counsel to the Trust
experienced in such matters to the effect that (i) such merger, conversion,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
adversely affect the rights, preferences and privileges of the holders of the
QUIPS (including any Successor Securities) in any material respect, (ii)
following such merger, conversion, consolidation, amalgamation, replacement,
conveyance, transfer or lease, neither the Trust nor such successor entity will
be required to register as an investment company under the Investment Company
Act of 1940, as amended (the "Investment Company Act") and (iii) following
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such merger, conversion, consolidation, amalgamation, replacement, conveyance,
transfer or lease, the Trust or the successor entity will continue to be
classified as a grantor trust for United States Federal income tax purposes and
(h) the Company or any permitted successor or assignee owns all of the common
trust securities of such successor entity and guarantees the obligations of such
successor entity under the Successor Securities at least to the extent provided
by the Guarantee. Notwithstanding the foregoing, the Trust shall not, except
with the consent of holders of 100% in liquidation amount of the Trust
Securities, consolidate, amalgamate, merge or convert with or into, or be
replaced by or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to any other entity or permit any other
entity to consolidate, amalgamate, merge or convert with or into, or replace it
if such consolidation, amalgamation, merger, conversion, replacement,
conveyance, transfer or lease would cause the Trust or the successor entity to
be classified as an association taxable as a corporation or as other than a
grantor trust for United States Federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF THE DECLARATION
Except as provided below and under "-- Mergers, Conversions,
Consolidations, Amalgamations or Replacements of the Trust" above and
"-- Description of the Guarantee -- Amendments and Assignment" and as otherwise
required by law and the Declaration, the holders of the QUIPS will have no
voting rights.
The Declaration may be amended from time to time by the Company and the
Property Trustee, without the consent of the holders of the QUIPS, (a) to cure
any ambiguity, correct or supplement any provisions in the Declaration that may
be inconsistent with any other provision, or to make any other provisions with
respect to matters or questions arising under the Declaration, which shall not
be inconsistent with the other provisions of the Declaration, or (b) to modify,
eliminate or add to any provisions of the Declaration to such extent as shall be
necessary to ensure that the Trust will be classified for United States Federal
income tax purposes as a grantor trust or as other than an association taxable
as a corporation at all times that any Trust Securities are outstanding or to
ensure that the Trust will not be required to register as an "investment
company" under the Investment Company Act; provided, however, that in each case,
such action shall not adversely affect in any material respect the interests of
the holders of the Trust Securities. Any amendments of the Declaration pursuant
to the foregoing shall become effective when notice thereof is given to the
holders of the Trust Securities. The Declaration may be amended by the Issuer
Trustees and the Company (a) with the consent of holders of QUIPS (or Normal
Units) representing a majority (based upon QUIPS Liquidation Amount) of the
outstanding QUIPS and (b) upon receipt by the Property Trustee of an opinion of
counsel to the effect that such amendment or the exercise of any power granted
to the Issuer Trustees in accordance with such amendment will not cause the
Trust to be classified as an association taxable as a corporation or affect the
Trust's status as a grantor trust for United States Federal income tax purposes
or the Trust's exemption from status as an "investment company" under the
Investment Company Act, provided that, without the consent of each affected
holder of Trust Securities, the Declaration may not be amended to (i) change the
amount or timing of any Distribution or other payment on the Trust Securities
(including payment of the Applicable Put Price) or otherwise adversely affect
the amount of any Distribution or other payment (including payment of the
Applicable Put Price) required to be made in respect of the Trust Securities as
of a specified date or (ii) restrict the right of a holder of Trust Securities
to institute suit for the enforcement of any such payment on or after such date.
So long as any Junior Subordinated Debentures are held by the Property
Trustee, the Issuer Trustees shall not (a) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
exercising any trust or power conferred on the Debenture Trustee with respect to
the Junior Subordinated Debentures, (b) waive certain past defaults under the
Indenture, (c) exercise any right to rescind or annul a declaration of
acceleration of the maturity of the principal of the Junior Subordinated
Debentures or (d) consent to any
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amendment, modification or termination of the Indenture or the Junior
Subordinated Debentures, where such consent shall be required, without, in each
case, obtaining the prior approval of the holders of QUIPS (or Normal Units)
representing a majority in QUIPS Liquidation Amount of all outstanding QUIPS;
provided, however, that where a consent under the Indenture would require the
consent of each holder of Junior Subordinated Debentures affected thereby, no
such consent shall be given by the Property Trustee without the prior approval
of each holder of the QUIPS (or Normal Units). The Issuer Trustees shall not
revoke any action previously authorized or approved by a vote of the holders of
the QUIPS (or Normal Units) except by subsequent vote of such holders. The
Property Trustee shall notify each holder of QUIPS (or Normal Units) of any
notice of default with respect to the Junior Subordinated Debentures. In
addition to obtaining the foregoing approvals of such holders, prior to taking
any of the foregoing actions, the Issuer Trustees shall obtain an opinion of
counsel experienced in such matters to the effect that the Trust will not be
classified as an association taxable as a corporation or as other than a grantor
trust for United States income tax purposes on account of such action.
Any required approval of holders of QUIPS (or Normal Units) may be given at
a meeting of such holders convened for such purpose or pursuant to written
consent. The Property Trustee will cause a notice of any meeting at which
holders of QUIPS (or Normal Units) are entitled to vote, or of any matter upon
which action by written consent of such holders is to be taken, to be given to
each holder of record of QUIPS (or Normal Units) in the manner set forth in the
Declaration.
No vote or consent of the holders of QUIPS (or Normal Units) will be
required for the Trust to redeem and cancel the QUIPS in accordance with the
Declaration.
Notwithstanding that holders of the QUIPS (or Normal Units) are entitled to
vote or consent under any of the circumstances described above, any of the QUIPS
(or Normal Units) that are owned by the Company or any affiliate of the Company
shall, for purposes of such vote or consent, be treated as if they were not
outstanding.
FORM AND BOOK ENTRY PROCEDURES
As long as the QUIPS constitute Pledged Securities, the QUIPS will be
represented by a single certificate and held for the benefit of the holders of
the Normal Units. If the QUIPS cease to constitute Pledged Securities, the QUIPS
may be represented by one or more QUIPS in registered, global form registered in
the name of the Depositary or its nominee. The depositary arrangements for the
QUIPS are expected to be substantially similar to those in effect for the Units.
For a description of the Depositary and the terms of the depositary
arrangements, see "-- Book Entry System".
PAYMENT AND PAYING AGENCY
If the QUIPS cease to constitute Pledged Securities, payments in respect of
the QUIPS held in global form shall be made to the Depositary, which shall
credit the relevant accounts at the Depositary on the applicable Distribution
Dates or in respect of the QUIPS that are not held by the Depositary, such
payments shall be made by check mailed to the address of the holder entitled
thereto as such address shall appear on the register. The paying agent (the
"Paying Agent") shall initially be the Property Trustee and any additional
paying agent chosen by the Property Trustee and acceptable to the Company. The
Paying Agent shall be permitted to resign as Paying Agent upon 30 days' written
notice to the Property Trustee (if not Paying Agent) and the Administrators. In
the event that the Property Trustee shall no longer be the Paying Agent, the
Administrators shall appoint a successor (which shall be a bank or trust company
acceptable to the Administrators and the Company) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the
QUIPS.
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Registration of transfers of the QUIPS will be effected without charge by
or on behalf of the Trust but upon payment of any tax or other governmental
charges that may be imposed in connection with any transfer or exchange. The
Trust will not be required to register or cause to be registered the transfer of
any QUIPS after they have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of
an Event of Default, undertakes to perform only such duties as are specifically
set forth in the Declaration and, after such Event of Default, must exercise the
same degree of care and skill as a prudent person would exercise or use in the
conduct of his or her affairs. Subject to this provision, the Property Trustee
is under no obligation to exercise any of the powers vested in it by the
Declaration at the request of any holder of Trust Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby. The Property Trustee is not required to expend or
risk its own funds or otherwise incur personal financial liability in the
performance of its duties if repayment or adequate indemnity is not reasonably
assured to the Property Trustee.
MISCELLANEOUS
The Administrators are authorized and directed to conduct the affairs of
and to operate the Trust in such a way that the Trust will not be deemed to be
an "investment company" required to be registered under the Investment Company
Act or classified as an association taxable as a corporation or as other than a
grantor trust for United States Federal income tax purposes and so that the
Junior Subordinated Debentures will be treated as indebtedness of the Company
for United States Federal income tax purposes. In this connection, the Company
and the Administrators are authorized to take any action, not inconsistent with
applicable law, the certificate of trust of the Trust or the Declaration, that
the Company and the Administrators determine in their discretion to be necessary
or desirable for such purposes, as long as such action does not materially
adversely affect the interests of the holders of the Trust Securities.
Holders of the Trust Securities have no preemptive or similar rights.
The Trust may not borrow money, issue debt, execute mortgages or pledge any
of its assets.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
GENERAL
The Junior Subordinated Debentures are to be issued under the Indenture.
Chase Manhattan Bank and Trust Company, National Association will initially act
as Debenture Trustee under the Indenture. The Indenture will be qualified under
the Trust Indenture Act.
The Junior Subordinated Debentures will mature on the QUIPS and Debenture
Maturity Date of , 2003. The Junior Subordinated Debentures will
not be redeemable at the option of the Company prior to the QUIPS and Debenture
Maturity Date.
The Junior Subordinated Debentures will bear interest from their first date
of issuance at a rate that is equal to the QUIPS Distribution Rate payable
quarterly in arrears on the Quarterly Payment Dates (each, an "Interest Payment
Date"), to the holders of the Junior Subordinated Debenture on the relevant
record dates, which, unless the Junior Subordinated Debentures are distributed
upon liquidation of the Trust and are issued in certificated form, will be one
Business Day prior to the relevant Interest Payment Date. Until the liquidation,
if any, of the Trust, each Junior Subordinated Debenture will be held in the
name of the Property Trustee in trust for the benefit of the holders of the
Trust Securities. The amount of interest payable for any period will be computed
on the basis of a 360-day year of twelve 30-day months. In the event that any
date on which interest is payable on the Junior Subordinated Debentures is not a
Business Day, then payment of the interest payable on such date will be made on
the next succeeding day that is a Business Day (and without any interest
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or other payment in respect of any such delay), except that if such Business Day
is in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on the date such payment was originally payable. The term "interest",
as used in this Description of the Junior Subordinated Debentures, shall include
any Additional Sums (as defined herein) payable on the Junior Subordinated
Debentures.
The Junior Subordinated Debentures will be unsecured and subordinate and
rank junior in right of payment to the extent and in the manner set forth in the
Indenture to all Senior Indebtedness of the Company. See "-- Subordination"
below.
OPTION TO EXTEND INTEREST PAYMENT DATE
So long as no Debenture Event of Default has occurred and is continuing,
the Company will have the right under the Indenture at any time during the term
of the Junior Subordinated Debentures to defer the payment of interest at any
time or from time to time for a period not extending beyond the QUIPS and
Debenture Maturity Date. At the end of an Extension Period, the Company must pay
all interest then accrued and unpaid (together with interest thereon accrued at
the Deferral Rate, compounded on each succeeding Interest Payment Date). During
an Extension Period, interest will continue to accrue and, if the Junior
Subordinated Debentures have been distributed to holders of the Trust
Securities, holders of Junior Subordinated Debentures (or holders of the Trust
Securities while Trust Securities are outstanding) will be required to accrue
interest income for United States Federal income tax purposes prior to the
receipt of cash attributable to such income. See "Certain Federal Income Tax
Consequences -- Interest Received on the QUIPS".
During any such Extension Period, the Company may not take any of the
prohibited actions described in the first paragraph under "-- Certain Covenants
of the Company".
Prior to the expiration of any such Extension Period, the Company may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to extend beyond the QUIPS and Debenture Maturity
Date. Upon the termination of any such Extension Period and the payment of all
amounts then due on any Interest Payment Date, the Company may elect to begin a
new Extension Period, subject to the above requirements. No interest shall be
due and payable during an Extension Period, except at the end thereof. The
Company must give the Property Trustee, the Administrators and the Debenture
Trustee written notice of its election of any Extension Period (or an extension
thereof) at least five Business Days prior to the earlier of (a) the date the
Distributions on the Trust Securities would have been payable except for the
election to begin or extend such Extension Period, (b) the date the Trust is
required to give notice to any securities exchange or to holders of QUIPS of the
record date or the date such Distributions are payable and (c) such record date.
The Debenture Trustee shall give notice of the Company's election to begin or
extend an Extension Period to the holders of the QUIPS. There is no limitation
on the number of times that the Company may elect to begin an Extension Period.
ADDITIONAL SUMS
If the Trust is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, the Company will pay as
additional amounts on the Junior Subordinated Debentures the Additional Sums.
"Additional Sums" means such additional amounts as may be necessary in
order that the amount of Distributions then due and payable by the Trust on the
outstanding QUIPS and Common Trust Securities shall not be reduced as a result
of any additional taxes, duties or other governmental charges to which the Trust
has become subject as a result of a Tax Event.
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A "Tax Event" means the receipt by the Company and the Trust of an opinion
of a nationally recognized tax counsel experienced in such matters to the effect
that, as a result of any amendment to, or change (including any announced
prospective change) in, the laws or any regulations thereunder of the United
States or any political subdivision or taxing authority thereof or therein, or
as a result of any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which (a) amendment or change
is effective or (b) such pronouncement or decision is announced, on or after the
date of original issuance of the Junior Subordinated Debentures, there is more
than an insubstantial risk that (i) the Trust is, or will be within 90 days of
the date of such opinion, subject to United States Federal income tax with
respect to income received or accrued on the Junior Subordinated Debentures or
(ii) the Trust is, or will be within 90 days of the date of such opinion,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges.
In lieu of paying Additional Sums on the Junior Subordinated Debentures the
Company may dissolve the Trust and cause the Junior Subordinated Debentures to
be distributed to the holders of the Trust Securities in liquidation of the
Trust. See "-- Description of the QUIPS -- Liquidation of the Trust and
Distribution of Junior Subordinated Debentures".
JUNIOR SUBORDINATED DEBENTURE PUT OPTIONS
Each holder of Junior Subordinated Debentures will have the right (a
"Junior Subordinated Debenture Put Option") to require the Company to repurchase
such Junior Subordinated Debentures, in whole or in part, on either Put Date,
for a purchase price equal to the Applicable Put Price for such Junior
Subordinated Debentures. The Trust will covenant in the Declaration that it will
not exercise any Junior Subordinated Debenture Put Option (although it may
distribute Junior Subordinated Debentures to a Put Agent in connection with the
exercise by a holder of QUIPS or the Put Agent on behalf of such holder of such
holder's right to require the Trust to do so, as contemplated under
"-- Description of the QUIPS -- Right to Exercise Junior Subordinated Debenture
Put Options" above).
Each holder of Junior Subordinated Debentures or the Put Agent on behalf of
such holder may exercise the Junior Subordinated Debenture Put Option related to
such securities by presenting and surrendering the certificate evidencing such
securities, at the offices of the Debenture Trustee, with the form of "Notice of
Exercise of Put Right" on the reverse side of the certificate completed and
executed as indicated, by 10:00 a.m., New York City time, on the applicable Put
Date.
"Applicable Put Price" for any Junior Subordinated Debentures will be:
(a) if the Put Date is the Stock Purchase Date, the aggregate
principal amount of such Junior Subordinated Debentures plus unpaid
interest accrued thereon to but not including the Put Date; or
(b) if the Put Date is the Final Put Date, (i) the Effective Call
Option Price for such Junior Subordinated Debentures plus interest thereon
for the period from and including the Call Option Expiration Date to but
excluding the Put Date at a floating rate per annum equal to the Applicable
Three-Month LIBOR Rate (as defined in the Indenture) as in effect from time
to time during such period plus basis points (compounded on the Stock
Purchase Date), minus (ii) the aggregate amount of interest paid on such
Junior Subordinated Debentures after the Call Option Expiration Date and on
or before the Final Put Date plus interest on each such interest payment
for the period from and including the date of receipt of such payment to
but excluding the Put Date at a rate per annum equal to the LIBOR Rate for
such period prevailing on such date of receipt.
For purposes of the foregoing:
"Effective Call Option Price" for any Junior Subordinated Debentures
means (a) the aggregate principal amount of such Junior Subordinated
Debentures plus 90 days of simple interest thereon at the QUIPS
Distribution Rate, all discounted to present value at the Call Option
Expiration Date at a discount rate equal to the 3-Month Treasury Rate (as
defined in the
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Indenture) prevailing on the Call Option Expiration Date (i.e., divided by
one plus such 3-Month Treasury Rate (expressed as a decimal between 0 and
1)) plus (b) the aggregate amount of deferred interest payments on such
Junior Subordinated Debentures accrued to but not including the Call Option
Expiration Date.
CERTAIN COVENANTS OF THE COMPANY
The Company will covenant that it will not (a) declare or pay any dividends
or distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock, (b) make any payment of
principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities of the Company that rank pari passu with or junior in right of
payment to the Junior Subordinated Debentures or (c) make any guarantee payments
with respect to any guarantee by the Company of any securities of any subsidiary
of the Company if such guarantee ranks pari passu or junior in right of payment
to the Junior Subordinated Debentures (other than, in the case of clauses (a),
(b) and (c), (i) dividends or distributions in shares of, or options, warrants
or rights to subscribe for or purchase shares of, common stock of the Company,
(ii) any declaration of a dividend in connection with the implementation of a
stockholder's rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto,
(iii) payments under the Guarantee, (iv) as a result of a reclassification of
the Company's capital stock solely into shares of one or more classes or series
of the Company's capital stock or the exchange or conversion of one class or
series of the Company's capital stock for another class or series of the
Company's capital stock, (v) the purchase of fractional interests in shares of
the Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged and (vi)
purchases of common stock in connection with the satisfaction by the Company of
its obligations under any of the Company's benefit plans for its and its
subsidiaries' directors, officers or employees or any of the Company's dividend
reinvestment plans) if at such time (x) a Debenture Event of Default shall have
occurred and be continuing, (y) the Company shall be in default with respect to
its payment of any obligations under the Guarantee or (z) the Company shall have
given notice of its election of an Extension Period, or any extension thereof,
as provided in the Indenture and shall not have rescinded such notice, and such
Extension Period, or any extension thereof, shall have commenced and not yet
terminated.
The Company will also covenant (a) to maintain 100 percent ownership of the
Common Trust Securities; provided, however, that any permitted successor of the
Company under the Indenture may succeed to the Company's ownership of the Common
Trust Securities, (b) to use its reasonable efforts to cause the Trust (i) to
remain a statutory business trust, except in connection with the distribution of
Junior Subordinated Debentures to the holders of Trust Securities in liquidation
of the Trust, the redemption of all of the Trust Securities of the Trust, or
certain mergers, consolidations or amalgamations, each as permitted by the
Declaration of the Trust and (ii) to continue not to be classified as an
association taxable as a corporation or a partnership for United States Federal
income tax purposes and (c) to use its reasonable efforts to cause each holder
of Trust Securities (or, for so long as Trust Securities constitute Pledged
Securities, Units) to be treated as owning an undivided beneficial interest in
the Junior Subordinated Debentures.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Junior Subordinated Debentures constitutes a
"Debenture Event of Default"(whatever the reason for such Debenture Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(a) failure for 30 days to pay any interest on the Junior Subordinated
Debentures when due (subject to the deferral of any due date in the case of
an Extension Period); or
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(b) failure to pay any principal on the Junior Subordinated Debentures
when due whether at maturity, by declaration of acceleration of maturity or
otherwise; or
(c) failure to pay the Applicable Put Price when due upon exercise of
a Junior Subordinated Debenture Put Option; or
(d) failure to observe or perform in any material respect certain
other covenants contained in the Indenture for 90 days after written notice
to the Company from the Debenture Trustee or the holders of at least 25% in
aggregate outstanding principal amount of Junior Subordinated Debentures;
or
(e) certain events of bankruptcy, insolvency or reorganization of the
Company.
Prior to any declaration accelerating the maturity of the Junior
Subordinated Debentures, the holders of a majority in aggregate outstanding
principal amount of the Junior Subordinated Debentures have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Debenture Trustee. The Debenture Trustee or the holders of not less than
25% in aggregate outstanding principal amount of the Junior Subordinated
Debentures may declare the principal due and payable immediately upon a
Debenture Event of Default. The holders of a majority in aggregate outstanding
principal amount of the Junior Subordinated Debentures may annul such
declaration and waive the default if the default (other than the nonpayment of
the principal of the Junior Subordinated Debentures which has become due solely
by such acceleration) has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee.
The holder or holders of a majority in aggregate outstanding principal
amount of the Junior Subordinated Debentures (which, prior to any liquidation or
dissolution of the Trust, will be the Property Trustee) affected thereby may, on
behalf of the holders of all the Junior Subordinated Debentures, waive any past
default except a default in the payment of principal, premium, if any, interest
or Applicable Put Price in respect of Junior Subordinated Debentures (unless
such default has been cured and a sum sufficient to pay all matured installments
of interest and premium, if any, and principal (and any matured payments of
Applicable Put Price) due otherwise than by acceleration has been deposited with
the Debenture Trustee), or a default in respect of a covenant or provision which
under the Indenture cannot be modified or amended without the consent of the
holder of each outstanding Junior Subordinated Debenture.
The Indenture requires the annual filing by the Company with the Debenture
Trustee of a certificate as to the absence of certain defaults under the
Indenture.
The Indenture provides that the Debenture Trustee may withhold notice of a
Debenture Event of Default from the holders of the Junior Subordinated
Debentures (except a Debenture Event of Default in payment of principal,
premium, if any, interest or Applicable Put Price in respect of Junior
Subordinated Debentures) if the Debenture Trustee considers it in the interest
of such holders to do so.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF QUIPS
If a Debenture Event of Default shall have occurred and be continuing and
shall be attributable to the failure of the Company to pay interest or premium,
if any, on or principal of the Junior Subordinated Debentures on the due date
(after giving effect to any Extension Period), a holder of record of QUIPS (or,
for so long as QUIPS underlie Normal Units, a holder of record of Normal Units)
may institute a Direct Action. See "-- Description of the QUIPS -- Events of
Default; Notice". The Company may not amend the Indenture to remove the
foregoing right to bring a Direct Action without the prior written consent of
the holders of all of the QUIPS (or, for so long as QUIPS underlie Normal Units,
the holders of all the Normal Units).
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The holders of the QUIPS will not be able to exercise directly any
remedies, other than those set forth in the preceding paragraph, available to
the holders of the Junior Subordinated Debentures.
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the Company shall not consolidate with or merge
into any other Person or convey, transfer or lease its properties and assets as
an entirety or substantially as an entirety to any Person, and no Person shall
consolidate with or merge into the Company or convey, transfer or lease its
properties and assets as an entirety or substantially as an entirety to the
Company, unless: (i) in case the Company consolidates with or merges into
another Person or conveys or transfers its properties and assets substantially
as an entirety to any Person, the successor Person is organized under the laws
of the United States or any State or the District of Columbia, and such
successor Person expressly assumes the Company's obligations on the Junior
Subordinated Debentures; (ii) immediately after giving effect thereto, no
Debenture Event of Default, and no event which, after notice or lapse of time or
both, would become a Debenture Event of Default, shall have occurred and be
continuing; and (iii) certain other conditions as prescribed in the Indenture
are met.
The general provisions of the Indenture do not afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving the Company that may adversely affect holders of the
Junior Subordinated Debentures.
MODIFICATION OF THE INDENTURE
From time to time the Company and the Debenture Trustee may, without the
consent of the holders of Junior Subordinated Debentures, amend, waive or
supplement the Indenture for specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies (provided that any such action
does not materially adversely affect the interest of the holders of Junior
Subordinated Debentures). The Indenture contains provisions permitting the
Company and the Debenture Trustee, with the consent of the holders of a majority
in principal amount of the Junior Subordinated Debentures, to modify the
Indenture in a manner affecting the rights of the holders of Junior Subordinated
Debentures; provided that no such modification may, without the consent of the
holders of each outstanding Junior Subordinated Debenture so affected, (a)
change the QUIPS and Debenture Maturity Date, or reduce the principal amount of
the Junior Subordinated Debentures or reduce the rate or extend the time of
payment of interest thereon (other than a permitted deferral of interest during
an extension period), (b) change any of the terms or conditions of the Junior
Subordinated Debenture Put Options or the Applicable Put Price, or (c) reduce
the percentage of principal amount of Junior Subordinated Debentures the holders
of which are required to consent to any such modification of the Indenture.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Junior
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation (a) have become due and payable or (b) will become due and payable
at maturity within one year and the Company deposits or causes to be deposited
with the Debenture Trustee funds, in trust, for the purpose and in an amount
sufficient to pay and discharge the entire indebtedness on the Junior
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation, for the principal and interest to the QUIPS and Debenture Maturity
Date, then the Indenture will cease to be of further effect (except as to the
Company's obligations to pay all other sums due pursuant to the Indenture and to
provide the officers' certificates and opinions of counsel described therein),
and the Company will be deemed to have satisfied and discharged the Indenture.
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SUBORDINATION
The obligations of the Company under the Junior Subordinated Debentures
will be unsecured and subordinate and rank junior in right of payment to all
present and future Senior Indebtedness to the extent provided in the Indenture.
Upon any payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Company, the holders of Senior Indebtedness will
first be entitled to receive payment in full of all Senior Indebtedness before
the holders of Junior Subordinated Debentures will be entitled to receive or
retain any payment in respect thereof.
No payments on account of principal of, premium, if any, or interest on the
Junior Subordinated Debentures (including payments on exercise of Junior
Subordinated Debenture Put Options) may be made if there shall have occurred and
be continuing a default in any payment with respect to Senior Indebtedness, or
an event of default with respect to any Senior Indebtedness resulting in the
acceleration of the maturity thereof, or if any judicial proceeding shall be
pending with respect to any such default.
In the event of the acceleration of the maturity of Junior Subordinated
Debentures, the holders of all Senior Indebtedness outstanding at the time of
such acceleration will first be entitled to receive payment in full of all
amounts due in respect of such Senior Indebtedness before the holders of Junior
Subordinated Debentures will be entitled to receive or retain any payment in
respect of the Junior Subordinated Debentures.
Notwithstanding the foregoing, amounts that would be due and payable by the
Company to holders of Units in the absence of the foregoing subordination
provisions may be applied by such holders to offset their obligations under
their respective Purchase Contracts.
"Senior Indebtedness" shall mean, with respect to the Company, (a) the
principal, premium, if any, and interest in respect of (i) indebtedness of the
Company for money borrowed and (ii) indebtedness evidenced by securities,
debentures, notes, bonds or other similar instruments issued by the Company,
including, without limitation, any current or future indebtedness under any
indenture (other than the Indenture) to which the Company is party, (b) all
capital lease obligations of the Company, (c) all obligations of the Company
issued or assumed as the deferred purchase price of property, all conditional
sale obligations of the Company and all obligations of the Company under any
title retention agreement (but excluding trade accounts payable arising in the
ordinary course of business), (d) all obligations of the Company for the
reimbursement on any letter of credit, any banker's acceptance, any security
purchase facility, any repurchase agreement or similar arrangement, any interest
rate swap, any other hedging arrangement, any obligation under options or any
similar credit or other transaction, (e) all obligations of the type referred to
in clauses (a) through (d) above of other persons for the payment of which the
Company is responsible or liable as obligor, guarantor or otherwise and (f) all
obligations of the type referred to in clauses (a) through (e) above of other
persons secured by any lien on any property or asset of the Company (whether or
not such obligation is assumed by the Company), except for (x) any indebtedness
between or among the Company or any affiliate of the Company, (y) any other debt
securities issued pursuant to the Indenture and guarantees in respect of those
debt securities and (z) any indebtedness that is by its terms subordinated to or
pari passu with the Junior Subordinated Debentures, including any junior
subordinated debt securities issued in the future with subordination terms
substantially similar to the Junior Subordinated Debentures. Senior Indebtedness
shall continue to be Senior Indebtedness and be entitled to the benefits of the
subordination provisions irrespective of any amendment, modification or waiver
of any term of such Senior Indebtedness.
The Junior Subordinated Debentures are effectively subordinated to all
existing and future liabilities of the Company's subsidiaries, except to the
extent the Company is a creditor of the subsidiary recognized as such.
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The Indenture places no limitation on the amount of Senior Indebtedness
that may be incurred by the Company. The Company expects from time to time to
incur indebtedness constituting Senior Indebtedness.
FORM AND BOOK ENTRY PROCEDURES
If the Junior Subordinated Debentures are distributed to the holders of the
Trust Securities and do not constitute Pledged Securities with respect to the
Units, the Junior Subordinated Debentures may be represented by one or more
global certificates registered in the name of the Depositary or its nominee. The
depositary arrangements for such Junior Subordinated Debentures are expected to
be substantially similar to those in effect for the Units. For a description of
the Depositary and the terms of the depositary arrangements, see "-- Book Entry
System".
PAYMENT AND PAYING AGENTS
Payment of principal of and premium, if any, and any interest on Junior
Subordinated Debentures will be made at the office of the Debenture Trustee in
The City of New York or at the office of such paying agent or paying agents as
the Company may designate from time to time, except that at the option of the
Company payment of any interest may be made (i) by check mailed to the address
of the Person entitled thereto as such address shall appear in the register for
Junior Subordinated Debentures or (ii) by transfer to an account maintained by
the Person entitled thereto as specified in such register, provided that proper
transfer instructions have been received by the relevant record date. Payment of
any interest on any Junior Subordinated Debenture will be made to the Person in
whose name such Junior Subordinated Debenture is registered at the close of
business on the record date for such interest, except in the case of defaulted
interest. The Company may at any time designate additional paying agents or
rescind the designation of any paying agent; however the Company will at all
times be required to maintain a paying agent in each place of payment for the
Junior Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any paying agent, or
then held by the Company in trust, for the payment of the principal of and
premium, if any, or interest on any Junior Subordinated Debenture (or the
Applicable Put Price therefor) and remaining unclaimed for two years after such
principal and premium, if any, or interest (or Applicable Put Price) has become
due and payable shall, at the request of the Company, be repaid to the Company
and the holder of such Junior Subordinated Debenture shall thereafter look, as a
general unsecured creditor, only to the Company for payment thereof.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by
and construed in accordance with the laws of the State of New York.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
Subject to such provisions, the Debenture Trustee is under no obligation to
exercise any of the powers vested in it by the Indenture at the request of any
holder of Junior Subordinated Debentures, unless offered reasonable indemnity by
such holder against the costs, expenses and liabilities which might be incurred
thereby. The Debenture Trustee is not required to expend or risk its own funds
or otherwise incur personal financial liability in the performance of its duties
if the Debenture Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
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DESCRIPTION OF THE GUARANTEE
GENERAL
The Guarantee will be executed and delivered by the Company concurrently
with the issuance by the Trust of the QUIPS for the benefit of the holders from
time to time of the QUIPS. Chase Manhattan Bank and Trust Company, National
Association will initially act as Guarantee Trustee under the Guarantee. The
Guarantee will be qualified under the Trust Indenture Act. The Guarantee Trustee
will hold the Guarantee for the benefit of the holders of the QUIPS.
The Company will irrevocably and unconditionally agree to pay in full on a
subordinated basis, to the extent set forth herein, the Guarantee Payments (as
defined herein) to the holders of the QUIPS, as and when due, regardless of any
defense, right of set-off or counterclaim that the Trust may have or assert
other than the defense of payment. The following payments with respect to the
QUIPS, to the extent not paid by or on behalf of the Trust (the "Guarantee
Payments"), will be subject to the Guarantee: (a) any accumulated and unpaid
Distributions required to be paid on QUIPS, to the extent the Trust has funds on
hand legally available therefor and (b) the Final Redemption Price with respect
to the QUIPS, to the extent that the Trust has funds on hand legally available
therefor. The Company's obligation to make a Guarantee Payment may be satisfied
by direct payment of the required amounts by the Company to the holders of the
QUIPS or by causing the Trust to pay such amounts to such holders.
The Guarantee will be unsecured and subordinate and rank junior in right of
payment to the extent and in the manner provided therein to all Senior
Indebtedness. See "-- Status" below.
The Guarantee, when taken together with the Company's obligations under the
Declaration, the Junior Subordinated Debentures and the Indenture, including its
obligations to pay costs, expenses, debt and liabilities of the Trust (other
than with respect to the Trust Securities), will provide in the aggregate, a
full, irrevocable and unconditional guarantee of all of the Trust's obligations
of payments due under the QUIPS. See "-- Relationship Among the QUIPS, the
Junior Subordinated Debentures and the Guarantee".
The Company also has agreed separately to irrevocably and unconditionally
guarantee the obligations of the Trust with respect to Common Trust Securities
issued by the Trust to the same extent as the Guarantee, except that upon an
Event of Default under the Declaration, holders of QUIPS shall have priority
over holders of Common Trust Securities with respect to Distributions and
payments on liquidation, redemption or otherwise.
STATUS
The Guarantee will be unsecured and subordinate and rank junior in right of
payment to all Senior Indebtedness to the extent and in the manner provided
therein, which is similar to extent and manner of subordination of the Junior
Subordinated Debentures as described under "-- Description of the Junior
Subordinated Debentures -- Subordination" above.
The Guarantee is effectively subordinated to all existing and future
liabilities of the Company's subsidiaries, except to the extent the Company is a
creditor of the subsidiary recognized as such.
The Guarantee will constitute a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Company to enforce its rights under the Guarantee without first instituting
a legal proceeding against any other person or entity). The Guarantee will be
held for the benefit of the holders of the QUIPS. The Guarantee will not be
discharged except by payment of the Guarantee Payments in full to the extent not
paid by the Trust or upon distribution to the holders of the QUIPS of the Junior
Subordinated Debentures. The Guarantee does not place a limitation on the amount
of Senior Indebtedness that may be incurred by the Company. The Company expects
from time to time to incur indebtedness constituting Senior Indebtedness.
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EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder. The
holders of a majority in QUIPS Liquidation Amount of the QUIPS will have the
right to (a) waive any past event of default under the Guarantee and its
consequences, whereby such event of default shall cease to exist and any event
of default under the Guarantee arising therefrom shall be deemed to have been
cured for every purpose of the Guarantee and (b) direct the time, method and
place of conducting any proceeding for any remedy available to the Guarantee
Trustee in respect of the Guarantee or to direct the exercise of any trust or
power conferred upon the Guarantee Trustee under the Guarantee.
Any holder of the QUIPS may institute a legal proceeding directly against
the Company to enforce its rights under the Guarantee without first instituting
a legal proceeding against the Trust, the Guarantee Trustee or any other person
or entity.
The Company, as guarantor, will be required to file annually with the
Guarantee Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Guarantee.
CERTAIN COVENANTS OF THE COMPANY
In the Guarantee, the Company will covenant that, so long as any QUIPS
remain outstanding, if there shall have occurred any event that is or would
constitute an event of default under the Guarantee, that is continuing, or the
Declaration, then the Company will not take any of the prohibited actions
described under "-- Description of the Junior Subordinated Debentures -- Certain
Covenants of the Company".
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of the QUIPS (in which case no approval will be required),
the Guarantee may not be amended without the prior approval of the holders of a
majority in QUIPS Liquidation Amount of such outstanding QUIPS. The manner of
obtaining any such approval will be as set forth under "-- Description of the
QUIPS -- Voting Rights; Amendment of the Declaration". All guarantees and
agreements contained in the Guarantee Agreement shall bind the successors,
assigns, receivers, trustees and representatives of the Company and shall inure
to the benefit of the holders of the QUIPS then outstanding.
TERMINATION
The Guarantee will terminate and be of no further force and effect upon
full payment of the Final Redemption Price of the QUIPS, upon full payment of
the amounts payable upon liquidation of the Trust or upon distribution of the
Junior Subordinated Debentures to the holders of the QUIPS or payment of the
Applicable Put Price in respect of the Junior Subordinated Debentures. The
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of the QUIPS must restore payment of any sums paid
under the QUIPS or the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee may be appointed or removed by the Guarantor without
cause at any time, except during an event of default under the Guarantee. The
Guarantee Trustee is under no obligation to exercise any of the powers vested in
it by the Guarantee at the request of any holder of QUIPS, unless offered
reasonable indemnity against the costs, expenses and liabilities which might be
incurred thereby. The Guarantee Trustee is not required to expend or risk its
own funds or otherwise incur personal financial liability in the performance of
its duties if it reasonably believes that repayment or adequate indemnity is not
reasonably assured to it.
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The Company or its affiliates maintain certain business relationships with
the Guarantee Trustee and its affiliates in the ordinary course of business.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
RELATIONSHIP AMONG THE QUIPS, THE JUNIOR SUBORDINATED DEBENTURES AND THE
GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the QUIPS (to the extent
the Trust has funds on hand legally available for the payment of such
Distributions) will be irrevocably guaranteed by the Company as and to the
extent set forth under "-- Description of the Guarantee". If and to the extent
that the Company does not make the required payments on the Junior Subordinated
Debentures, the Trust will not have sufficient funds to make the related
payments, including Distributions, on the QUIPS. The Guarantee will not cover
any such payment unless and until the Trust has sufficient funds for the payment
therefor. The Guarantee, when taken together with the Company's obligations
under the Junior Subordinated Debentures, the Indenture and the Declaration,
including its obligations to pay costs, expenses, debts and liabilities of the
Trust (other than with respect to the Trust Securities), will provide, in the
aggregate, a full, irrevocable and unconditional guarantee of payments of
Distributions and other amounts due on the QUIPS. The obligations of the Company
under the Guarantee will be unsecured and subordinate and rank junior in right
of payment to all Senior Indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the QUIPS, primarily because: (a) the
aggregate principal amount of the Junior Subordinated Debentures will be equal
to the aggregate liquidation amount of the QUIPS and Common Trust Securities;
(b) the interest rate and interest and other payment dates on the Junior
Subordinated Debentures will match the QUIPS Distribution Rate and Distribution
and other payment dates for the Trust Securities; (c) the Company shall pay for
all and any costs, expenses and liabilities of the Trust except the Trust's
obligations to holders of Trust Securities under such Trust Securities; and (d)
the Declaration will provide that the Trust is not authorized to engage in any
activity that is not consistent with the limited purposes thereof.
ENFORCEMENT OF RIGHTS OF HOLDERS OF QUIPS
If the Company fails to make interest or other payments on the Junior
Subordinated Debentures when due (after giving effect to any Extension Period),
the Declaration provides a mechanism whereby the holders of the QUIPS (or, for
so long as QUIPS underlie Normal Units, the holders of the Normal Units) may
direct the Property Trustee to enforce its rights under the Junior Subordinated
Debentures. If the Property Trustee fails to enforce its rights under the Junior
Subordinated Debentures after a majority in liquidation amount of QUIPS have so
directed the Property Trustee, a holder of record of the QUIPS (or, for so long
as QUIPS underlie Normal Units, a holder of record of Normal Units) may, to the
fullest extent permitted by law, institute a legal proceeding against the
Company to enforce the Property Trustee's rights under the Junior Subordinated
Debentures without first instituting any legal proceedings against the Property
Trustee or any other person or entity. Notwithstanding the foregoing, if an
Event of Default has occurred and is continuing and such event is attributable
to the failure of the Company to pay principal or interest on the Junior
Subordinated Debentures on the respective dates such principal or interest is
payable, after giving effect to any Extension Period, then a holder of record of
QUIPS (or, for so long as QUIPS underlie
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Normal Units, a holder of record of Normal Units) may institute a Direct Action
for payment to such holder of the portion of such principal or interest
attributable to Junior Subordinated Debentures having a principal amount equal
to the aggregate QUIPS Liquidation Amount of the QUIPS held by such holder (or
underlying such holder's Normal Units). In connection with such Direct Action,
the Company will be subrogated to the rights of such holder of QUIPS (or Normal
Units) under the Declaration to the extent of any payment made by the Company to
such holder of QUIPS (or Normal Units) in such Direct Action; provided, however,
that no such subrogation right may be exercised so long as an Event of Default
has occurred and is continuing.
In addition, a holder of QUIPS may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the Trust or any
other person or entity.
A default or event of default under any Senior Indebtedness would not
constitute a default or Event of Default under the Declaration. However, in the
event of payment defaults under, or acceleration of, Senior Indebtedness, the
subordination provisions of the Indenture will provide that no payments may be
made in respect of the Junior Subordinated Debentures until such Senior
Indebtedness has been paid in full or any payment default thereunder has been
cured or waived. Failure to make required payments on Junior Subordinated
Debentures would constitute an Event of Default under the Declaration.
LIMITED PURPOSE OF THE TRUST
The QUIPS will represent preferred undivided beneficial interests in the
assets of the Trust, and the Trust exists for the sole purpose of issuing and
selling the Trust Securities, using the proceeds from the sale of the Trust
Securities to acquire the Junior Subordinated Debentures and engaging in only
those other activities necessary or incidental thereto.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary liquidation or bankruptcy of the Company,
the Property Trustee, as holder of the Junior Subordinated Debentures, would be
a subordinated creditor of the Company, subordinated in right of payment to all
Senior Indebtedness as set forth in the Indenture, but entitled to receive
payment in full of principal (and premium, if any) and interest, before any
stockholders of the Company receive payments or distributions. Since the Company
will be the guarantor under the Guarantee and will agree to pay for all costs,
expenses and liabilities of the Trust (other than the Trust's obligations to the
holders of its Trust Securities), the positions of a holder of QUIPS and a
holder of Junior Subordinated Debentures relative to other creditors and to
stockholders of the Company in the event of liquidation or bankruptcy of the
Company are expected to be substantially the same.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of the principal U.S. federal income tax consequences
of the purchase, ownership and disposition of Units, QUIPS, Treasury Securities
and Common Stock is based on the views of Thompson & Knight, P.C., counsel to
the Company. No statutory, judicial or administrative authority directly
addresses the tax treatment of Units or instruments similar to Units for U.S.
federal income tax purposes. As a result, no assurance can be given that the
Internal Revenue Service (the "IRS") will agree with the tax consequences
described herein or that these consequences will not be successfully challenged.
ACCORDINGLY, PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX ADVISORS CONCERNING
THE TAX CONSEQUENCES OF AN INVESTMENT IN THE UNITS.
The summary deals only with Units, QUIPS, Treasury Securities and Common
Stock held as capital assets by purchasers who purchase in conjunction with the
initial offering at the issue price and who or which are (i) citizens or
residents of the United States, (ii) corporations or partnerships created or
organized in or under the laws of the United States or any state thereof or the
District of Columbia, (iii) estates the income of which is subject to United
States federal income taxation without regard to source, or (iv) trusts if a
court within the United States is able to exercise primary supervision over the
administration of such trust and one or more United States persons have the
authority to control all substantial decisions of such trust. It does not
address consequences to special classes of holders, including dealers in
securities or currencies, financial institutions, insurance companies,
tax-exempt entities, taxpayers subject to the alternative minimum tax, non-
United States persons or taxpayers holding the Purchase Contracts, QUIPS,
Treasury Securities or Common Stock as part of a "straddle" or a hedging or
conversion transaction or other integrated investment. Moreover, the effect of
any applicable estate and gift tax laws or state, local or foreign tax laws is
not discussed. ACCORDINGLY, PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX
ADVISORS CONCERNING THE TAX CONSEQUENCES OF AN INVESTMENT IN THE UNITS,
INCLUDING THE APPLICATION OF STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
This summary is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury regulations issued thereunder, published rulings and
court decisions, each as currently in effect and all of which are subject to
change. Any such changes may be applied retroactively in a manner that could
cause the tax consequences to vary substantially from the consequences described
below, possibly adversely affecting a holder of Units, QUIPS, Treasury
Securities or Common Stock.
This discussion assumes that, in connection with the formation of the
Units, the Underwriters will be acting on behalf of the holders and will (a)
sell the Call Options to the Call Option Holder and apply the proceeds from such
sale (the "Call Premium", which term includes the proceeds received in respect
of each of a holder's Units or the proceeds received in respect of all of a
holder's Units as the context may require) together with the amount paid
directly by the holders to the Underwriters (the "Purchase Price", which term
includes the amount paid in respect of each of a holder's Units or the amount
paid in respect of all of a holder's Units as the context may require) to the
purchase of the QUIPS and (b) enter into the Purchase Contracts with the Company
and that holders will assume the rights and obligations arising from these
actions undertaken on their behalf.
CLASSIFICATION OF THE TRUST
The Trust will, for U.S. federal income tax purposes, not be classified as
an association taxable as a corporation. As a result, each holder of QUIPS will
be required to include in gross income the items of income realized with respect
to the holder's allocable share of the Junior Subordinated Debentures.
TREATMENT OF THE CALL PREMIUM
A holder will not be subject to tax in respect of the receipt of the Call
Premium at the time the Call Premium is received. Rather, the amount of the Call
Premium will be included in the amount
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realized by a holder when the Call Options are exercised (see "-- Exercise of
the Call Options and Ownership of Treasury Securities," below) or in the case of
Normal Units sold prior to the exercise or expiration of the Call Options, when
such Normal Units are sold (see "-- Sale or Disposition of Units," below). If
the Call Options expire unexercised, the amount of the Call Premium will be
taxable to the holder as short-term capital gain. Such short-term capital gain
may, subject to certain limitations, be offset, however, by long-term capital
loss recognized on maturity of the QUIPS (see "-- Sale or Retirement of the
QUIPS or Junior Subordinated Debentures," below), or effectively offset by prior
amortization of premium on the QUIPS. (See "-- Tax Basis of QUIPS," below).
TAX BASIS OF QUIPS
The amount paid by a holder for a Unit, which, for U.S. federal income tax
purposes, will equal the sum of the Purchase Price plus the amount of the Call
Premium received by such holder and paid to the Company in partial payment of
the Units, will be allocated between the QUIPS and the Purchase Contract
included in such Unit in proportion to their respective fair market values at
the time of purchase. Such allocation will establish each holder's initial tax
basis in the QUIPS and the Purchase Contracts. Consistent with the
documentation, and reasonably consistent with the facts and circumstances, the
Company intends to take the position that, at the time of issuance of the Units,
the fair market value of the Purchase Contracts equals zero, and the entire
amount paid for the Units, including the Call Premium, is allocable to the
QUIPS. The Company's position will be binding upon each holder unless the holder
explicitly discloses a contrary position on a statement attached to the holder's
timely filed U.S. federal income tax return for the taxable year in which the
Units are acquired by such holder.
Assuming the above allocation, the holder's basis in the QUIPS (and in the
undivided beneficial interest in the Junior Subordinated Debentures represented
by the QUIPS) will exceed the amount payable at maturity with respect to the
QUIPS by the amount of the Call Premium. In general, this excess amount will be
"bond premium," which, at the election of the holder, may be "amortized" over
the life of the QUIPS. Because of the existence of the Call Options and the
Junior Subordinated Debenture Put Options, however, there may be some
uncertainty regarding the exact amount of bond premium and the period over which
such premium may be amortized. As a result, holders who wish to make an election
to amortize bond premium should consult their tax advisors.
A holder who makes an election to amortize bond premium will reduce the
amount of interest included in income each year with respect to the QUIPS by the
amount of amortizable bond premium allocable to such year under currently
applicable Treasury regulations, and the holder's basis in the QUIPS will be
reduced by the same amount. As a result of such reduction in basis, such a
holder may recognize a corresponding amount of capital gain, if and when the
Call Option is exercised, equal to the excess of the amount realized from the
sale of the QUIPS over the basis of the QUIPS. See "-- Exercise of the Call
Option and Ownership of Treasury Securities," below. Holders should consult a
tax advisor before making an election to amortize bond premium, as the election
will generally apply to other debt instruments acquired at a premium by a
holder.
INTEREST RECEIVED ON QUIPS
Under applicable Treasury regulations, stated interest on a debt instrument
is generally not "qualified stated interest" and, therefore, will give rise to
OID unless such interest is unconditionally payable in cash or in property
(other than debt instruments of the issuer) at least annually at a single fixed
rate. Interest is considered to be unconditionally payable only if reasonable
legal remedies exist to compel timely payment or the debt instrument otherwise
provides terms and conditions that make the likelihood of late payment or
non-payment "remote."
The Company has the right, at any time and from time to time during the
term of the Junior Subordinated Debentures, to defer payments of interest by
extending the interest payment period, provided that no Extension Period may
extend beyond the QUIPS and Debenture Maturity Date.
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During any Extension Period, the Company may not take any of the prohibited
actions set forth under "Description of the Units -- Description of the Junior
Subordinated Debentures -- Certain Covenants of the Company." The Company
currently believes that the adverse impact that the imposition of such
restrictions would have on the Company and on the value of its equity securities
makes the likelihood of its exercising its right to defer payments of interest
on the Junior Subordinated Debentures remote. Based on the foregoing, the
Company believes that the Junior Subordinated Debentures should not be
considered to have been issued with OID, and, accordingly, a holder should
include in gross income such holder's allocable share of interest on the Junior
Subordinated Debentures as it is paid or accrued, in accordance with the
holder's method of tax accounting.
If the Company were to exercise its right to defer payments of interest on
the Junior Subordinated Debentures, the Junior Subordinated Debentures would be
treated, solely for purposes of the OID rules, as being re-issued at such time
with OID and the Junior Subordinated Debentures would be considered to have OID
at all times thereafter. Under these rules, a holder of QUIPS would be required
to include OID in income as ordinary income, on a current basis, over the period
that the QUIPS were held, even though the Company would not make any actual cash
payments during the Extension Period. The amount of OID includable in the
taxable income of a holder of QUIPS would be determined on the basis of a
constant yield method over the remaining term of the instruments, and the actual
payment of stated interest on the Junior Subordinated Debentures would not be
separately reported as taxable income. Any OID included in income would increase
such holder's tax basis in the QUIPS, and actual payments would reduce such tax
basis.
Because income with respect to the QUIPS will constitute interest for U.S.
federal income tax purposes, corporate holders of Units will not be entitled to
a dividends-received deduction in respect of such income.
CONTRACT FEES
The holders of Units may be required to pay Contract Fees to the Company,
or the Company may be required to pay Contract Fees to the holders of the Units,
as specified under "Description of the Units -- General" above.
There is no authority for the treatment of the Contract Fees under current
law. In the event that the Company is required to pay Contract Fees to holders,
the Company intends to file information returns on the basis that the Contract
Fees are ordinary income to holders for the taxable year of receipt. Because any
Contract Fees received by a holder will not constitute dividends for U.S.
federal income tax purposes, corporate holders will not be entitled to a
dividends-received deduction as a result of receiving such fees. Holders should
consult their own tax advisors concerning the treatment of the Contract Fees,
including the possibility that the Contract Fees may not be treated as current
income to holders, but would instead reduce a holder's basis in the Common Stock
received upon exercise of the Purchase Contracts, by analogy to the treatment of
rebates. In the event the Company is required to pay Contract Fees to holders,
the Company does not intend to deduct the Contract Fees, because it views them
as a cost of issuing the Common Stock. Contract Fees received by a regulated
investment company should be treated as income derived with respect to the
company's business of investing in stock and securities.
In the event that holders are required to pay Contract Fees to the Company,
it is unlikely that holders will be entitled to a current deduction in respect
of such payments. As a result, although the amount of cash distributions made to
holders in respect of the QUIPS or other Pledged Securities will be reduced by
the amount of Contract Fees payable to the Company, holders (including holders
of Stripped Units) will nevertheless recognize ordinary income each quarter
equal to the full amount of interest received or accrued with respect to the
QUIPS or other Pledged Securities held by such holder, without a corresponding
deduction for payment of the Contract Fees. Payment of the Contract Fees by
holders will, however, effectively increase the basis of the Common Stock
received
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under the Purchase Contract. See "-- Purchase of Common Stock under the Purchase
Contract," below.
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES UPON LIQUIDATION OF THE TRUST
If the Company exercises its right to liquidate the Trust and cause the
Junior Subordinated Debentures to be distributed, on a pro rata basis, to
holders of QUIPS (or to the Collateral Agent on behalf of such holders), such
distribution, under current law, would not be taxable to such holders and each
holder's aggregate tax basis in the Junior Subordinated Debentures would be
equal to such holder's aggregate tax basis in the QUIPS. A holder's holding
period for the Junior Subordinated Debentures would include the period during
which the QUIPS were held by such holder.
EXERCISE OF THE CALL OPTIONS
Exercise of the Call Options will be a taxable event to holders of the
QUIPS (including holders of Normal Units). As a result, such holders will
recognize gain or loss equal to the difference between the amount realized from
the exercise of the Call Options (less any amount attributable to accrued but
unpaid interest) and the adjusted tax basis of the QUIPS. The amount realized
from the exercise of the Call Options will equal the aggregate of the Call
Premium and the fair market value of the Treasury Securities received.
Assuming, however, that (a) the entire purchase price of a Unit is properly
allocated to the QUIPS (see "-- Tax Basis of QUIPS" above), (b) the Purchase
Price is equal to both the principal amount of the QUIPS and the principal
amount of the Treasury Securities received by the holder, and (c) the holder has
not elected to amortize bond premium with respect to the QUIPS (see "-- Tax
Basis of QUIPS" above), a holder generally will not recognize any significant
gain or loss as a result of the exercise of the Call Options, because the amount
realized upon exercise of the Call Options (which will include the Call Premium)
will be approximately equal to the holder's basis in the QUIPS (which will
likewise include the Call Premium). See "-- Tax Basis of QUIPS," above. Any net
gain or loss attributable to the difference between the fair market value of the
Treasury Securities and the principal amount of the QUIPS should in any event be
effectively offset by net gain or loss recognized upon maturity of the Treasury
Securities, as discussed below.
Any amount paid upon exercise of the Call Options attributable to accrued
but unpaid interest with respect to the QUIPS will be taxable as interest
income.
A holder who has made an election to amortize bond premium with respect to
the QUIPS will generally recognize gain upon sale of the QUIPS pursuant to
exercise of the Call Options in an amount equal to the excess of the amount
realized by the holder from the sale of the QUIPS over the holder's adjusted tax
basis in the QUIPS at such time. Except to the extent attributable to accrued
but unpaid interest, any such gain will be capital gain, and will be long-term
capital gain if the holder has held the QUIPS for more than one year at the time
of the disposition. Capital gain or loss will be taxed at a reduced rate for a
holder who is not a corporation and who holds the QUIPS for more than one year
and at a further reduced rate for a holder who is not a corporation and who
holds the QUIPS for more than 18 months.
OWNERSHIP OF TREASURY SECURITIES
A holder's initial basis in the Treasury Securities received as a result of
the exercise of the Call Options will be equal to the fair market value of such
Treasury Securities, determined as of the Call Settlement Date. In the case of a
holder of Stripped Units, such holder's initial basis in any Treasury Securities
purchased by such holder and deposited as Pledged Securities with the Collateral
Agent generally will equal the amount paid for such Treasury Securities by such
holder. Except to the extent any such Treasury Securities are "stripped" U.S.
Treasury securities ("Stripped Treasury Securities"), the treatment of which is
discussed in the immediately succeeding paragraph, (a) interest with respect to
a holder's portion of the Treasury Securities will be taxable as ordinary
67
<PAGE> 73
income to such holder as it is received or accrued, in accordance with such
holder's method of accounting for United States federal income tax purposes, and
(b) any gain realized by a holder at maturity of the Treasury Securities will
generally be treated as capital gain, unless the Treasury Securities are
considered to have more than a "de minimis" amount of market discount.
A holder will be required to treat a Stripped Treasury Security acquired by
such holder (including any Stripped Treasury Security received by a holder of
Normal Units as a result of the exercise of the Call Options) as a bond that was
originally issued on the date acquired by such holder. Stripped Treasury
Securities (other than Stripped Treasury Securities with a remaining term of one
year or less) will be considered to have OID in an amount equal to the
difference between the amount payable on such security and the holder's initial
basis in such security (determined as described in the immediately preceding
paragraph). As a result, a holder who acquires a Stripped Treasury Security
(other than a Stripped Treasury Security with a remaining term of one year or
less) will be required to include OID in income as ordinary income over the
remaining term of such security and will increase its basis in the Stripped
Treasury Security by the amount of OID included in income with respect to such
security.
Stripped Treasury Securities with a remaining term of one year or less
("Short-term Stripped Treasury Securities") generally should be considered to
have "acquisition discount" in an amount equal to the difference between the
principal amount of the Short-term Stripped Treasury Security and the taxpayer's
basis in the Short-term Stripped Treasury Security. A holder (other than a
holder on the accrual method of accounting or a holder who elects to accrue such
acquisition discount into income over the remaining term of the Short-term
Stripped Treasury Security) generally will recognize ordinary income upon
maturity of the Short-term Stripped Treasury Security equal to the amount of
such acquisition discount.
SALE OR DISPOSITION OF UNITS
A holder will generally recognize gain or loss upon the sale or other
disposition of Units. Such gain or loss will be separately calculated with
respect to the QUIPS, Junior Subordinated Debentures, or Treasury Securities, as
the case may be, and the related Purchase Contracts comprising such Units by
allocating the sum of any cash and the fair market value of any property
received between the two components in proportion to their respective fair
market values. The amount considered to be received by a holder of Normal Units
with respect to the sale of the QUIPS or Junior Subordinated Debentures
underlying such Normal Units will include the value of the assumption of the
holder's obligations under the Call Options, which, in the absence of any means
of independent valuation, will likely be deemed to equal the amount of the Call
Premium previously received by such holder. See "-- Treatment of the Call
Premium" above.
The amount of gain or loss with respect to each component will equal the
difference between the consideration so allocated to each component (reduced, in
the case of the QUIPS, Junior Subordinated Debentures or Treasury Securities, by
any amount attributable to accrued but unpaid interest, which will be taxable as
ordinary income) and the holder's adjusted tax basis in the respective
components. Any such gain or loss will be capital gain or loss and will be
long-term capital gain or loss if the holder held the respective components for
more than one year at the time of such sale or disposition. Capital gain or loss
will be taxed at a reduced rate for a holder who is not a corporation and who
holds the respective components for more than one year and at a further reduced
rate for a holder who is not a corporation and who holds the respective
components for more than 18 months.
In general, application of the principles set out above should effectively
cause holders of Normal Units to recognize gain or loss upon a sale or
disposition of such Normal Units prior to the exercise or expiration of the Call
Options in an amount equal to the difference between (a) the amount received
from the sale of the Normal Units and (b) the Purchase Price, increased by the
amount of any Contract Fees paid to the Company and any accrued but unpaid OID
on the QUIPS or Junior
68
<PAGE> 74
Subordinated Debentures and decreased by (i) the amount of any Contract Fees
received by the holder and not yet included in income and (ii) the amount of any
amortization of bond premium.
SALE OR RETIREMENT OF THE QUIPS OR JUNIOR SUBORDINATED DEBENTURES
If the Call Options are not exercised by the Call Option Holder, a holder
will recognize gain or loss on the sale or retirement of the QUIPS or Junior
Subordinated Debentures (including in either case a sale pursuant to the
exercise of a Junior Subordinated Debenture Put Option) in an amount equal to
the difference between the amount realized on the sale or retirement of the
QUIPS or Junior Subordinated Debentures (less any amount attributable to accrued
but unpaid interest, which will be taxable as ordinary income) and the holder's
adjusted tax basis in the QUIPS or Junior Subordinated Debentures at such time.
Any gain or loss will be capital gain or loss and will be long-term capital gain
or loss if the holder has held the QUIPS or Junior Subordinated Debentures for
more than one year at the time of the disposition. Capital gain or loss will be
taxed at a reduced rate for a holder who is not a corporation and who holds the
QUIPS or Junior Subordinated Debentures for more than one year and at a further
reduced rate for a holder who is not a corporation and who holds the QUIPS or
Junior Subordinated Debentures for more than 18 months.
PURCHASE OF COMMON STOCK UNDER THE PURCHASE CONTRACTS
Assuming that the initial basis of the Purchase Contracts will be zero (see
"-- Tax Basis in QUIPS," above), the tax basis of the Common Stock acquired
under a Purchase Contract will equal the amount of cash paid to purchase such
Common Stock (including cash applied by the Collateral Agent upon exercise of
the related Junior Subordinated Debenture Put Option or maturity of the related
Treasury Securities), increased by the amount of any Contract Fees paid by the
holder (as discussed above under "-- Contract Fees") and decreased by (a) the
amount of any Contract Fees received by the holder and not previously included
in income and (b) the amount of any cash received in lieu of fractional shares
of Common Stock. A holder will recognize capital gain or loss upon receipt of
cash in lieu of fractional shares of Common Stock equal to the difference
between the amount of cash received and the holder's basis in such fractional
shares. A holder's holding period in the Common Stock purchased pursuant to the
Purchase Contract will begin on the day after the purchase of such Common Stock.
OWNERSHIP OF COMMON STOCK ACQUIRED UNDER THE PURCHASE CONTRACTS
Assuming that the Company has current or accumulated earnings and profits
at least equal to the amount of the dividends, a holder will include a dividend
on the Common Stock in income when paid, and the dividend will be eligible for
the dividends received deduction if received by an otherwise qualifying
corporate holder which meets the holding period and other requirements for the
dividends received deduction.
Upon the sale, exchange or other disposition of Common Stock, the holder
will recognize gain or loss equal to the difference between the holder's tax
basis in the Common Stock and the amount realized on the disposition. The gain
or loss will be capital gain or loss, and will be long-term capital gain or loss
if the holder has held the stock for more than one year at the time of
disposition. Capital gain or loss will be taxed at a reduced rate for a holder
who is not a corporation and who holds the Common Stock for more than one year
and at a further reduced rate for a holder who is not a corporation and who
holds the Common Stock for more than eighteen months.
ADJUSTMENT OF SETTLEMENT RATE
Holders of Units might be treated as receiving a constructive distribution
from the Company if (a) the Settlement Rate is adjusted and as a result of such
adjustment, the proportionate interest of holders of Units in the assets or
earnings and profits of the Company is increased, and (b) the adjustment is not
made pursuant to a reasonable antidilution formula. An adjustment in the
69
<PAGE> 75
Settlement Rate would not be considered made pursuant to such a formula if the
adjustment were made to compensate for certain taxable distributions with
respect to Common Stock. Thus, under certain circumstances, an increase in the
Settlement Rate is likely to be taxable to holders of Units as a dividend to the
extent of the current or accumulated earnings and profits of the Company.
Holders of Units would be required to include their allocable share of such
constructive dividends in gross income but would not receive any cash related
thereto.
70
<PAGE> 76
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, (a) the
Company has agreed to enter into the Purchase Contracts with each of the
Underwriters named below (the "Underwriters") underlying the respective number
of Units set forth opposite its name below, (b) the Company and the Trust have
agreed to sell to each of the Underwriters the QUIPS underlying the respective
number of Units set forth opposite its name below, and (c) each of such
Underwriters has severally agreed to enter into such Purchase Contracts with the
Company, purchase such QUIPS from the Company and the Trust, pledge under the
Pledge Agreement such QUIPS and sell (on behalf of the initial investors in the
Units) to the Call Option Holder the Call Options with respect to such Units:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF UNITS
----------- ---------
<S> <C>
Goldman, Sachs & Co. .......................................
Credit Suisse First Boston Corporation......................
Morgan Stanley & Co. Incorporated...........................
---------
Total.............................................
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to enter into Purchase Contracts, purchase and pledge
QUIPS and sell Call Options with respect to all of the Units offered hereby, if
any Purchase Contracts are entered into, QUIPS are taken and Call Options sold.
The Underwriters propose to offer the Units in part directly to the public
at the initial public offering price set forth on the cover page of this
Prospectus and in part to certain securities dealers at such price less a
concession of $ per Unit. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of $ per Unit to certain
brokers and dealers. After the Units are released for sale to the public, the
offering price and other selling terms may from time to time be varied by the
Underwriters.
The Company and the Trust have granted the Underwriters an option
exercisable for 30 days after the date of this Prospectus to enter into Purchase
Contracts and purchase QUIPS underlying up to an aggregate of additional
Units solely to cover over-allotments, if any. If Purchase Contracts underlying
any such additional Units are entered into and QUIPS are purchased, the
Underwriters would pledge under the Pledge Agreement such QUIPS and would sell
to the Call Option Holder the Call Options underlying such Units. If the
Underwriters exercise their over-allotment option, each of the Underwriters has
severally agreed, subject to certain conditions, to effect the foregoing
transactions with respect to approximately the same percentage of such Units
that the respective number of Units set forth opposite its name in the foregoing
table bears to the Units offered hereby.
The Company has agreed, subject to certain exceptions, that during the
period beginning from the date of this Prospectus and continuing to and
including the date 180 days after the date of this Prospectus, it will not
offer, sell, contract to sell or otherwise dispose of any Common Stock (other
than pursuant to employee stock option or purchase plans existing, or on the
conversion or exchange of convertible or exchangeable securities or the exercise
of warrants outstanding, on the date of this Prospectus) or any securities of
the Company which are substantially similar to the Common Stock, or which are
convertible into or exchangeable for, or otherwise represent the right to
receive, Common Stock or any such other securities, without the prior written
consent of the Underwriters, except for shares of Common Stock offered in
connection with the offering made hereby and shares of Common Stock or such
other securities issued as consideration in future acquisitions as long as
either the entity to which the Company is issuing consideration for such
acquisitions or, in the case of consideration being paid to shareholders of the
acquired entity, all of
71
<PAGE> 77
the executive officers, directors, other affiliates and shareholders owning 5%
or more of the equity of the entity being acquired, have agreed in writing to
such 180-day restriction.
The Units will be a new issue of securities with no established trading
market. Application will be made to list the Normal Units on the NYSE. The
Underwriters have advised the Company that they intend to make a market in the
Normal Units, but they are not obligated to do so and may discontinue market
making at any time without notice. No assurance can be given as to the liquidity
of the trading market for the Units.
In connection with the offering made hereby, the Underwriters may purchase
and sell the Units or Common Stock in the open market. These transactions may
include over-allotment and stabilizing transactions and purchases to cover short
positions created by the Underwriters in connection with the offering made
hereby. Stabilizing transactions consist of certain bids or purchases for the
purpose of preventing or retarding a decline in the market price of the Units or
Common Stock, as applicable; and short positions created by the Underwriters
involve the sale by the Underwriters of a greater number of Units than they are
required to purchase from the Company and the Trust in the offering made hereby.
The Underwriters also may impose a penalty bid, whereby selling concessions
allowed to broker-dealers in respect of the Units sold in the offering made
hereby may be reclaimed by the Underwriters if such Units are repurchased by the
Underwriters in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Units or the
Common Stock, which may be higher than the price that might otherwise prevail in
the open market, and these activities, if commenced, may be discontinued at any
time. These transactions may be effected on the NYSE, in the over-the-counter
market or otherwise.
In the ordinary course of their respective businesses, certain of the
Underwriters and their affiliates have engaged in, and may in the future engage
in, investment banking and commercial banking activities with the Company and
its subsidiaries.
The Company and the Trust have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act.
VALIDITY OF THE SECURITIES
The validity of the Units, the QUIPS, the Purchase Contracts, the Common
Stock issuable upon settlement thereof, the Junior Subordinated Debentures and
the Guarantee being offered hereby will be passed upon for the Company and the
Trust by Thompson & Knight, P.C., Dallas, Texas. The validity of the Purchase
Contracts, the Common Stock issuable upon settlement thereof, the Junior
Subordinated Debentures and the Guarantee being offered hereby will be passed
upon for the Underwriters by Fulbright & Jaworski L.L.P., Houston, Texas.
Certain matters relating to United States federal income tax considerations will
be passed upon for the Company by Thompson & Knight, P.C., counsel to the
Company.
EXPERTS
The consolidated financial statements included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein and elsewhere in the Registration Statement, and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
72
<PAGE> 78
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
3-D Acquisition............................................. 2
3-D Geophysical............................................. 2
4-D......................................................... 1
Acquisitions................................................ 2
Additional Sums............................................. 52
Administrators.............................................. 15
Aggregate Consideration Deliverable on Exercise of the Call
Options................................................... 5
Applicable Market Value..................................... 4
Applicable Put Price........................................ 53
Business Day................................................ 41
Call Option................................................. 4
Call Option Agreement....................................... 33
Call Option Expiration Date................................. 4
Call Option Holder.......................................... 4
Call Premium................................................ 63
Call Settlement Date........................................ 37
Closing Price............................................... 34
Code........................................................ 63
Collateral Agent............................................ 5
Common Stock................................................ iv
Common Trust Securities..................................... 7
Company.................................................Cover Page
Contract Fee Rate........................................... 4
Contract Fees............................................... 4
Debenture Event of Default.................................. 54
Debenture Trustee........................................... 8
Declaration................................................. 3
Deferral Rate............................................... 7
Delaware Trustee............................................ 15
Depositary.................................................. 39
Direct Action............................................... 13
Direct Participants......................................... 40
Distribution Date........................................... 44
Distributions............................................... 44
EBITDA...................................................... 10
E&PS........................................................ 2
Effective Call Option Price................................. 53
Exchange Act................................................ ii
Extension Period............................................ 44
FASB........................................................ 24
Final Put Date.............................................. 45
Final Redemption Price...................................... 44
G&A......................................................... 22
Global Security Certificates................................ 39
Guarantee................................................... 8
Guarantee Payments.......................................... 59
Guarantee Trustee........................................... 8
Indenture................................................... 8
Indirect Participants....................................... 40
Interest Payment Date....................................... 51
</TABLE>
73
<PAGE> 79
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Issuer Trustees............................................. 3
IRS......................................................... 12
Junior Subordinated Debentures.............................. 7
Junior Subordinated Debenture Put Option.................... 53
Like Amount................................................. 44
Liquidation Distribution.................................... 45
Master Unit Agreement....................................... 33
Notes Offering.............................................. 9
Norand...................................................... F-11
Normal Unit................................................. 32
NYSE(8)..................................................... 9
OBC......................................................... 1
OID......................................................... 12
Participants................................................ 39
Paying Agent................................................ 50
Pledge Agreement............................................ 33
Pledged Securities.......................................... 5
Principal Agreements........................................ 33
Property Account............................................ 15
Property Trustee............................................ 15
Purchase Contract........................................... 4
Purchase Price.............................................. 63
Put Agent................................................... 45
Put Dates................................................... 45
Quarterly Payment Dates..................................... 3
QUIPS...................................................Cover Page
QUIPS and Debenture Maturity Date........................... 7
QUIPS Distribution Rate..................................... 7
QUIPS Liquidation Amount.................................... 7
Registration Statement...................................... iii
R&T......................................................... 22
Securities Act.............................................. ii
Senior Indebtedness......................................... 57
Settlement Rate............................................. 3
SFAS........................................................ 24
Short-term Stripped Treasury Securities..................... 67
Spin-off.................................................... 1
Sponsor..................................................... 3
Stated Amount............................................... 3
Stock Purchase Date......................................... 3
Stripped Treasury Securities................................ 67
Successor Securities........................................ 48
Tax Event................................................... 53
Threshold Appreciation Price................................ 3
Trading Day................................................. 34
Treasury Securities......................................... 5
Trust...................................................Cover Page
Trust Indenture Act......................................... 3
Trust Securities............................................ 5
UBI......................................................... F-11
</TABLE>
74
<PAGE> 80
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Underwriters................................................ 5
Unit Agent.................................................. 33
Units....................................................... 33
UNOVA....................................................... F-9
WAI......................................................... F-7
WALS........................................................ 2
Wedge Acquisition........................................... 2
Wedge Dia-Log............................................... 2
Western Geophysical Division................................ 1
</TABLE>
75
<PAGE> 81
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Statements of Income........................... F-3
Consolidated Balance Sheets................................. F-4
Consolidated Statements of Shareholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 82
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Western Atlas Inc.
We have audited the accompanying consolidated balance sheets of Western
Atlas Inc. and subsidiaries (the "Company") as of December 31, 1997 and 1996,
and the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Western Atlas Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Houston, Texas
February 18, 1998 (March 9, 1998
as to Note N)
F-2
<PAGE> 83
WESTERN ATLAS INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenue $1,658,150 $1,418,108 $1,282,927
---------- ---------- ----------
Costs and expenses:
Direct costs..................................... 962,683 834,635 742,901
General and administrative....................... 66,758 72,004 71,730
Research and technology.......................... 59,153 54,810 59,843
Depreciation, depletion, and amortization........ 368,937 309,213 273,550
---------- ---------- ----------
Total costs and expenses................. 1,457,531 1,270,662 1,148,024
---------- ---------- ----------
Operating profit................................... 200,619 147,446 134,903
---------- ---------- ----------
Other income and expenses:
Spin-off related costs........................... (8,350) -- --
Interest income.................................. 1,832 1,477 1,844
Interest expense................................. (42,856) (32,386) (33,539)
---------- ---------- ----------
Total other income and expenses.......... (49,374) (30,909) (31,695)
---------- ---------- ----------
Earnings from continuing operations before taxes on
income........................................... 151,245 116,537 103,208
Taxes on income.................................... (59,434) (46,615) (41,799)
---------- ---------- ----------
Earnings from continuing operations.............. 91,811 69,922 61,409
Discontinued operations -- results of UNOVA, Inc.
distributed to shareholders...................... (154,927) 55,743 38,430
---------- ---------- ----------
Net earnings (loss).............................. $ (63,116) $ 125,665 $ 99,839
========== ========== ==========
Basic net earnings (loss) per share:
Continuing operations............................ $ 1.69 $ 1.31 $ 1.16
Discontinued operations.......................... (2.85) 1.04 .72
---------- ---------- ----------
Total earnings (loss) per share.......... $ (1.16) $ 2.35 $ 1.88
========== ========== ==========
Diluted net earnings (loss) per share:
Continuing operations............................ $ 1.65 $ 1.29 $ 1.14
Discontinued operations.......................... (2.78) 1.03 .72
---------- ---------- ----------
Total earnings (loss) per share.......... $ (1.13) $ 2.32 $ 1.86
========== ========== ==========
Shares used in computing net earnings (loss) per
share:
Basic......................................... 54,252 53,490 53,074
Diluted....................................... 55,613 54,271 53,755
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 84
WESTERN ATLAS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE AND NUMBER OF SHARES)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 33,504 $ 16,296
Accounts receivable, less allowance for doubtful accounts
of $27,853 (1997) and $19,831 (1996)................... 445,420 360,935
Inventories............................................... 39,360 42,706
Deferred tax assets....................................... 34,841 43,049
Other current assets...................................... 39,366 35,158
Net assets of UNOVA, Inc. distributed to shareholders..... -- 574,508
Due from UNOVA, Inc....................................... -- 109,574
---------- ----------
Total current assets.............................. 592,491 1,182,226
Property, plant, and equipment, net of accumulated
depreciation and depletion of $491,779 (1997) and $459,978
(1996).................................................... 926,382 692,252
Multiclient geophysical data and other assets............... 479,654 325,238
Goodwill and other intangibles, net of accumulated
amortization of $38,778 (1997) and $30,141 (1996)......... 332,180 299,494
---------- ----------
Total assets................................................ $2,330,707 $2,499,210
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 260,627 $ 257,070
Payroll and related expenses.............................. 111,108 97,147
Notes payable and current portion of long-term debt....... 106,592 53,055
---------- ----------
Total current liabilities......................... 478,327 407,272
---------- ----------
Long-term debt.............................................. 701,530 450,589
---------- ----------
Deferred tax liabilities.................................... 11,157 8,435
---------- ----------
Deferred revenue and other long-term obligations............ 252,826 129,976
---------- ----------
Commitments and contingencies
Shareholders' equity:
Preferred stock -- $1 par value; 25,000,000 shares
authorized............................................. -- --
Common stock -- $1 par value; 150,000,000 shares
authorized, 54,587,518 (1997) and 53,705,712 (1996)
issued and outstanding................................. 54,588 53,706
Additional paid-in capital................................ 685,283 1,146,066
Retained earnings......................................... 150,502 291,458
Cumulative currency translation adjustments............... -- 12,482
Pension liability adjustments............................. (3,506) --
Treasury stock, at cost -- 13,552 shares (1996)........... -- (774)
---------- ----------
Total shareholders' equity........................ 886,867 1,502,938
---------- ----------
Total liabilities and shareholders' equity.................. $2,330,707 $2,499,210
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 85
WESTERN ATLAS INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Common stock, par value:
Beginning of year................................. $ 53,706 $ 53,235 $ 52,925
Stock options exercised........................... 541 434 310
Shares issued for acquisitions.................... 312 -- --
Shares issued under stock purchase plan........... 29 37 --
---------- ---------- ----------
End of year....................................... $ 54,588 $ 53,706 $ 53,235
========== ========== ==========
Additional paid-in capital:
Beginning of year................................. $1,146,066 $1,129,417 $1,119,889
Stock options exercised........................... 23,399 14,771 9,528
Spin-off of UNOVA, Inc............................ (513,112) -- --
Shares issued for acquisitions.................... 27,067 -- --
Shares issued under stock purchase plan........... 1,863 1,878 --
---------- ---------- ----------
End of year....................................... $ 685,283 $1,146,066 $1,129,417
========== ========== ==========
Retained earnings:
Beginning of year................................. $ 291,458 $ 165,793 $ 65,954
Net earnings (loss)............................... (63,116) 125,665 99,839
Spin-off of UNOVA, Inc............................ (77,840) -- --
---------- ---------- ----------
End of year....................................... $ 150,502 $ 291,458 $ 165,793
========== ========== ==========
Cumulative translation adjustments:
Beginning of year................................. $ 12,482 $ 8,402 $ 9,557
Translation rate changes.......................... (3,699) 4,080 (1,155)
Spin-off of UNOVA, Inc............................ (8,783) -- --
---------- ---------- ----------
End of year....................................... $ -- $ 12,482 $ 8,402
========== ========== ==========
Pension liability adjustments:
Beginning of year................................. $ -- $ -- $ --
Current year adjustment........................... (3,506) -- --
---------- ---------- ----------
End of year....................................... $ (3,506) $ -- $ --
========== ========== ==========
Treasury stock, at cost:
Beginning of year................................. $ (774) $ -- $ --
Shares purchased.................................. (4,241) (774) --
Shares issued under stock purchase plan........... 5,015 -- --
---------- ---------- ----------
End of year....................................... $ -- $ (774) $ --
========== ========== ==========
Total shareholders' equity, end of year............. $ 886,867 $1,502,938 $1,356,847
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 86
WESTERN ATLAS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings from continuing operations................... $ 91,811 $ 69,922 $ 61,409
Adjustments to reconcile net earnings from continuing
operations to net cash provided by operating activities:
Depreciation, depletion, and amortization............... 368,937 309,213 273,550
Change in accounts receivable........................... (79,363) (47,978) (42,665)
Change in inventories................................... 4,825 (5,569) (11,551)
Change in other current assets.......................... (4,043) 31,681 (10,655)
Change in accounts payable and accrued liabilities...... (970) 49,332 (38,329)
Change in payroll and related expenses.................. 13,961 10,367 5,644
Change in deferred revenue.............................. 122,132 39,501 18,494
Reimbursement for shutdown of certain acquired
operations............................................ -- -- 20,000
Other operating activities.............................. 1,768 (6,852) 1,681
----------- --------- ---------
Total from continuing operations.......................... 519,058 449,617 277,578
Net operating activities from discontinued operations..... 12,115 22,252 86,795
----------- --------- ---------
Net cash provided by operating activities................. 531,173 471,869 364,373
----------- --------- ---------
Cash flows from investing activities:
Capital expenditures...................................... (429,972) (279,553) (171,147)
Cost of geophysical data acquired......................... (275,055) (195,922) (152,336)
Proceeds from sale of businesses.......................... -- 12,051 122,000
Acquisition of businesses, net of cash acquired........... (55,358) (890) (20,100)
Other investing activities................................ 2,164 12,374 (6,371)
----------- --------- ---------
Total from continuing operations.......................... (758,221) (451,940) (227,954)
Net investing activities of discontinued operations....... (406,319) 9,608 (25,249)
----------- --------- ---------
Net cash (used in) investing activities................... (1,164,540) (442,332) (253,203)
----------- --------- ---------
Cash flows from financing activities:
Payment from UNOVA, Inc. ................................. 109,574 2,855 352
Proceeds from issuance of common stock.................... 23,940 16,346 9,838
Repayment of long-term obligations........................ (71,275) (3,168) (38,833)
Proceeds from issuance of long-term debt.................. 369,654 1,009 6,882
Other financing activities................................ 8,327 1,016 (960)
----------- --------- ---------
Total from continuing operations.......................... 440,220 18,058 (22,721)
Net financing activities of discontinued operations....... 210,355 (44,513) (88,139)
----------- --------- ---------
Net cash provided by (used in) financing activities....... 650,575 (26,455) (110,860)
----------- --------- ---------
Net increase in cash and cash equivalents................... 17,208 3,082 310
Cash and cash equivalents, beginning of year................ 16,296 13,214 12,904
----------- --------- ---------
Cash and cash equivalents, end of year...................... $ 33,504 $ 16,296 $ 13,214
=========== ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest................................................ $ 52,951 $ 40,381 $ 40,550
Income taxes............................................ $ 52,665 $ 6,131 $ 67,095
Supplemental schedule of non-cash investing and financing
activities:
Acquisitions of businesses -- :
Fair value of assets acquired........................... $ 28,176 $ -- $ --
Net cash acquired....................................... 2,528 -- --
Liabilities assumed..................................... (3,325) -- --
----------- --------- ---------
Stock issued in connection with acquisitions............ $ 27,379 $ -- $ --
=========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 87
WESTERN ATLAS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations. Western Atlas Inc. ("WAI" or the "Company") is a
leading supplier of oilfield services and information technology to the
worldwide oil and gas industry. The Company provides land and marine seismic,
well-logging, and reservoir description and management services for a worldwide
client base. The Company's principal customers are private sector and
government-owned oil and gas companies, and approximately 68% of its revenue is
generated by activities outside of the United States.
Use of Estimates in the Preparation of Financial Statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses for each reporting period. Actual
results could differ from those estimates.
Principles of Consolidation. The consolidated financial statements include
those of the Company, its subsidiaries, and companies in which WAI has a
controlling interest (see Note B.) The equity method is used to account for
investments in companies over which WAI has influence but not a controlling
interest. All material intercompany transactions are eliminated in
consolidation.
Earnings Per Share. In February 1997, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share." The new standard simplifies the computation of
earnings per share ("EPS") and increases comparability to international
accounting standards. Under SFAS No. 128, "Primary" EPS is replaced by "Basic"
EPS, which excludes dilution and is computed by dividing income available to
common shareholders by the weighted-average number of common shares outstanding
for the period. "Diluted" EPS, which is computed similarly to the former "Fully
Diluted" EPS, reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock.
The Company was required to adopt the new standard in its year-end 1997
financial statements. As a result, the Company's reported earnings per share for
1996 and 1995 were restated. The effect of this accounting change on previously
reported EPS data is as follows:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Primary EPS as originally reported.......................... $2.31 $1.85
Effect of SFAS No. 128...................................... 0.04 0.03
----- -----
Basic EPS as restated....................................... $2.35 $1.88
===== =====
Fully diluted EPS as originally reported.................... $2.30 $1.85
Effect of SFAS No. 128...................................... 0.02 0.01
----- -----
Diluted EPS as restated..................................... $2.32 $1.86
===== =====
</TABLE>
Cash Equivalents. The Company considers securities purchased within three
months of their date of maturity to be cash equivalents.
Inventories. Inventories are stated at the lower of cost (first-in,
first-out method) or market.
Revenue Recognition. Revenue is recognized when products are shipped or as
services are performed.
F-7
<PAGE> 88
WESTERN ATLAS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Multiclient Geophysical Data. Costs incurred in the creation of
Company-owned multiclient geophysical data, included in multiclient geophysical
data and other assets, are capitalized and amortized over the estimated revenue
that the Company expects to realize from the licensing of such data. Advances
received from customers in payment for specific contracts are included in
deferred revenue.
Research and Technology. Research and technology costs are charged to
expense as incurred. Worldwide expenditures on research and development
activities amounted to $59.2 million, $54.8 million and $59.8 million, in the
years ended December 31, 1997, 1996, and 1995, respectively.
Property, Plant, and Equipment. Investment in property, plant, and
equipment is stated at cost. Depreciation, computed generally by the
straight-line method for financial reporting purposes, is provided over the
estimated useful lives of the related assets. During the fourth quarter of 1997,
the Company extended the estimated useful lives of certain assets to more
closely reflect management's current estimate of their expected lives. The
effect of this change in accounting estimate resulted in an increase in the
Company's earnings from continuing operations of $2.8 million or $0.05 basic
earnings per share, for 1997. The Company uses the full cost method of
accounting for its investment in oil and gas properties. Under this method, the
Company capitalizes all acquisition, exploration, and development costs incurred
for the purpose of finding oil and gas reserves. The Company computes the
provision for depreciation, depletion, and amortization (DD&A) of oil and gas
properties on a quarterly basis using the unit-of-production method based upon
production and estimates of proved reserve quantities. The full cost accounting
rules of the Securities and Exchange Commission include a reserve value ceiling
test which requires a write-down if the ceiling is exceeded. The Company had
write-downs of $12.5 million and $7.0 million during 1997 and 1996,
respectively, due to ceiling test limitations.
Income Taxes. The Company measures tax assets and liabilities based on a
balance sheet approach. Tax assets and liabilities are stated at the tax rate in
effect when the estimated assets and liabilities will be realized. See Note H
for further discussion.
Concentrations of Credit Risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of cash
and cash equivalents and trade receivables. The Company places its cash and cash
equivalents with high quality financial institutions and limits the amount of
credit exposure with any one institution. Concentrations of credit risk with
respect to trade receivables are limited because a large number of
geographically diverse customers make up the Company's customer base, thus
spreading the trade credit risk.
Translation of Foreign Currencies. Financial statements of foreign
subsidiaries are translated into U.S. dollars based on the functional currency
of each business unit. For units whose local currency is the functional
currency, asset and liability accounts are translated at rates in effect at the
balance sheet date, and revenue and expense accounts are translated at rates
approximating the actual rates on the dates of the transactions. Translation
adjustments are included as a separate component of shareholders' equity. For
units which have the U.S. dollar as the functional currency, inventories, cost
of sales, property, plant, and equipment and related depreciation are translated
at historical rates. Other asset and liability accounts are translated at rates
in effect at the balance sheet date, and revenue and expenses (excluding cost of
sales and depreciation) are translated at rates approximating the actual rates
on the dates of the transactions. Translation adjustments are reflected in the
Consolidated Statements of Income. At December 31, 1997, the U.S. dollar was the
functional currency for substantially all of the Company's foreign operations.
Goodwill and Other Intangibles. For financial statement purposes, goodwill
is generally amortized using the straight-line method over its estimated useful
life, not exceeding 40 years. The
F-8
<PAGE> 89
WESTERN ATLAS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company assesses the recoverability of goodwill at the end of each fiscal year
or more often as circumstances warrant. Factors considered in evaluating
recoverability include management's plan with respect to the operations to which
the goodwill relates, particularly the historical earnings and projected
undiscounted cash flows of such operations.
Dividends. No cash dividends were paid on Common Stock in the years ended
December 31, 1997, 1996 and 1995.
Environmental Costs. Provisions for environmental costs are recorded when
the Company determines its responsibility for remedial efforts and such amounts
are reasonably estimable.
Reclassifications. Certain prior year amounts have been reclassified to
conform to the current year presentation.
New Accounting Standards. In 1997, the FASB issued SFAS No.130, "Reporting
Comprehensive Income," which establishes standards for reporting and display of
comprehensive income and its components. Comprehensive income includes all
changes in equity during a period except those resulting from investments by
owners and distributions to owners. SFAS No. 130 is effective for the Company
beginning in 1998 and is expected to impact the Company's reporting of the
excess of additional pension liability over recognized prior service cost.
Currently these items are included as components of Shareholders' Equity.
Also during 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which establishes new requirements on
the reporting of information about operating segments, products and services,
geographic areas, and major customers. SFAS No. 131 is effective for the Company
beginning in 1998. The Company is evaluating the impact of adopting SFAS 131 on
the way it currently reports segment information.
NOTE B: DISCONTINUED OPERATIONS
On May 4, 1997, the Company's Board of Directors approved, in principle, a
plan to distribute (the "Spin-off") to WAI shareholders all of the outstanding
common stock of UNOVA, Inc. ("UNOVA"), a wholly owned subsidiary of WAI. UNOVA
was subsequently organized to own and conduct all of WAI's industrial automation
systems operations, which include its automated data collection and
manufacturing systems businesses. Pursuant to the Spin-off, on October 31, 1997
each WAI shareholder of record on October 24, 1997 received an equivalent number
of shares of UNOVA common stock. The distribution of such stock was structured
to be tax-free to WAI and its shareholders. Concurrent with the Spin-off, UNOVA
repaid WAI for intercompany indebtedness totaling $230 million. WAI used the
funds to repay certain short-term borrowings.
In connection with the Spin-off, the Consolidated Financial Statements of
WAI and related notes thereto were restated to present the operations of UNOVA
as discontinued. Income (loss) from discontinued operations included interest
expense allocated on the basis of debt levels assumed in the Spin-off. Corporate
general and administrative costs of the Company were not allocated to UNOVA for
any of the periods presented.
F-9
<PAGE> 90
WESTERN ATLAS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Discontinued operations of UNOVA for the ten months ended October 31, 1997
and the years ended December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ------
(IN MILLIONS)
<S> <C> <C> <C>
Net revenue......................................... $1,201.1 $1,164.7 $942.9
Allocated interest expense.......................... 17.2 11.5 12.2
Allocated interest income........................... 2.7 4.4 2.8
Income (loss) before income taxes................... $ (122.7) $ 92.9 $ 64.6
Provision for income taxes.......................... 32.2 37.2 26.2
-------- -------- ------
Total discontinued operations, net of income
taxes............................................. $ (154.9) $ 55.7 $ 38.4
======== ======== ======
</TABLE>
Net assets of UNOVA as of October 31, 1997, the distribution date, and
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31,
1997 1996
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Current assets........................................... $ 752,633 $ 695,791
Non-current assets....................................... 586,886 378,002
---------- ----------
Total Assets................................... 1,339,519 1,073,793
---------- ----------
Current liabilities...................................... (652,230) (429,770)
Non-current liabilities.................................. (87,554) (69,515)
---------- ----------
Total Liabilities.............................. (739,784) (499,285)
---------- ----------
Net Assets of UNOVA...................................... $ 599,735 $ 574,508
========== ==========
</TABLE>
Assuming the Spin-off had occurred on January 1, 1997, the pro forma effect
on the Company's earnings from continuing operations is the reduction of general
and administrative expenses of $9.9 million, net of tax, and spin-off related
costs of $5.0 million, net of tax. These amounts would result in an increase of
$.28 in basic earnings per share on a pro forma basis.
NOTE C: BUSINESS ACQUISITIONS, INVESTMENTS, AND DISPOSITIONS
Acquisitions and Investments. The Company made several acquisitions and
investments during the year ended December 31, 1997. In May 1997, the Company
acquired Sungroup Energy Services Company, a Canadian well-logging, production
testing, and completion services provider. During the fourth quarter of 1997,
the Company completed the following acquisitions: Geosignal, Inc., a seismic
data processing company; Seismic Resources, Inc., a provider of nonexclusive
seismic surveys; and ParaMagnetic Logging, Inc., a well-logging research
company. These acquisitions were made using Company common stock. Also in the
fourth quarter of 1997, the Company used cash to purchase Heartland Kingfisher,
Inc., a Canadian well-logging company. In 1995, the Company used cash to
purchase 50% of PetroAlliance Services Company, Ltd., which offers seismic,
well-logging, and integrated project services to local and international oil
companies operating in the former Soviet Union.
The purchase method of accounting was used to record all of these
acquisitions. Their results of operations are included in the Consolidated
Statements of Income from the acquisition dates. These acquisitions and several
smaller acquisitions in 1995 and 1996 are integral to the Company's
F-10
<PAGE> 91
WESTERN ATLAS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
goals, though not material in the aggregate to the Company's consolidated
financial statements in any one year.
The Company acquired Norand Corporation ("Norand") on March 3, 1997, and
United Barcode Industries ("UBI") on April 4, 1997. These companies were
integrated into the Company's industrial automation systems operations and
included in the Spin-off. Both transactions were funded using a combination of
committed credit facilities, short-term uncommitted credit lines and excess
cash. The purchase method of accounting was used to record these acquisitions
and, accordingly, the acquisition costs (approximately $280 million and $107
million for Norand and UBI, respectively) were allocated to the net assets
acquired based upon their relative fair values. Such allocation assigned $203
million to in-process research and development activities, which was expensed in
accordance with FASB Interpretation No. 4 during the second quarter.
The Company also acquired the remaining 51% of Honsberg, a German machine
tool maker, in the second quarter of 1997. The original 49% of Honsberg was
acquired during 1995. In September 1997, the Company acquired the stamping,
engineering, and prototyping division of Modern Prototype Company. These
companies were also included in the Spin-off.
Dispositions. The assets of the Company's seismic equipment manufacturing
operations were sold during the second quarter of 1995 for approximately $122
million in cash. As part of the sales agreement, the Company entered into a
commitment with the buyer to purchase $350 million of seismic and related
equipment from the buyer. The remaining equipment purchase commitment is
approximately $67 million as of December 31, 1997. The excess of the sales price
over the net book value of the assets sold was deferred and is amortized as the
Company purchases equipment from the buyer.
NOTE D: LONG-TERM DEBT AND FINANCIAL INSTRUMENTS
Long-term Debt
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Commercial paper............................................ $135,250 $ --
Short-term notes payable, weighted average interest rate of
6.25% (1997) and 10.58% (1996)............................ 220,557 3,602
7.875% notes due 2004....................................... 250,000 250,000
8.55% debentures due 2024................................... 150,000 150,000
5.65% notes due 1997 and 1998............................... 48,461 96,921
Other, principally notes payable in installments through
2002 with a weighted average interest rate of 7.56% at
December 31, 1997......................................... 3,854 3,121
-------- --------
808,122 503,644
Less current portion........................................ 106,592 53,055
-------- --------
Long-term debt.............................................. $701,530 $450,589
======== ========
</TABLE>
In July 1997, the Company commenced a short-term commercial paper ("CP")
program providing for the issuance of up to $400 million in aggregate maturity
value of commercial paper at any given time. As of December 31, 1997,
outstanding commercial paper borrowings totaled $135.3 million and interest
rates on such borrowings ranged from 5.9% to 6.25% with an effective
F-11
<PAGE> 92
WESTERN ATLAS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
weighted average interest rate of 6.05%. The CP program is secured by committed
credit facilities with a group of banks that provide for $400 million in
long-term committed credit reduced by the amount outstanding under the CP
program. No amounts were outstanding under the long-term committed credit
facilities at December 31, 1997 except those committed in support of the CP
program. At December 31, 1997, $300 million in commercial paper and short-term
obligations was reclassified as long-term debt as the Company intends to
refinance such obligations on a long-term basis utilizing existing credit
facilities.
The Company maintains off-balance-sheet guarantees and letter-of-credit
agreements. At December 31, 1997, the face values of these agreements totaled
$153 million of which $84 million was related to contracts to build two seismic
vessels. (See "Financial Instruments" below and Note K: "Litigation, Commitments
and Contingencies.") The remaining credit arrangements are generally related to
guarantees of future performance on contracts.
At December 31, 1997, the Company was in compliance with its various debt
covenants, which relate to the Company's incurrence of debt, mergers,
consolidations, and sale of assets and require the Company to satisfy certain
ratios related to tangible net worth, debt-to-equity and interest coverage.
Aggregate Maturities of Debt
Notes payable and long-term obligations at December 31, 1997 mature as
follows, in thousands of dollars:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1998...................................................... $106,592
1999...................................................... 830
2000...................................................... 300
2001...................................................... 300
2002...................................................... 300,100
Thereafter.................................................. 400,000
--------
$808,122
========
</TABLE>
Financial Instruments
The Company uses forward contracts for the purpose of reducing its exposure
to adverse fluctuations in foreign exchange and interest rates. While these
hedging instruments are subject to fluctuations in value, such fluctuations are
generally offset by the value of the underlying exposure being hedged. The
Company is not a party to leveraged derivatives and does not hold or issue
financial instruments for speculative purposes.
Foreign Currency Management -- From time to time, the Company enters into
foreign currency forward contracts to hedge anticipated and firmly committed
foreign currency transactions. At December 31, 1997, the Company had entered
into foreign currency forward contracts with notional amounts of $88.9 million
to primarily hedge the commitment to purchase two seismic vessels in 1999. The
notional amounts are used to express the volume of these transactions and do not
represent exposure to loss. The carrying value of the contracts was not
significant. The fair value of the contracts, based on year-end quoted rates for
purchasing contracts with similar terms and maturity dates, approximated
carrying value and was also not significant. Foreign currency gains and losses
for such purchases are deferred as part of the basis of the assets. The
counterparties to the Company's forward contracts are major financial
institutions. The credit ratings and concentra-
F-12
<PAGE> 93
WESTERN ATLAS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tion of risk of these financial institutions are monitored on a continuing basis
and, in management's opinion, present no significant credit risk to the Company.
Interest Rate Management -- The Company periodically enters into various
financial instruments to manage its interest rate exposure. At December 31,
1997, the Company did not have any outstanding interest rate swap agreements.
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents........... $ 33,504 $ 33,504 $ 16,296 $ 16,296
Long-term debt:
Commercial paper.................. 135,250 135,250 -- --
Short-term notes payable.......... 220,557 220,557 3,602 3,602
7.875% notes due 2004............. 250,000 270,200 250,000 265,234
8.55% debentures due 2024......... 150,000 181,375 150,000 170,170
5.65% notes due 1997 and 1998..... 48,461 48,461 96,921 96,630
Other debt........................ 3,854 3,854 3,121 3,121
</TABLE>
The following methods and assumptions were used to estimate the fair value
of the financial instruments summarized in the table above. The carrying values
of accounts receivable, accounts payable, and payrolls and related expenses
included in the accompanying Consolidated Balance Sheet approximated market
value at December 31, 1997 and 1996.
Cash and cash equivalents -- The carrying amounts approximated fair value
due to the short maturity of these instruments.
Long-term debt -- The fair values of the 7.875% and 5.65% notes and the
8.55% debentures were based on the quoted market price for similar issues. The
carrying amount of the commercial paper, short-term notes payable, and other
debt approximated fair value due to the short maturities and because the
interest rates were reflective of market rates.
NOTE E: ACCOUNTS RECEIVABLE AND INVENTORIES
Following are the details of accounts receivable:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Trade receivables........................................... $440,748 $344,367
Notes receivable (see Note J)............................... 4,672 16,568
-------- --------
Total....................................................... $445,420 $360,935
======== ========
</TABLE>
F-13
<PAGE> 94
WESTERN ATLAS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized below are the components of inventory balances:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials............................................... $19,084 $20,377
Work in progress............................................ 16,032 15,730
Finished goods.............................................. 4,244 6,599
------- -------
Total....................................................... $39,360 $42,706
======= =======
</TABLE>
NOTE F: PROPERTY, PLANT, AND EQUIPMENT
Investment in property, plant, and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Land...................................................... $ 34,193 $ 35,340
Buildings................................................. 142,973 131,087
Machinery and equipment................................... 1,130,594 952,730
Investment in E&P projects, full cost method.............. 110,401 33,073
Less accumulated depreciation and depletion............... (491,779) (459,978)
---------- ---------
Total..................................................... $ 926,382 $ 692,252
========== =========
</TABLE>
The net book value of assets utilized under capital leases was not material
at December 31, 1997 and 1996.
The range of estimated useful lives for determining depreciation and
amortization of the major classes of assets are:
<TABLE>
<S> <C>
Buildings................................................... 10-45 years
Land improvements and building improvements................. 2-10 years
Machinery and equipment..................................... 2-20 years
</TABLE>
As of December 31, 1997, minimum rental commitments under noncancellable
operating leases were, in thousands of dollars:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C> <C>
1998............................................................ $ 8,177
1999............................................................ 6,517
2000............................................................ 4,021
2001............................................................ 1,222
2002............................................................ 569
Thereafter...................................................... 4,209
-------
$24,715
=======
</TABLE>
Rental expense for operating leases, including amounts for short-term
leases with nominal, if any, future rental commitments, was $111.7 million,
$73.1 million, and $75.4 million, for the years ended December 31, 1997, 1996,
and 1995, respectively. The minimum future rentals receivable under subleases
and the contingent rental expenses were not significant.
F-14
<PAGE> 95
WESTERN ATLAS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G: SHAREHOLDERS' EQUITY
The following table presents shares used in the computation of earnings per
share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Weighted average common shares outstanding (net of
treasury shares)..................................... 54,252 53,490 53,074
Additional potentially dilutive securities (equivalent
in common stock)..................................... 1,361 781 681
------ ------ ------
Total........................................ 55,613 54,271 53,755
====== ====== ======
</TABLE>
Stock Option Plans
The Company has a stock option plan, which provides for the grant of
incentive awards to officers and other key employees. Incentive awards are
granted in the form of stock options at a price equal to the fair market value
of the Company's common stock on the date of grant, at terms not exceeding 10
years. The Company also has a directors' stock option plan which provides for
the grant of stock options to the Company's nonemployee directors. Under this
plan, stock options are granted annually at the fair market value of the
Company's common stock on the date of grant at terms not exceeding 12 years. The
number of options so granted annually is fixed by the plan. Such options become
fully exercisable on the first anniversary of their grant. Under these plans,
there were 1,818,390 and 1,098,528 options exercisable as of December 31, 1997
and 1996, respectively, and 1,142,464 available for grant as of December 31,
1997.
The following table summarizes the shares outstanding under the Company's
stock option plans:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
NUMBER EXERCISE PRICE
OF SHARES PER SHARE
--------- ----------------
<S> <C> <C>
Outstanding at December 31, 1994..................... 2,751,993 $25.87
Granted............................................ 580,500 42.89
Exercised.......................................... (310,839) 18.74
Canceled........................................... (154,270) 36.13
---------
Outstanding at December 31, 1995..................... 2,867,384 29.54
Granted............................................ 614,600 58.03
Exercised.......................................... (441,327) 17.64
Canceled........................................... (74,005) 39.47
---------
Outstanding at December 31, 1996..................... 2,966,652 36.96
Prior to the Spin-off --
Granted......................................... 1,349,879 62.37
Exercised....................................... (466,910) 28.92
Canceled........................................ (35,736) 51.10
After the Spin-off --
Spin-off adjustment............................. 884,290 N/A
Exercised....................................... (77,325) 15.66
Canceled........................................ (895) 29.38
---------
Outstanding at December 31, 1997..................... 4,619,955 38.37
=========
</TABLE>
F-15
<PAGE> 96
WESTERN ATLAS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 option and decreasing the exercise price per
share so as to preserve the difference between the aggregate exercise price of
the option and the aggregate market value of the shares subject to the option.
Grants in 1997 include options to acquire 484,379 common shares with a weighted
average exercise price of $39.42 which were acquired in the acquisition of
Norand.
Outstanding stock option data as of December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- --------------------------
NUMBER WEIGHTED-AVERAGE WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
RANGE OF EXERCISE OF REMAINING EXERCISE OF EXERCISE
PRICES OPTIONS CONTRACTUAL LIFE PRICE OPTIONS PRICE
- ----------------- --------- ---------------- ---------------- ------- ----------------
<C> <C> <S> <C> <C> <C>
$ 1.65 to $10.99 191,060 2.37 years $ 9.85 191,060 $ 9.85
12.31 to 20.22 447,065 3.98 15.69 445,810 15.69
21.02 to 29.98 710,734 5.69 23.77 513,754 23.23
30.06 to 37.86 1,355,265 7.12 34.41 467,536 34.24
40.10 to 47.73 804,566 8.38 46.51 190,525 46.41
49.01 to 58.78 71,638 8.80 51.60 8,879 51.49
60.95 to 69.65 1,039,627 9.53 61.29 826 66.76
</TABLE>
The fair value of stock options granted during 1997 and 1996 were $26.3
million and $12.8 million, respectively. The fair value of each stock option
grant is estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions used for grants in 1997
and 1996, respectively: risk-free interest rates of 6.3% and 6.4%, expected life
of five years for both years; and expected volatility of 33% and 26%, determined
from historical stock price fluctuations. There is no assurance that the
assumptions used in determining the fair values of stock options will prove true
in the future. The actual value of the options depends on several factors,
including the actual market price of the common stock on the date of exercise.
Changes in any of these factors as well as fluctuations in the market price of
the Company's common stock will cause the actual value of these options to vary
from the theoretical value indicated above.
Employee Stock Purchase Plan
Under the 1996 Employee Stock Purchase Plan, the Company is authorized to
sell up to 2.5 million shares of common stock to its eligible full-time
employees. At each semi-annual offering period, employees can choose to have up
to 8% of their annual earnings withheld to purchase the Company's common stock
up to a maximum amount of $21,250 per calendar year. The purchase price of the
stock is 85% of the lower of its beginning-of-period or end-of-period market
price. The Company sold 36,975 and 95,129 shares under the Plan in 1996 and
1997, respectively, with approximately 20% of eligible employees participating
each year. The weighted-average fair value of purchase rights granted in 1996
and 1997 was $471,800 and $1,687,000, respectively. The fair value of the stock
purchase rights was determined using the same method and parameters for stock
option grants described above, except for the use of an expected life equal to
the purchase window period. As previously noted, the actual value of purchase
rights may vary from the theoretical value determined using the Black-Scholes
option pricing model.
F-16
<PAGE> 97
WESTERN ATLAS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro Forma Compensation Disclosure
The Company accounts for its stock-based compensation plans in accordance
with Accounting Principles Board Opinion No. 25, under which no compensation
cost is recognized for stock option awards or grants of stock purchase rights.
Had compensation cost for these plans been determined consistent with SFAS No.
123, "Accounting for Stock-Based Compensation", the Company's pro forma net
income and basic earnings per share for 1997, 1996, and 1995 would have been:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
------------ ----------
(IN THOUSANDS, EXCEPT EPS)
<S> <C> <C>
Year ended December 31, 1997:
Earnings from continuing operations..................... $ 91,811 $ 88,141
Earnings (loss) from discontinued operations............ (154,927) (158,294)
--------- ---------
Net earnings (loss)..................................... $ (63,116) $ (70,153)
========= =========
Basic earnings (loss) per share:
Continuing operations................................ $ 1.69 $ 1.63
Discontinued operations.............................. (2.85) (2.92)
--------- ---------
Total earnings (loss) per share...................... $ (1.16) $ (1.29)
========= =========
Year ended December 31, 1996:
Earnings from continuing operations..................... $ 69,922 $ 68,475
Earnings from discontinued operations................... 55,743 54,358
--------- ---------
Net earnings............................................ $ 125,665 $ 122,833
========= =========
Basic earnings per share:
Continuing operations................................ $ 1.31 $ 1.28
Discontinued operations.............................. 1.04 1.02
--------- ---------
Total earnings per share............................. $ 2.35 $ 2.30
========= =========
Year ended December 31, 1995:
Earnings from continuing operations..................... $ 61,409 $ 60,855
Earnings from discontinued operations................... 38,430 37,965
--------- ---------
Net earnings............................................ $ 99,839 $ 98,820
========= =========
Basic earnings per share:
Continuing operations................................ $ 1.16 $ 1.15
Discontinued operations.............................. 0.72 0.71
--------- ---------
Total earnings per share............................. $ 1.88 $ 1.86
========= =========
</TABLE>
The actual pro forma impact on net income and earnings per share may differ
from the theoretical valuation determined using the Black-Scholes option pricing
model due to factors previously noted. Further, the SFAS No. 123 method of
accounting was not applied to options granted prior to January 1, 1995,
therefore, the resulting pro forma compensation cost may not be representative
of that to be expected in future years.
Shareholder Rights Plan
On August 17, 1994, the Company's Board of Directors adopted a Share
Purchase Rights Plan and, in accordance with such Plan, declared a dividend of
one preferred share purchase right for each outstanding share of Company common
stock, payable August 31, 1994 to shareholders of record on that date. In the
event that a party acquires more than 15% of the Company's then
F-17
<PAGE> 98
WESTERN ATLAS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
outstanding Common Stock, the Plan will cause substantial dilution to a party
that attempts to acquire the Company in a manner or on terms not approved by the
Board of Directors, except pursuant to an offer conditioned on a substantial
number of rights being acquired.
The rights, which do not have voting rights and are not entitled to
dividends until such time as they become exercisable, expire on August 2004.
NOTE H: TAXES ON INCOME
The components of taxes on income from continuing operations consist of the
following provisions (benefits):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Currently payable:
U.S. taxes........................................ $ 8,132 $ 2,672 $ 7,003
International taxes............................... 48,385 45,578 43,588
Deferred:
U.S. taxes........................................ 2,917 (1,635) (8,792)
------- ------- -------
$59,434 $46,615 $41,799
======= ======= =======
</TABLE>
Deferred tax assets and liabilities result from the effect of transactions
that are recognized in different periods for financial and tax reporting
purposes. The primary components of the Company's deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------- -------------------
ASSET LIABILITY ASSET LIABILITY
------- --------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Accrued liabilities......................... $12,934 $ -- $21,623 $ --
Receivables and inventory................... 8,421 -- 7,908 --
Research and development credit carryover... 6,555 -- -- --
Noncompete agreements....................... -- 8,071 -- 5,956
Postretirement benefits..................... 1,244 -- 934 --
Pensions.................................... 3,103 -- 1,317
Depreciation, depletion, and amortization... 1,495 -- 6,053 --
Other items................................. 1,089 3,086 5,214 2,479
------- ------- ------- ------
$34,841 $11,157 $43,049 $8,435
======= ======= ======= ======
</TABLE>
F-18
<PAGE> 99
WESTERN ATLAS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a reconciliation of income taxes at the U.S. statutory
rate of 35% to the provision for income taxes:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at U.S. statutory rate.......................... $52,936 $40,788 $36,123
State income taxes, net of federal benefit.......... 1,654 (450) (1,605)
Amortization of non-deductible goodwill............. 1,578 1,624 1,409
Foreign earnings taxed at other than U.S. statutory
rate.............................................. 1,529 1,266 (1,089)
Non-deductible meals and entertainment.............. 2,083 2,048 1,662
Other items......................................... (346) 1,339 5,299
------- ------- -------
$59,434 $46,615 $41,799
======= ======= =======
</TABLE>
NOTE I: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
Pension Benefits
The Company has retirement and pension plans which cover most of its
regular, full-time employees. Most of the Company's U.S. employees are covered
by a defined contribution plan. The Company contributes an amount based on its
consolidated pretax earnings in accordance with the provisions of such plan.
This plan includes a voluntary savings feature which is intended to qualify
under Section 401(k) of the Internal Revenue Code and is designed to enhance the
retirement programs of participating employees. Under this feature, the Company
matches up to 67% of a certain portion of participants' contributions.
Certain non-U.S. subsidiaries of the Company also have retirement and
savings plans for eligible employees. The pension liabilities and their related
costs are computed in accordance with the laws of the individual nations and
appropriate actuarial practices.
The Company has a defined benefit retirement plan for its directors whereby
retired directors are paid an amount equal to active directors for a specified
period of time after retirement. In the event of a change in control in the
Company, directors receive a lump sum distribution of these payments.
U.S. Pension Plans
A summary of the components of net periodic pension cost for the U.S.
defined benefit plans and defined contribution plans for the years ended
December 31, 1997, 1996, and 1995, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Defined benefit plans
Service cost -- benefits earned during the
period......................................... $ 54 $ -- $ --
Interest cost on projected benefit obligation..... 537 337 271
Net amortization and deferral..................... 314 38 (175)
------- ------- -------
Net periodic pension cost......................... 905 375 96
Defined contribution plans.......................... 39,033 32,792 30,421
------- ------- -------
Net periodic pension cost........................... $39,938 $33,167 $30,517
======= ======= =======
</TABLE>
F-19
<PAGE> 100
WESTERN ATLAS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Actuarial assumptions for the Company's U.S. defined benefit plans included
an expected long-term rate of return on plan assets of 8.00% and 9.25% for
fiscal years 1997 and 1996, respectively. The 7.0% and weighted-average discount
rate used in determining the actuarial present value of the projected benefit
obligation was 7.5% at December 31, 1997 and 1996, respectively. The rate
increase in future compensation levels was 5% at December 31, 1997 and 1996.
Pursuant to the provisions of SFAS No. 87, "Employers' Accounting for Pensions,"
the Company recorded in other noncurrent liabilities an additional minimum
pension liability adjustment of $5.4 million as of December 31, 1997. This
additional liability represented the amount by which the accumulated benefit
obligation exceeded the accrued amounts previously recorded. As there were no
previously unrecognized prior service costs at December 31, 1997, the full
amount of the adjustment, net of the related deferred tax benefit, was recorded
as a reduction of stockholder's equity of $3.5 million.
The following table sets forth the amounts recognized in the Company's
balance sheet at December 31, 1997 and 1996 for the Company's U.S. defined
benefit plans. All of the plans are unfunded.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................. $(10,095) $(4,928)
======== =======
Accumulated benefit obligation............................ $(10,095) $(4,928)
======== =======
Projected benefit obligation................................ $(11,024) $(7,082)
Unrecognized net transition asset........................... -- (108)
Unrecognized net loss....................................... 6,323 2,262
-------- -------
Accrued pension liability................................... (4,701) (4,928)
Adjustment required to recognize minimum liability.......... (5,394) --
-------- -------
Pension cost liability...................................... $(10,095) $(4,928)
======== =======
</TABLE>
Non-U.S. Pension Plans
For the principal non-U.S. pension plans located in the United Kingdom, the
weighted-average discount rate used was approximately 8.5% at December 31, 1997.
The rate of increase in future compensation used was approximately 5.5% and the
rate of return on assets was 9.0% at December 31, 1997.
Pension costs for non-U.S. plans were not material for any of the periods
presented herein. The actuarial present value of projected benefits at December
31, 1997 was $25.8 million compared with net assets available for benefits of
$33.2 million.
Other Postretirement Benefits
In addition to pension benefits, certain of the Company's U.S. employees
are covered by postretirement health care and life insurance benefit plans.
These benefit plans are unfunded.
The net periodic postretirement benefit costs were not material for any of
the periods presented herein. The accumulated benefit obligation at December 31,
1997 was $6.1 million, of which $1.9 million was attributable to retirees and
$4.2 million to other active plan participants. The accumulated benefit
obligation for continuing operations at December 31, 1996 was $3.8 million, of
F-20
<PAGE> 101
WESTERN ATLAS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which $1.4 million was attributable to retirees and $2.4 million was
attributable to active plan participants.
Actuarial assumptions used to measure the accumulated benefit obligation
include a discount rate of 7.0% and 7.5% at December 31, 1997 and 1996,
respectively. The assumed health care cost trend rate for fiscal 1997 was 11.0%
and is projected to decrease over 20 years to 5.4%. The effect of a
one-percentage-point increase in the assumed health care cost trend rate on the
service cost and interest cost components of the net periodic postretirement
benefit cost is not material. A one-percentage-point increase in the assumed
health care cost trend rate on the accumulated benefit obligation results in an
increase of approximately $0.3 million.
NOTE J: LITIGATION, COMMITMENTS, AND CONTINGENCIES
The Company is currently, and from time to time, subject to claims and
suits arising in the ordinary course of its business. In the opinion of the
Company's General Counsel, the ultimate resolution of currently pending
proceedings will not have a materially adverse effect on the Company's financial
statements.
NOTE K: RELATED PARTY TRANSACTIONS
For the purpose of governing certain relationships between UNOVA and the
Company after the Spin-off, UNOVA and the Company entered into various
agreements described below:
(i) 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.
(ii) Tax-Sharing Agreement -- As part of the Spin-off, UNOVA and the
Company entered into a Tax Sharing Agreement which provides, among
other things, for the allocation between the parties of federal,
state, local, and foreign tax liabilities for all periods through the
Spin-off date.
(iii) 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.
(iv) Intellectual Property Agreement -- UNOVA and the Company entered into
an Intellectual Property Agreement providing for the transfer of
ownership of intellectual property without charge from Western Atlas
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.
The Chairman of the Company's board of directors serves as the Chairman and
Chief Executive Officer of UNOVA. In addition, one of the Company's other
directors is also a member of the board of directors of UNOVA.
Included in accounts receivable are notes due from the Company's
unconsolidated subsidiaries of $9.9 million and $15.9 million at December 31,
1997 and 1996, respectively. Such amounts are partially collateralized by
certain fixed assets of such subsidiaries and bear interest at 10% to 18%.
Accounts payable includes $0.3 million and $1.6 million due to related parties
at December 31, 1997 and 1996, respectively.
F-21
<PAGE> 102
WESTERN ATLAS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE L: OPERATIONS BY GEOGRAPHIC AREA
<TABLE>
<CAPTION>
YEAR ENDED UNITED LATIN AFRICA AND
DECEMBER 31, STATES EUROPE AMERICA MIDDLE EAST OTHER TOTAL
------------ ------ ------ ------- ----------- ----- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue 1997 $ 529 $303 $294 $337 $195 $1,658
1996 432 286 209 322 169 1,418
1995 414 251 204 276 138 1,283
Operating profit 1997 $ 82 $ 8 $ 47 $ 34 $ 30 $ 201
1996 64 11 29 28 15 147
1995 49 12 28 25 21 135
Identifiable assets 1997 $1,287 $343 $163 $334 $204 $2,331
at year end 1996 1,693 255 153 284 114 2,499
1995 1,721 170 86 210 82 2,269
</TABLE>
F-22
<PAGE> 103
WESTERN ATLAS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE M: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------
MARCH 31 JUNE 30 SEPT 30 DEC 31 TOTAL
-------- ------- ------- ------ --------
(IN MILLIONS, EXCEPT FOR SHARE DATA)
<S> <C> <C> <C> <C> <C>
1997
Revenue.............................. $380.0 $ 418.5 $420.2 $439.5 $1,658.2
Gross profit......................... 71.1 83.8 93.7 97.4 346.0
Net earnings (loss) from:
Continuing operations............. $ 16.1 $ 16.6 $ 27.3 $ 31.8 $ 91.8
Discontinued operations........... 14.7 (186.5) 14.1 2.8 (154.9)
------ ------- ------ ------ --------
Net earnings (loss)............... $ 30.8 $(169.9) $ 41.4 $ 34.6 $ (63.1)
====== ======= ====== ====== ========
Basic earnings (loss) per share from:
Continuing operations............. $ 0.30 $ 0.31 $ 0.50 $ 0.58 $ 1.69
Discontinued operations........... 0.28 (3.46) 0.27 0.06 (2.85)
------ ------- ------ ------ --------
Total............................. $ 0.58 $ (3.15) $ 0.77 $ 0.64 $ (1.16)
====== ======= ====== ====== ========
Diluted earnings (loss) per share
from:
Continuing operations............. $ 0.29 $ 0.30 $ 0.49 $ 0.57 $ 1.65
Discontinued operations........... 0.28 (3.37) 0.26 0.05 (2.78)
------ ------- ------ ------ --------
Total............................. $ 0.57 $ (3.07) $ 0.75 $ 0.62 $ (1.13)
====== ======= ====== ====== ========
Market prices -- common:
High.............................. $ 58 63/64 $ 57 45/64 $ 71 51/64 $ 81 1/2 --
Low............................... 45 7/8 45 3/32 56 43/64 63 7/8 --
1996
Revenue.............................. $309.0 $ 362.4 $362.6 $384.1 $1,418.1
Gross profit......................... 56.5 70.8 80.2 77.4 284.9
Net earnings from:
Continuing operations............. $ 11.4 $ 17.6 $ 22.1 $ 18.8 $ 69.9
Discontinued operations........... 11.3 12.3 14.4 17.8 55.8
------ ------- ------ ------ --------
Net earnings...................... $ 22.7 $ 29.9 $ 36.5 $ 36.6 $ 125.7
====== ======= ====== ====== ========
Basic earnings per share from:
Continuing operations............. $ 0.22 $ 0.33 $ 0.41 $ 0.35 $ 1.31
Discontinued operations........... 0.21 0.23 0.27 0.33 1.04
------ ------- ------ ------ --------
Total............................. $ 0.43 $ 0.56 $ 0.68 $ 0.68 $ 2.35
====== ======= ====== ====== ========
Diluted earnings per share from:
Continuing operations............. $ 0.21 $ 0.33 $ 0.41 $ 0.34 $ 1.29
Discontinued operations........... 0.21 0.23 0.26 0.33 1.03
------ ------- ------ ------ --------
Total............................. $ 0.42 $ 0.56 $ 0.67 $ 0.67 $ 2.32
====== ======= ====== ====== ========
Market prices -- common
High.............................. $ 48 33/64 $ 51 1/4 $ 49 7/8 $ 57 7/32 $ --
Low............................... 39 1/32 43 17/32 42 1/4 48 33/64 --
</TABLE>
As of February 25, 1998 there were approximately 21,200 holders of record
of the Company's common stock.
F-23
<PAGE> 104
WESTERN ATLAS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE N: SUBSEQUENT EVENTS
On March 8, 1998, the Company entered into an agreement to acquire the
stock of Wedge Dia-Log, Inc. ("Wedge Dia-Log"), for approximately $218 million
in cash. Wedge Dia-Log is a wireline company specializing in cased-hole and pipe
recovery services.
In addition, on March 8, 1998, the Company entered into an agreement to
acquire the stock of 3-D Geophysical, Inc., a supplier of land-based seismic
data acquisition services, in an all cash tender offer for $9.65 per share for
an aggregate of $115 million if all shares are tendered.
The above acquisitions will be accounted for using the purchase method of
accounting.
F-24
<PAGE> 105
===============================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THE TRUST SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward-looking Statements........... ii
Available Information................ iii
Incorporation of Certain Documents by
Reference.......................... iv
Prospectus Summary................... 1
Risk Factors......................... 11
The Trust............................ 14
Use of Proceeds...................... 16
Price Range of Common Stock and
Dividends.......................... 16
Capitalization....................... 17
Proposed Accounting Treatment........ 18
Selected Consolidated Financial
Data............................... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 21
Business............................. 25
Management........................... 30
Description of the Units............. 32
Certain Federal Income Tax
Consequences....................... 64
Underwriting......................... 71
Validity of the Securities........... 72
Experts.............................. 72
Index of Defined Terms............... 73
Index to Financial Statements........ F-1
</TABLE>
===============================================================================
===============================================================================
UNITS
WESTERN ATLAS INC.
WESTERN ATLAS CAPITAL TRUST I
% ADJUSTABLE
CONVERSION-RATE
EQUITY SECURITY UNITS
---------------------
[WESTERN ATLAS LOGO]
---------------------
GOLDMAN, SACHS & CO.
CREDIT SUISSE FIRST BOSTON
MORGAN STANLEY DEAN WITTER
===============================================================================
<PAGE> 106
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the offering of the Units being registered hereby. All amounts shown are
estimates, except the Securities and Exchange Commission registration fee and
the New York Stock Exchange listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $271,400
New York Stock Exchange listing fee......................... *
Blue Sky fees and expenses.................................. *
Legal fees and expenses..................................... *
Accounting fees............................................. *
Printing and engraving costs................................ *
Rating agencies' fees....................................... *
Trustees' fees and expenses................................. *
Miscellaneous expenses...................................... *
--------
Total............................................. $ *
========
</TABLE>
- ---------------
* To be filed by amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Delaware corporation. Reference is made to Section 145 of
the Delaware General Corporation Law ("DGCL"), which provides that a corporation
may indemnify any person, including an officer or director, who is, or is
threatened to be made, party to any threatened, pending or completed legal
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person is or was an officer, director, employee or
agent of such corporation or is or was serving at the request of such
corporation as an officer, director, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise. The indemnity may
include expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding provided such officer, director, employee, or
agent acted in good faith and in a manner he or she reasonably believed to be in
or not opposed to the corporation's best interest and, with respect to criminal
proceedings, had no reasonable cause to believe that his or her conduct was
unlawful. Section 145 of the DGCL provides further that a Delaware corporation
may indemnify officers, directors, employees, or agents of the corporation in an
action by or in the right of the corporation under the same conditions, except
that no indemnification is permitted without judicial approval if the officer,
director, employee, or agent is adjudged to be liable to the corporation. Where
an officer, director, employee, or agent is successful on the merits or
otherwise in the defense of any action referred to above or any claim therein,
the corporation must indemnify him or her against the expenses that such person
actually and reasonably incurred.
Article Sixth of the Company's Restated Certificate of Incorporation
provides that directors shall not be personally liable for monetary damages to
the Company or its stockholders for breach of fiduciary duty as directors,
except to the extent such exculpation is not permitted under the DGCL. Article
Sixth further stipulates that if the DGCL is amended to authorize corporate
action further eliminating or limiting the personal liability of directors, then
(without further actions by the stockholders of the Company) the liability of
the directors of the Company shall be eliminated or limited to the fullest
extent permitted by the DGCL, as so amended from time to time. Article Sixth of
II-1
<PAGE> 107
the Company's Restated Certificate of Incorporation provides for the
indemnification of any person who is a party to or is threatened to be made a
party to or otherwise involved in any proceeding, by reason of the fact that
such person is or was a director or officer of the Company to the fullest extent
authorized by the DGCL, as the same exists or may hereafter be amended (but in
the case of such amendment, only to the extent that such amendment permits the
Company to provide broader indemnification rights than the DGCL permitted the
Company to provide prior to such amendment), against all expense, liability and
loss reasonably incurred or suffered by such person in connection therewith and
such indemnification shall continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of his or her heirs,
executors or administrators.
The Company also maintains director and officer liability insurance
policies covering directors and certain management employees.
The Declaration of Trust for the Trust provides that no Issuer Trustee or
any of its Affiliates, or any officer, director, shareholder, member, partner,
employee, representative, custodian, nominee or agent of any Issuer Trustee
(each an "Fiduciary Indemnified Person"), and no Administrator, Affiliate of any
Administrator, or any officer, director, shareholder, member, partner, employee,
representative or agent of any Regular Trustee or any Affiliate thereof, or any
employee or agent of the Trust or any of its Affiliates (each a "Company
Indemnified Person") shall be liable, responsible or accountable in damages or
otherwise to the Trust or any officer, director, shareholder, partner, member,
representative, employee or agent of the Trust or its Affiliates or to any
holder of preferred securities for any loss, damage or claim incurred by reason
of any act or omission performed or omitted by such Fiduciary Indemnified Person
or Company Indemnified Person shall be liable for any such loss, damage or claim
incurred by reason of such Fiduciary Indemnified Person's or Company Indemnified
Person's gross negligence or willful misconduct with respect to such acts or
omissions.
The Declaration of Trust for the Trust also provides that to the full
extent permitted by law, the Company shall indemnify any Company Indemnified
Person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of any such Trust) by reason of the fact that he is or was a Company
Indemnified Person against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding if such person acted
in good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Trust, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe such person's conduct
was unlawful. The Declaration of Trust also provides that to the full extent
permitted by law, the Company shall indemnify any Company Indemnified Person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of any such trust to procure a
judgment in its favor by reason of the fact that such person is or was a Company
Indemnified Person against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of any
such trust and except that no such indemnification shall be made in respect of
any claim, issue or matter as to which such Company Indemnified Person shall
have been adjudged to be liable to any such trust unless and only to the extent
that the Court of Chancery of Delaware or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such Court
of Chancery or such other court shall deem proper. The Declaration of Trust
further provides that expenses (including attorneys' fees) incurred by a Company
Indemnified Person is defending a civil, criminal, administrative or
investigative action, suit or proceeding referred to in the immediately
preceding two sentences shall be paid by the Company in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf
II-2
<PAGE> 108
of such Company Indemnified Person to repay such amount if it shall ultimately
be determined that such person is not entitled to be indemnified by the Company
as authorized in the Declaration.
The Declaration of Trust also provides that the Company shall indemnify
each Fiduciary Indemnified Person against any loss, liability or expense
incurred without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of the trust or trusts under
any such Trust, including the costs and expenses or investigating any claim or
liability in connection with the exercise or performance of any of its powers or
duties thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
1.1 -- Form of Underwriting Agreement with respect to the
Units.*
4.1 -- Restated Certificate of Incorporation of the Company
dated March 17, 1994.**
4.2 -- Bylaws of the Company dated March 17, 1994.**
4.3 -- Rights Agreement dated as of August 17, 1994, between
Western Atlas Inc. and Chemical Trust Company of
California, as Rights Agent, which includes the form of
Certificate of Designations of Series A Junior
Participating Preferred Stock of Western Atlas Inc. as
Exhibit A, the form of Right Certificate as Exhibit B and
the Summary of Rights to Purchase Preferred Shares as
Exhibit C.***
4.4 -- Certificate of Trust of Western Atlas Capital Trust I.
4.5 -- Declaration of Trust of Western Atlas Capital Trust I.
4.6 -- Form of Amended and Restated Declaration of Trust of
Western Atlas Capital Trust I.*
4.7 -- Form of Indenture between Western Atlas Inc. and Chase
Manhattan Bank and Trust Company, National Association,
as Trustee, pursuant to which the Junior Subordinated
Debentures are to be issued.*
4.8 -- Form of Guarantee with respect to QUIPS.*
4.9 -- Form of Supplemental Indenture to Indenture to be used in
connection with issuance of Junior Subordinated
Debentures related to the Units.*
4.10 -- Form of Master Unit Agreement.*
4.11 -- Form of Pledge Agreement.*
5.1 -- Opinion of Thompson & Knight, P.C. regarding legality.*
8.1 -- Opinion of Thompson & Knight, P.C. regarding Western
Atlas Capital Trust I.*
12.1 -- Computation of Ratio of Earnings to Fixed Charges.
23.1 -- Consent of Thompson & Knight, P.C. (included in Exhibit
5.1).*
23.2 -- Consent of Deloitte & Touche LLP.
23.3 -- Consent of Thompson & Knight, P.C. (included in Exhibit
8.1).*
24.1 -- Power of Attorney relating to Western Atlas Inc.
(included on Page II-5).
24.2 -- Power of Attorney relating to Western Atlas Capital Trust
I (included in Exhibit 4.5).
25.1 -- Statement of Eligibility on Form T-1 under the Trust
Indenture Act of 1939, as amended, of Chase Manhattan
Bank and Trust Company, National Association to act as
Trustee under the Indenture.*
</TABLE>
II-3
<PAGE> 109
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
25.2 -- Statement of Eligibility on Form T-1 under the Trust
Indenture Act of 1939, as amended, of Chase Manhattan
Bank Delaware, as Delaware Trustee under the Declaration
of Trust of Western Atlas Capital Trust I.*
25.3 -- Statement of Eligibility on Form T-1 under the Trust
Indenture Act of 1939, as amended, of Chase Manhattan
Bank and Trust Company, National Association, as Property
Trustee under the Declaration of Trust of Western Atlas
Capital Trust I.*
</TABLE>
- ---------------
* To be filed by amendment.
** Incorporated herein by reference to the same titled exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1997 (File No. 1-12430), as amended by Form 10-K/A filed on March 11, 1998.
*** Incorporated by reference to the same titled exhibit to the Company's
Current Report on Form 8-K, dated August 25, 1994 (File No. 1-12430).
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrants hereby undertake that, for purposes of
determining any liability under the Securities Act, each filing of the Company's
annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act
that is incorporated by reference in this registration statement shall be deemed
to be a new registration statement relating to the securities offered herein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the provisions under Item 15 above, or otherwise, the
Registrants have been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrants of expenses
incurred or paid by a director, officer or controlling person of the Registrants
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of counsel for such
Registrant the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(c) The undersigned Registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 110
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Western Atlas
Inc. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas on March 11, 1998.
WESTERN ATLAS INC.
By: /s/ JOHN R. RUSSELL
----------------------------------
Name: John R. Russell
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933 (the "Act"),
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated. Each person whose signature appears below
constitutes and appoints James E. Brasher and Lourdes T. Hernandez, and each of
them (with full power to each of them to act alone), his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign on his or her behalf individually and in each capacity
stated below any amendment, including post-effective amendments, to this
Registration Statement, and any registration statement for the same offering
filed pursuant to Rule 462 under the Act, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents and either of them, or their substitutes, may lawfully do or cause to be
done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN R. RUSSELL President and Chief Executive March 11, 1998
- ----------------------------------------------------- Officer and Director
John R. Russell (Principal Executive
Officer)
/s/ WILLIAM H. FLORES Senior Vice President and March 11, 1998
- ----------------------------------------------------- Chief Financial Officer
William H. Flores (Principal Financial and
Accounting Officer)
/s/ PAUL BANCROFT III Director March 11, 1998
- -----------------------------------------------------
Paul Bancroft III
/s/ ALTON J. BRANN Director and Chairman of the March 11, 1998
- ----------------------------------------------------- Board
Alton J. Brann
/s/ JOSEPH T. CASEY Director March 11, 1998
- -----------------------------------------------------
Joseph T. Casey
/s/ WILLIAM C. EDWARDS Director March 11, 1998
- -----------------------------------------------------
William C. Edwards
/s/ CLAIRE W. GARGALLI Director March 11, 1998
- -----------------------------------------------------
Claire W. Gargalli
/s/ ORION L. HOCH Director March 11, 1998
- -----------------------------------------------------
Orion L. Hoch
</TABLE>
II-5
<PAGE> 111
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Western Atlas
Capital Trust I certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Houston, State of Texas, on March 11, 1998.
WESTERN ATLAS INC.
as Depositor on behalf of Western
Atlas Capital Trust I
By: /s/ WILLIAM H. FLORES
------------------------------------
Name: William H. Flores
Title: Senior Vice President and
Chief Financial Officer
II-6
<PAGE> 112
EXHIBITS INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
1.1 -- Form of Underwriting Agreement with respect to the
Units.*
4.1 -- Restated Certificate of Incorporation of the Company
dated March 17, 1994.**
4.2 -- Bylaws of the Company dated March 17, 1994.**
4.3 -- Rights Agreement dated as of August 17, 1994, between
Western Atlas Inc. and Chemical Trust Company of
California, as Rights Agent, which includes the form of
Certificate of Designations of Series A Junior
Participating Preferred Stock of Western Atlas Inc. as
Exhibit A, the form of Right Certificate as Exhibit B and
the Summary of Rights to Purchase Preferred Shares as
Exhibit C.***
4.4 -- Certificate of Trust of Western Atlas Capital Trust I.
4.5 -- Declaration of Trust of Western Atlas Capital Trust I.
4.6 -- Form of Amended and Restated Declaration of Trust of
Western Atlas Capital Trust I.*
4.7 -- Form of Indenture between Western Atlas Inc. and Chase
Manhattan Bank and Trust Company, National Association,
as Trustee, pursuant to which the Junior Subordinated
Debentures are to be issued.*
4.8 -- Form of Guarantee with respect to QUIPS.*
4.9 -- Form of Supplemental Indenture to Indenture to be used in
connection with issuance of Junior Subordinated
Debentures related to the Units.*
4.10 -- Form of Master Unit Agreement.*
4.11 -- Form of Pledge Agreement.*
5.1 -- Opinion of Thompson & Knight, P.C. regarding legality.*
8.1 -- Opinion of Thompson & Knight, P.C. regarding Western
Atlas Capital Trust I.*
12.1 -- Computation of Ratio of Earnings to Fixed Charges.
23.1 -- Consent of Thompson & Knight, P.C. (included in Exhibit
5.1).*
23.2 -- Consent of Deloitte & Touche LLP.
23.3 -- Consent of Thompson & Knight, P.C. (included in Exhibit
8.1).*
24.1 -- Power of Attorney relating to Western Atlas Inc.
(included on Page II-5).
24.2 -- Power of Attorney relating to Western Atlas Capital Trust
I (included in Exhibit 4.5).
25.1 -- Statement of Eligibility on Form T-1 under the Trust
Indenture Act of 1939, as amended, of Chase Manhattan
Bank and Trust Company, National Association to act as
Trustee under the Indenture.*
25.2 -- Statement of Eligibility on Form T-1 under the Trust
Indenture Act of 1939, as amended, of Chase Manhattan
Bank Delaware, as Delaware Trustee under the Declaration
of Trust of Western Atlas Capital Trust I.*
25.3 -- Statement of Eligibility on Form T-1 under the Trust
Indenture Act of 1939, as amended, of Chase Manhattan
Bank and Trust Company, National Association as Property
Trustee under the Declaration of Trust of Western Atlas
Capital Trust I.*
</TABLE>
<PAGE> 113
- ---------------
* To be filed by amendment.
** Incorporated herein by reference to the same titled exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1997 (File No. 1-12430), as amended by Form 10-K/A filed on March 11, 1998.
*** Incorporated by reference to the same titled exhibit to the Company's
Current Report on Form 8-K, dated August 25, 1994 (File No. 1-12430).
<PAGE> 1
CERTIFICATE OF TRUST
OF
WESTERN ATLAS CAPITAL TRUST I
This CERTIFICATE OF TRUST OF WESTERN ATLAS CAPITAL TRUST I (the "Trust"),
dated as of March 9, 1998, is being duly executed and filed by the undersigned,
as trustees, to form a business trust under the Delaware Business Trust Act (12
Del. C. Section 3801, et seq.).
1. Name. The name of the business trust formed hereby is Western Atlas
Capital Trust I.
2. Delaware Trustee. The name and business address of the trustee of the
Trust with a principal place of business in the State of Delaware are Chase
Manhattan Bank Delaware, 1201 Market Street, Wilmington, Delaware 19801.
3. Effective Date. This Certificate of Trust shall be effective upon
filing.
IN WITNESS WHEREOF, the undersigned, being the trustees of the Trust, have
executed this Certificate of Trust as of the date first above written.
Chase Manhattan Bank Delaware
not in its individual capacity but
solely as Delaware Trustee of the
Trust
By: /s/ JOHN J. CASHIN
-----------------------------------
Name: John J. Cashin
Title: Authorized Signatory
/s/ JAMES E. BRASHER
--------------------------------------
James E. Brasher,
not in his individual capacity but
solely as trustee of the Trust
<PAGE> 1
DECLARATION OF TRUST
OF
WESTERN ATLAS CAPITAL TRUST I
THIS DECLARATION OF TRUST, dated as of March 9, 1998 (this "Declaration of
Trust"), by and among Western Atlas Inc., a Delaware corporation, as depositor
(the "Depositor"), Chase Manhattan Bank Delaware, as trustee (the "Delaware
Trustee"), and James E. Brasher, as trustee (the "Administrative Trustee") (the
Delaware Trustee and the Administrative Trustee being hereinafter jointly
referred to as the "Trustees"). The Depositor and the Trustees hereby agree as
follows:
1. The trust created hereby shall be known as Western Atlas Capital
Trust I (the "Trust"), in which name the Trustees or the Depositor, to the
extent provided herein, may conduct the business of the Trust, make and
execute contracts and sue and be sued.
2. The Depositor hereby assigns, transfers, conveys and sets over to
the Trust the sum of $10. It is the intention of the parties hereto that
the Trust created hereby constitute a business trust under Chapter 38 of
Title 12 of the Delaware Code, 12 Del.C. Section 3801 et. seq. (the
"Business Trust Act"), and that this document constitutes the governing
instrument of the Trust. The Trustees are hereby authorized and directed to
execute and file a certificate of trust with the Secretary of State of the
State of Delaware in accordance with the provisions of the Business Trust
Act in such form as the Trustees may approve.
3. The Depositor and the Trustees will enter into an amended and
restated Declaration of Trust, satisfactory to each such party and
substantially in the form to be included as an exhibit to the 1933 Act
Registration Statement referred to below, or in such other form as the
parties thereto may approve, to provide for the contemplated operation of
the Trust created hereby and the issuance of the preferred securities and
common securities of the Trust to be referred to therein. Prior to the
execution and delivery of such amended and restated Declaration of Trust,
the Trustees shall not have any duty or obligation hereunder or with
respect to the trust estate, except as otherwise required by applicable law
or as may be necessary to obtain prior to such execution and delivery any
license, consents or approvals required by applicable law or otherwise.
Notwithstanding the foregoing, the Trustees may take all actions deemed
proper as are necessary to effect the transactions contemplated herein.
4. The Depositor, as depositor of the Trust, is hereby authorized (i)
to file with the Securities and Exchange Commission (the "Commission") and
to execute, in the case of the 1933 Act Registration Statement and the 1934
Act Registration Statement referred to below, on behalf of the Trust, (a) a
Registration Statement relating to the registration under the Securities
Act of 1933, as amended (the "1933 Act"), of the preferred or common
securities of the Trust and certain other securities of the Trust, and any
Registration Statement for the same offering that is to be effective upon
filing pursuant to Rule 462 promulgated under the 1933 Act (collectively,
the "1933 Act Registration Statement"), including all pre-effective and
post-effective amendments to the 1933 Act Registration Statement, (b) any
preliminary prospectus or prospectus or supplement thereto relating to the
preferred or common securities of the Trust required to be filed pursuant
to the 1933 Act, and (c) a Registration Statement on Form 8-A or other
appropriate form (the "1934 Act Registration Statement") (including all
pre-effective and post-effective amendments thereto) relating to the
registration of the preferred or common securities of the Trust under the
Securities Exchange Act of 1934, as amended; (ii) to file with the New York
Stock Exchange or other exchange, and execute on behalf of the Trust, a
listing application and all other applications, statements, certificates,
agreements and other instruments as shall be necessary or desirable to
cause the preferred or common securities of the Trust to be listed on the
New York Stock Exchange or such other exchange; (iii) to file and execute
on behalf of the Trust such applications, reports, surety bonds,
irrevocable consents, appointments of attorney for service of process and
other papers and documents as the
<PAGE> 2
Depositor, on behalf of the Trust, may deem necessary or desirable to
register the preferred or common securities of the Trust under the
securities or "Blue Sky" laws of any applicable jurisdiction; (iv) to
execute, deliver and perform on behalf of the Trust such underwriting or
purchase agreements with one or more underwriters, purchasers or agents
relating to the offering of the preferred or common securities of the Trust
as the Depositor, on behalf of the Trust, may deem necessary or desirable;
and (v) to execute on behalf of the Trust any and all documents, papers and
instruments as may be desirable in connection with any of the foregoing. If
any filing referred to in clauses (i), (ii) and (iii) above is required by
law or by the rules and regulations of the Commission, the New York Stock
Exchange or other exchange, or state securities or "Blue Sky" laws or any
applicable governmental agency, self-regulatory organization or other
person or organization to be executed on behalf of the Trust by a Trustee,
the Depositor and any Trustee of the Trust appointed pursuant to Section 6
hereof, in its capacity as Trustee of the Trust, are hereby authorized and
directed to join in any such filing and to execute on behalf of the Trust
any and all of the foregoing. In connection with all of the foregoing, the
Trustees, solely in their capacities as trustees of the Trust, and the
Depositor hereby constitute and appoint William H. Flores, James E. Brasher
and Lourdes T. Hernandez (each of whom may act alone without the joinder of
the others), as his, her or its, as the case may be, true and lawful
attorneys-in-fact and agents with full power of substitution and
resubstitution for him, her or it or in his, her or its name, place and
stead, in any and all capacities, to sign on his, her or its behalf (i) the
1933 Act Registration Statement and any and all amendments thereto
(including all pre-effective and post-effective amendments) and (ii) the
1934 Act Registration Statement and any and all amendments thereto
(including all pre-effective and post-effective amendments), and to file
the same, with all exhibits thereto, and any other documents in connection
therewith, with the Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection therewith, as fully
to all intents and purposes as he, she or it might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents,
or his or her respective substitute or substitutes, shall do or cause to be
done by virtue hereof.
5. This Declaration of Trust may be executed in one or more
counterparts.
6. The Trustees shall initially be the only trustees of the Trust.
Thereafter, the Depositor may increase or decrease (but not below one) the
number of trustees of the Trust by executing a written instrument fixing
such number, provided, however, that so long as it is required by the
Business Trust Act, one Trustee of the Trust shall be either a natural
person who is a resident of the State of Delaware or an entity other than a
natural person that has its principal place of business in the State of
Delaware and that, in either case, otherwise meets the requirements of
applicable Delaware law. Subject to the foregoing, the Depositor is
entitled to appoint or remove without cause any Trustee of the Trust at any
time. The Trustees may resign upon thirty days' prior notice to the
Depositor.
7. This Declaration of Trust shall be governed by, and construed in
accordance with, the laws of the State of Delaware (without regard to
conflict of laws principles).
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Declaration of
Trust to be duly executed as of the day and year first above written.
WESTERN ATLAS INC., as Depositor
By: /s/ JAMES E. BRASHER
------------------------------------
Name: James E. Brasher
Title: Senior Vice President
CHASE MANHATTAN BANK DELAWARE,
not in its individual capacity but
solely as Delaware Trustee
By: /s/ JOHN J. CASHIN
------------------------------------
Name: John J. Cashin
Title: Vice President
/s/ JAMES E. BRASHER
--------------------------------------
James E. Brasher,
not in his individual capacity but
solely as Administrative Trustee
3
<PAGE> 1
EXHIBIT 12.1
WESTERN ATLAS INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
FIVE MONTHS YEAR
YEAR ENDED DECEMBER 31, ENDED ENDED
-------------------------------- DECEMBER 31, JULY 31,
1997 1996 1995 1994 1993(2) 1993(2)
------ ------ ------ ----- ------------ --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing operations
before income taxes................... $151.2 $116.5 $103.2 $68.2 $(252.8) $109.9
====== ====== ====== ===== ======= ======
Fixed charges:
Interest expense...................... $ 42.9 $ 32.4 $ 33.5 $42.5 $ 10.4 $ 19.7
Capitalized interest.................. 4.1 -- -- -- -- --
Amortization of deferred loan costs... 0.7 0.7 0.7 4.7 0.1 --
------ ------ ------ ----- ------- ------
$ 47.7 $ 33.1 $ 34.2 $47.2 $ 10.5 $ 19.7
====== ====== ====== ===== ======= ======
Ratio of Earnings to Fixed Charges(1)... 4.1x 4.5x 4.0x 2.4x -- 6.6x
</TABLE>
- ---------------
(1) For the purpose of this calculation, "earnings" consist of net income from
continuing operations before income taxes plus fixed charges excluding
capitalized interest. "Fixed charges" consist of interest expense,
capitalized interest, amortization of deferred loan costs, and the portions
of operating leases that management believes are representative of the
interest factor thereon. Earnings for the five months ended December 31,
1993 were inadequate to cover fixed charges by $252.8 million.
(2) The Company became a publicly-traded company in March 1994, concurrent with
the distribution of its Common Stock to the shareholders of Litton
Industries, Inc. ("Litton"). The Company's fiscal year-end was changed from
July 31 to December 31 in 1993. Interest expense, income taxes, and certain
general and administrative corporate costs incurred by Litton were allocated
to the Company for periods presented prior to January 1, 1994.
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement, relating to
$400,000,000 of Adjustable Conversion-Rate Equity Securities, of Western Atlas
Inc. on Form S-3 of our report dated February 18, 1998 (March 9, 1998 with
respect to Note N) appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Houston, Texas
March 11, 1998
